Money Moves to Make in 2021
New year, new resolutions, new goals, right? Aside from planning travels and other goals that we want to achieve for the new year, my husband and I talk about money moves that we’re planning for 2021.
In this post, we talk about money moves we are planning to make in the new year, which you can hopefully use to help guide your money goals this year. This is part of our financial independence plan, and we are also utilizing this checklist this year.
As a background, my husband and I have full-time jobs with benefits, and we are running this blog on the side. Some of our tips below may only be available for employees, and may not tack upon options available for self-employed folks. Nevertheless, let’s begin!
Contents
Maxing out a 401(k) can lower your AGI (Adjusted Gross Income) for the year. This means you may get in a lower tax bracket and pay lower taxes in general.
It may also qualify you for certain benefits, like getting your income low enough that you can qualify for a stimulus check (like, during a global pandemic) if you’re a couple and can max both 401(k) contributions.
For 2021, the maximum 401(k) employee contribution is $19,500 per person.
If there’s two of you working full time, that’s $39,000 that you won’t have to pay taxes for now, and will lower your income by that amount as well. Plus, that amount means investing for your future!
Certain companies also have company matches, which contribute a certain percentage of your salary to your 401(k) employer contribution. This is FREE MONEY you should not turn your back to.
Once fully vested, this employer contribution then goes in your account and any dividends earned from it are yours as well. Seriously, who does not want free money?
If your modified annual gross income is less than $198,000 as a married couple (as of 2021), then you are entitled to contribute the full contribution directly to a Roth IRA.
In 2021, the maximum Roth IRA contribution per individual is $6,000, so if you are part of a couple then you can double that amount to $12,000!
A Roth IRA is after-tax money, so you’ll have to pay taxes on your earned income before you contribute, but the good thing is anything you earn within the account like dividends and capital gains is tax free!
This is a great tax-advantaged account if you don’t earn above the limit.
Not everybody has the option to get a PPO plan, and a few people who have health insurance through employers are lucky enough to have some part of healthcare costs paid for.
An HSA (Health Savings Account) is a triple tax-advantaged account where one can contribute a maximum of $3,600 (as of 2021). The first tax advantage is any contribution to the HSA is tax deductible. The second advantage is that any dividends or capital gains earned in an HSA is tax free. Finally, the third advantage is as long as you use the money for qualified healthcare expenses then you can use money tax free!
This is such a great way to save and invest money. On top of that, one can also withdraw money for anything (not just healthcare related), once you turn 65!
We wrote about the mega backdoor Roth strategy which is a game changer in terms of investments. However, the mega backdoor Roth is not available for everyone and depends if your employer offers this option or not.
In our case, my husband’s company does not have this option on their 401k plans, but the company I work for does have this option. I personally have been contributing and taking advantage of the mega backdoor option since 2018!
In a nutshell, a mega backdoor Roth allows you to contribute after tax dollars to an after tax account in your 401k. However, the beauty of it is that after tax investment can get rolled over as part of a Roth 401k contribution, meaning any earnings (dividends or capital gains) are tax free!
This allows you to contribute more than the $19,500 401k maximum!
As an example:
That is an extra amount of tax advantaged money that’s invested! How cool is that?
My husband and I travel hack and rely on credit cards to help us get airline miles, hotel points, or cash back from credit card points for our trips. Whenever one delves into travel hacking, one must not carry any credit card debt in any of the cards they get.
The only debt we technically have are mortgages for our primary residence and rental properties, but if you have any other type of debt like student loans, car financing, personal loans or credit cards, we would suggest paying them off as soon as you can.
Emergency funds are a debated topic amongst the personal finance space. Some people don’t keep emergency funds, rather, their emergency funds are investments in their after-tax accounts.
However, the long and short description of the emergency fund is it is money kept aside (hopefully on a high interest earning savings account) intended to pay for emergencies.
Be it a car maintenance emergency (i.e. car breaks down and parts need to be replaced), a home maintenance emergency (a major appliance dies and needs to be replaced), health emergency (to pay for deductibles and other out of pocket costs), you get the point.
Emergency funds are great for a “rainy day” fund – because not everything is going to be all good in life. Things break, s–t happens, and we all have to prepare for them.
We use our emergency funds as seed money for bank signup bonuses. That way, our money is essentially also working for us while keeping it liquid enough in case we need to draw down on that fund.
A side hustle is a task you do on the side that generates extra income. It could be a contracting or freelance gig, a second job, or a business that you’re maintaining on top of your full time job.
Side hustles are particularly lucrative because not only do you earn money on your spare time, you are also the main driver of how much you will earn.
For example, you could choose to deliver food as a side hustle during the pandemic. Now that a lot of people are staying home and are prone to having stuff delivered, there is a lot of demand for it.
You can opt to deliver food during your lunch break or after you log off from work or on weekends. How long you work all depends on your personal circumstance and your schedule, and can also affect your earnings. You may end up earning more the longer you work, or not.
Look for a side hustle to help offset some costs in your expenses. In our case, a portion of side hustle income is used to pay for our travels or my personal ‘shopping’ budget.
With low interest rates, those who have excellent credit should take advantage and should look at refinancing a mortgage if you own a home.
We ourselves own our primary residence, and we believe that owning is better than renting property for our situation and area. So, before the end of 2020, we have started our refinancing process which we hope to wrap up by the start of February 2021.
This will lower our interest rate by ~1.2% and will shave 3 1/2 years off our original mortgage (from a 20 year term to a 15 year term). It will also allow us to get rid of our Private Mortgage Insurance (PMI), and will save us a few thousand dollars in interest.
We used the calculator on MortgageCalculators.info to check the refinance rates and also what will happen if we just tossed extra cash in our principal. It turns out when we refinance our mortgage, we’ll save almost $45,000 in interest! Crazy!
Not only that, we’ll also build more equity every single month instead of our older term. Now all we need to do is find a bank we can refinance our investment property mortgage to!
As mentioned above, investing is one way to earn passive income and help increase your wealth. Your hard earned money is now working for you without needing additional time or effort from you! How good is that?
Any extra income you may earn can be used to invest in mutual funds, stocks, or bonds, it all depends on your personal risk tolerance.
Personally, our favorite means of building passive income is by investing in low-cost mutual funds that Vanguard and Fidelity offers. These companies have very little fees for investments, as long as you research them beforehand.
Our favorite low cost mutual funds are FZROX (Fidelity’s Zero Total Market Index Fund) and VTSAX (Vanguard Total Stock Admiral Fund) for stocks and for bonds, our favorite is VBTLX (Vanguard Total Bond Admiral) and FXNAX (Fidelity US Bond Index Fund).
We are also stating to branch into investing in individual stocks (like Disney), but we need to do more research on companies we believe in and can deliver a good dividend percentage to our investments.
Other people invest in blockchain, which is also perfectly fine but not for us at the moment. There are plenty of other investments available out there like annuities, etc, but we’re not going to dive down in any of these as we personally are not pursuing these options.
Another way to build up one’s wealth is through real estate. There are plenty of ways one can earn money through real estate, and it all depends on the niche you prefer to focus your time and energy on.
There’s flipping, buy and hold, BRRR, short term rentals, wholesaling, and the list goes on. Personally, our strategy is buy and hold, and we have 2 rental properties under our portfolio on top of our primary residence (all mortgaged, that is).
Investing in real estate is a bit of a different strategy than investing in stocks and funds. First off, real estate is mostly illiquid, as it takes a while to actually sell a property should you need actual cash.
Secondly, real estate is mostly a longer term investment. This means you may have to wait years to see your equity building and your cash flow growing to such a way that can sustain your current lifestyle.
Nevertheless, real estate is one of our goals for the year – we aim to find another deal if possible, and if the deal is good (and we have the cash to pay for it), then we’ll consider another acquisition.
For those who want to start off, I would recommend reading Brandon Turner’s & Joshua Dorkin’s Book, How to Invest in Real Estate. They are from Biggerpockets, the biggest real estate informational website online.
Finally, look into building a business in order to earn more money. Your business could be selling stuff online, creating blogs (we personally are chasing this option with A Journey We Love and Voyage Florida), or having a restaurant, a franchise, and the like. The possibilities are endless!
Building a business requires a lot of time and sweat equity. We have been working on this blog for almost 6 years now and are still not as big as other bloggers out there!
Life circumstances are different for everybody, and not everyone can appropriate enough time to building the businesses you have. You may be comfortable with the earnings you have right now and it’s also perfectly fine.
However, having a business can give you the freedom that you want to have more time to yourself or quit your job and start working for yourself.
So, there you go, a long list of money moves to make in the new year. We did not include buying a house as a goal since we already own our primary residence, but that could also be a goal for the new year.
Aside from money goals to reach for the year, you can also opt to look at other goals you want to achieve, be it for your full time job, your personal life, and your family life.
I find that it helps to write goals down on a piece of paper (or a blog), and it helps me become accountable for the goals I have set out for myself.
Did we miss any essential money moves that one should make for the new year? Feel free to share them below!
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