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16 Smart Money Moves to Make Right Now for 2021

It’s a new year, which means it’s the perfect time to take stock of your personal finances and begin planning your money moves for the 12 months to come.

In the year 2021, this is no easy feat. The coronavirus pandemic made a mockery of consumers’ and business owners’ plans for 2020, and while the end of the acute phase of the pandemic is now in sight, uncertainty still reigns. A complete return to normalcy remains a distant goal.

This only reinforces the importance of making sensible money moves in 2021. Some of the suggestions on this list are “one and done” maneuvers like applying for life insurance or opening a low-cost investment account and automating your contributions. Others, such as filing your tax return early or spending down your expiring flexible spending account funds, need to happen every year (or more frequently).

Read on for a list of the top money moves you must make this year.

Money Moves You Need to Make This Year

We have every reason to expect an eventful year. Start it off on the right foot by automating your savings and investment account contributions using a low-cost money management app like Acorns.

Then, lay the groundwork for a more prosperous future — this year and beyond — by setting ambitious savings goals, optimizing your payroll withholdings and contributions, and taking advantage of more opportunities to grow your wealth.

1. Automate Your Investment Account Contributions

Make 2021 the year you start investing for your future. Your first move: opening a low-cost taxable brokerage account that makes it easy to invest small chunks of change — literally, pennies on the dollar — every time you swipe your debit card.

The natural choice is Acorns Invest, a micro-investing suite available for just $1 per month through Acorns’ base Lite plan. With Acorns Invest, you can transfer funds from your linked bank account at any time to invest in a diversified portfolio of low-cost ETFs at any time. But the real value here lies in two features designed to boost your contributions without disrupting your budget.

The first is Round Up Investments. Round Up Investments automatically rounds up the change on every qualifying transaction in your linked checking account and transfers the difference to your Acorns Invest account. Every purchase is another opportunity to grow your investment portfolio.

The second is Found Money, a rewards program that delivers bonus investments to your Acorns Invest account whenever you make a qualifying purchase with a partner merchant. More than 350 Found Money partners ensure you don’t have to look far for an opportunity.

2. Make a Plan to Grow Your Emergency Fund

Your emergency savings fund should be sufficient to cover at least three months’ expenses in the event of an unexpected financial setback that significantly reduces your income. The ideal emergency savings fund is even bigger: enough to cover six months’ expenses for those with predictable and stable income, and nine to twelve months’ expenses for people with irregular incomes.

Setting aside tens of thousands of dollars in cash takes time, especially if you’re currently living paycheck to paycheck or close to it. This year does offer a leg up, thanks to the second round of coronavirus stimulus checks that went out in January. If you don’t have high-interest debts or need the funds for more urgent expenses, padding your emergency fund is an excellent use of your stimulus check.

It won’t get you all the way to your emergency fund goals, of course. Moving forward, settle on a realistic savings percentage that you can set aside from every paycheck before covering any other expenses. Many savers start at 3% or 5% of take-home pay and work toward 10% or 15% as they trim expenses elsewhere.

3. Define and Fund Discrete Savings Goals

On the subject of savings, make 2021 the year you begin organizing your set-asides in discrete, goal-oriented “buckets.”

Bucketing your savings is a logical endgame of “giving every dollar a job,” a core precept of the zero-based budgeting method. Rather than treating your savings account as a slush fund to spend on as-yet-unknown future needs, give it the same consideration — and manage it with the same discipline — as your day-to-day budget.

What you choose to save money for is up to you, of course. A new laptop, a long-deferred home improvement project, a well-deserved vacation — your goals are your own.

While you don’t need a separate savings account for every goal, you do need a reliable, flexible way to keep track of your financial goals and your progress toward them. If spreadsheets are too bland for your taste, use a free or low-cost budgeting app like You Need A Budget.

4. Review Your Paycheck Withholdings

The first quarter of the new tax year is a logical time to review your payroll withholdings and make sure you’re not paying Uncle Sam too much upfront or shortchanging your financial future.

If you plan to claim dependents or have a more complicated employment situation — for example, you work multiple jobs or only work seasonally — calibrate your federal and state income tax withholdings using the IRS’s withholding estimator. Consult a tax professional if you need more information.

Next, evaluate your pretax payroll contributions: health savings account, health care or dependent care flexible spending accounts, employer-sponsored retirement plan or pension, and company stock ownership plan. Each of these accounts represents a layer of financial security or stability in the near-, medium-, or long term — or all three. It’s in your financial interest to contribute as much as you can afford without exceeding statutory maximums — for example, the annual 401(k) contribution limit for the 2021 tax year is $19,500 for workers under age 50 and $26,000 for workers over age 50.

5. Spend Your FSA Funds Before They Expire

Funds held in a health care or dependent care flexible spending account (FSA) don’t roll over in perpetuity. Health care FSA funds can expire as early as December 31 of the year in which they accrue, although many sponsoring companies defer expiration to March 15 of the following year and allow employees to roll over up to $500 into the subsequent plan year, extending those funds’ expiration to the following December 31 or March 15. Funds held in dependent care FSAs generally expire on March 31 of the year following the year in which they’re incurred.

Bottom line: Making sure you spend your FSA funds before they expire is a financial housekeeping item you’ll need to repeat every year, most likely during the first quarter.

6. Open a Tax-Advantaged Retirement Account and Make a Plan to Maximize Your Contributions

Even if you contribute to a 401(k) or other employer-sponsored retirement plan, you may be eligible to open and contribute to an individual retirement account (IRA). When you’re ready to get started, turn to Acorns Later — a tax-advantaged retirement plan that’s included with Acorns’ Personal plan. Acorns Later regularly rebalances your portfolio automatically to match your long-term financial goals, ensuring you’ll never stray too far from your financial plan.

7. Look for Opportunities to Earn Bonus Cash and Investments

Why settle just for the investment account contributions you can afford on your salary? Look for opportunities to increase your contributions and accelerate your progress toward financial independence without diverting funds from your nondiscretionary budget.

We’ve already discussed two bits of low-hanging fruit: Acorns Round-Up Investments and Found Money partners, both of which generate lots of little contribution bonuses that add up over time. Upgrade to the Acorns Personal plan to open an Acorns Spend account and take advantage of another opportunity: up to 10% bonus investments on eligible debit card purchases.

While you’re at it, apply for a cash-back credit card and plow your returns back into your Acorns Spend or Invest account. Credit card rewards won’t make you rich and should never be used to excuse overspending, but every little bit helps.

8. File Your Tax Return Before the Pre-Deadline Rush

The sooner you file your tax return, the sooner you’ll claim your refund — and the sooner you can begin putting that windfall to work. File early through a preparer like H&R Block and your refund probably won’t be held up by IRS and state processing delays, which tend to occur close to the April 15 filing deadline. And if you’re not due a refund, filing early gets your tax-due payment out of the way and reveals what, if anything, you’ll need to pay in quarterly estimated tax throughout the year.

9. Chat With a Tax Professional About Maximizing Your Deductions and Credits

It’s likely too late to reduce your tax burden for 2020, with the possible (and sizable) exception of making additional profit-sharing contributions to a self-employed retirement plan. But it’s the perfect time to optimize your tax situation for 2021. Pencil in an appointment with your tax professional shortly after tax season ends — say, in early May — to get your 2021 tax to-do list set.

10. Make a Plan to Pay Off Your High-Interest Debts

Carrying credit card debt into 2021? Even if full-on debt freedom is unrealistic this year, move the ball forward by applying for a balance transfer credit card with a long 0% APR promotion and making a plan to pay off your transferred balances by its end date. Just be sure you know how to use balance transfer cards responsibly before you begin, as failing to pay off the full balance before the regular interest rate kicks in can actually add to your debts’ long-term carrying costs.

11. Apply for Disability Insurance

What would you do if you suddenly found yourself unable to work for months on end, your eligibility for unemployment benefits or paid medical leave drained?

If you don’t have a good answer to this question, you need disability insurance.

Short-term disability coverage through a company like Breeze, a common employee fringe benefit, is useful for new mothers not eligible for paid family leave and injured workers expected to recover fully within months. You should also look into long-term disability coverage, a more sustainable source of replacement income for workers who find themselves unable to work productively for many months or years at a stretch. Depending on your policy and employment status — underwriters tend to be stingier with business owners and self-employed folks — your policy could replace 60% to 70% of your current pay.

12. Apply for Life Insurance

Here’s another unhappy hypothetical: What would happen to your loved ones, financially speaking, if you died this year?

This question gained new urgency amid the COVID-19 pandemic, which felled untold thousands of relatively young, healthy people with years of productive life ahead of them and no plan for the alternative.

Even if you consider your risk of untimely death to be quite low, the unthinkable can and does happen. You owe it to your would-be survivors to prepare by taking out a term life insurance policy that’s adequate to replace — at minimum — the expenses they’ll shoulder as a result of your death. That might include your current home’s outstanding mortgage balance, additional child care costs incurred by a newly single surviving parent, and higher-education expenses for surviving dependents.

13. Give Your Credit Score a Boost

Raising your credit score won’t immediately put money in your pocket. But over time, your financial position is likely to improve along with your credit. Borrowers with good credit scores or better are more likely to see their credit applications approved, to qualify for more favorable rates and terms on approved loans or credit lines, and to have higher borrowing limits. Good credit can also have indirect financial benefits, such as lower insurance premiums.

Building and improving credit is a time-consuming process, not a switch to flip at will. Order a free credit report from each of the three major credit reporting bureaus, then focus on financial maneuvers known to improve credit over time: paying your bills on time, reducing your credit utilization, and keeping older credit accounts open even if you don’t use them regularly.

14. Set Your Kids Up for Long-Term Financial Success

It’s never too early to begin teaching your kids to spend, save, and manage money responsibly.

In addition to delivering age-appropriate money lessons as opportunities arise and using free or cheap digital financial education tools for kids, there’s no better way to get the ball rolling than with a kid-friendly investment account

And there’s no better kid-friendly investment account than Acorns Early, which automates small-dollar investing, tailors advice to user families’ individual financial situations, and offers potential tax savings as minor account holders age. Acorns Early comes with Acorns’ Family plan — a steal at just $5 per month.

15. Reevaluate Your Auto Insurance Needs

For much of the world’s white-collar labor force, 2020 was the year of working remotely. Among other perks, like greater flexibility to set working hours, the shift to remote had a silver lining: temporary reprieve from long, tedious car commutes.

For many, that reprieve could prove durable, perhaps even permanent. Employers that successfully transitioned to all- or mostly-remote work and remained productive are in no hurry to return to the way things were. Many see remote work as a blessing in disguise, one that accelerates cost-cutting measures like consolidating office space and trimming pay for remote workers in lower-cost-of-living regions.

If you expect 2021 to be another low-mileage year, consider reevaluating your auto insurance needs. Simply reporting to your insurer that you’re driving less could trigger a premium recalculation in your favor, although the reduction won’t be huge. The real savings come when you consent to more invasive monitoring of your driving habits through insurer programs like Allstate’s Drivewise.

If you’re uncomfortable with downloading an app or installing a beacon that tells your insurer every move you make behind the wheel, consider raising your collision and comprehensive coverage deductibles or eliminating those coverages altogether on older, less valuable vehicles.

16. Make a Plan to Reduce Your Housing Costs

Finally, think seriously about taking measures to reduce your housing costs. Prevailing rents are significantly lower in many cities than before the pandemic and interest rates are near historic lows, creating rare opportunities for renters and owners alike to save serious money.

If you rent, your first move is an easy one: asking your landlord to reduce your rent when your lease comes up for renewal. You should do this even if you’re not experiencing acute financial hardship that impacts your ability to pay rent, although you’ll of course have a stronger leg to stand on if you are.

If your landlord isn’t willing to budge and you’re willing to shoulder the upfront cost of moving, look for better rental values nearby and give your landlord notice that you won’t renew — which may prompt them to reconsider cutting you a break. Consider breaking your lease and moving early if you find a truly amazing deal that’s not likely to last.

And if you own? Assuming you purchased your home with mortgage rates were significantly higher, look into taking advantage of historically low interest rates and refinancing your mortgage. Refinancing does carry substantial closing costs: at least 1.5% to 2% of the refinance loan’s principal, and possibly as much as 4% or 5%. Refinancing therefore might not make sense if you plan to sell within a few years or can’t meaningfully reduce your interest rate. But if you plan to remain in your home for years to come and can reduce your rate enough to make money on the transaction, go for it.


Final Word

Like every year before it, this year is sure to present unforeseen challenges and unanticipated opportunities. If you don’t get around to making every single one of these moves by midnight on New Year’s Eve, all is not lost. There’s always next year. And if there’s one thing financially savvy folks know from experience, it’s that it’s never too late — or too early — to make smart money moves. Even if the payoff takes months, years, or decades to arrive.

Brian Martucci
Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he's not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.

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