Finally, 2020 is drawing to a close…and it was a doozie. Between job losses, stock market volatility, and the soaring prices of antibiotic wipes and hand sanitizer, millions have been financially impacted by the COVID-19 pandemic.

As life adjusts to a new normal and we begin to look toward 2021, many of us need to get our financial houses back in order. Taking these seven steps now will lay a solid foundation that can set you up for future success.

1. Finally Take the Plunge: Start a Budget

Maybe you’re waiting until January 1 to finally start a budget. A new year, a blank slate — the timing couldn’t be better, right?

Well, here’s a thought: Why wait? If you ask me, the best time to start budgeting is when you got your first job. The second best time is right now.

Many people get intimidated by the “B word”, but a budget is simply a plan for your money. Budgeting is creating that plan and then tracking your progress.

A zero-based budget is an easy and effective approach. It’s called zero-based (or zero-sum) because you budget every dollar of income so that income minus expenses equals zero. In this scenario, everything you do with your money is treated as an expense, even savings.

The beauty of the zero-based budget is that you can alter expenses as needed, as long as your budget is balanced. That is, as long as income minus expenses still equals zero. This approach works because it’s flexible for real life.

A budget is about more than keeping spending under control — it’s the key to achieving your savings goals and destroying your debt. Your money is your most powerful resource, and you owe it to yourself to allocate it in a way that aligns with your priorities.

2. Try a Budgeting App

If you’re ready to give budgeting a go, there’s no shortage of tools at your disposal. You can go old school with a pen and paper, build a spreadsheet in Excel, or check out one of the myriad budgeting apps on the market.

The main appeal of budgeting apps is that they make your life easier. And when budgeting is easier, you’re more likely to stick to it.

Rather than saving receipts and manually tracking every dollar you spend, most apps connect to your bank and credit accounts and automatically import (and even sort) your transactions.

Options range from basic and free to comprehensive paid subscriptions. The good news is that almost every paid budgeting app offers a free trial, so you have nothing to lose by taking one (or a few!) for a test drive to see what works for you.

3. Begin Tracking Your Net Worth

To successfully build a budget, you’ll need to know how much you spend…and on what. You’re on a roll, so don’t stop there. Why not dive into your whole financial picture?

Head into the new year with a clear sense of where you stand. Your net worth is one of the best indicators of your financial health. To calculate it, subtract your total debt from the total value of your assets. Put another way:

Net worth = what you own — what you owe.

This sounds super-nerdy, but I love tracking my net worth and seeing how it changes over time. Checking in monthly is a great habit, whether you calculate it yourself or use a financial management app.

Head into the new year with a clear sense of your net worth and a goal for how you’d like to grow it in 2021.

4. Grow Your Income with an EASY Side Hustle

A side hustle is an income-generating venture you pursue on the side of your regular employment or business. It’s a smart financial move for two reasons. The first is obvious: More money!

A side hustle is also an additional income stream, and that’s important. When you have multiple income streams, you’re more secure. If you lose one, you have the others to fall back on. The more streams, the better!

The problem is time. Sure, some of us can manage a full-time job and a side hustle as a freelance writer, virtual assistant, or tutor, but there are only so many hours in the day. And between work and family responsibilities, some don’t even have time for that.

The good news is anyone can start an easy side hustle using one (or more) of the best money-making apps.

Seriously, apps like Dosh and Wikibuy pay you to shop. And apps such as Survey Junkie and InboxDollars pay for your opinions. Peer-to-peer rental apps pay you to rent out your stuff. There are even apps that pay you to exercise!

To be clear, these money-making apps will not replace a full-time income or fund that home improvement project. But they are a legitimate, easy, and quick source of additional income.

Why not increase and diversify your income by trying one out?

5. Create an Emergency Fund

If 2020 taught us anything, it’s that we never know what’s coming. No matter your financial situation, the importance of an emergency fund cannot be overstated.

If you think you don’t need an emergency fund, ask yourself these questions:

  • How long could you manage financially if you lost your job tomorrow?
  • How would you pay for an unexpected expense, even a small one?

If the answers to those questions make you uncomfortable, you need an emergency fund. If they don’t, you likely already have one.

To start an emergency fund, I recommend beginning with a goal of $1,000. To get there, be aggressive about cutting your spending. You can also funnel money from your new side hustle into your emergency fund (this is the perfect reason to have a side hustle).

Once you hit that $1,000 milestone, it’s safe to scale back your efforts and schedule regular contributions into your budget until you build up an amount you’re comfortable with. For most people, that’s three to six months of living expenses.

6. Check on Your Investments

Do you have a 401(k)? An IRA? An education saving plan for your children? If so, do you know how they’re performing? What do your returns look like?

Depending on your personality and investing style, obsessing over your investments may not be great for your mental health. But being aware of how you’re invested and having a sense of annual performance is a must if you want your investments to align with your goals.

Look at your asset allocation — how your portfolio is divided into different asset classes like stocks, bonds, and cash. You want to make sure that it matches up with your goals for that money, and with your risk tolerance.

For example, if you’re 30 with an average risk tolerance and your long-term retirement savings are mostly invested in cash earning 0.5%, that doesn’t really make sense. It’s time to rebalance your portfolio so your investment strategy supports your financial goals.

And if you haven’t started investing yet, there’s no time like the present.

7. Make Sure You’re Covered

If you want to set yourself up for success in 2021, you should set aside some time to review your insurance needs before the year ends.

Even a money nerd like me finds insurance boring and borderline painful. After all, you’re paying real money to protect yourself or your family from a hypothetical outcome. Ouch.

All the same, it’s important to review your insurance needs and your existing coverage for a couple of reasons. The main one is that you need to make sure you have the appropriate level of coverage in place, whether it’s life, health, home, or auto insurance.

The second reason is that there might be an opportunity to save money. It’s a good idea to shop around every now and then to see if you can get the same coverage for a better rate. These days, this isn’t as annoying as it sounds — an online insurance broker can do the work for you.

Final Thoughts

While no one knows what lies ahead in the new year, getting on firm financial footing before it begins gives you a head start on tackling challenges and seizing opportunities.

How many of these seven money moves have you checked off your financial to-do list? There’s still time!

About the Author:
Sandra Parsons is a freelance writer for Club Thrifty, a website dedicated to helping people dream big, spend less, and travel more. You can find her on LinkedIn and Twitter.