Starting the New Year Off Without Debt — 3 Tips for Financial Freedom in 2021
By Jody Bell
To say 2020 was difficult would be the understatement of the year.
Many are still reeling from the financial turmoil brought forth by job losses, salary cuts, and market crashes. Hundreds of thousands of people were forced to plunge themselves into debt just to survive the year.
Yet, as vaccines are distributed across the world, we look towards 2021 as an opportunity to bounce back from this difficulty and come out stronger.
Jennifer Openshaw, CEO of Girls With Impact, spoke to Tori Dunlap to gather advice for those who are looking towards 2021 as a year to pay off debt and rebuild. Dunlap started her business, Her First 100k, after she completed her goal of saving 100k before the age of 25. Now she teaches women how to reach their financial milestones with practical tips, advice, and support.
Here’s her advice on how you can pay off your debts to make 2021 the year of recovery, growth, and financial freedom.
Prioritize an Emergency Fund
If this pandemic taught us anything it’s that you, and your bank account, should always be prepared for an emergency.
As interest builds there’s pressure to immediately pay off your debts and relieve yourself of the money lost to future accumulated interest. This can lead to funneling money into these debts and ignoring other financial priorities. While this is a logical approach, it usually isn’t the safest.
Putting yourself in a financially vulnerable situation and with no emergency fund to aid you could lead to more debt as you struggle your way through these difficulties.
So, Dunlap recommends saving at least 3 months of living expenses (rent, utilities, food) in a high yield savings account to constantly ensure you are financially secure when an emergency arises.
2. Focus on One Debt at a Time
As debt builds up across multiple credit cards, loans, or other liabilities, it may be tempting to put a bit of money in each source of debt.
Dunlap recommends against this. By slowly chipping away at your debt you’re hindering your progress and letting debt accumulate and build up in multiple areas.
Instead, make a list of all of your sources of debt starting with those that have the highest interest rate (typically credit cards). Go down this list paying off these high-interest accounts in order so you can completely wipe your bank account (and conscious) clean of these financial and mental burdens.
3. If You Do Invest, Leverage a Retirement Fund
While the choice of if you should invest whilst paying off debt is highly personal, there are several tips to undoubtedly follow given the heightened financial risks.
Dunlap recommends against the traditional investing method of stocks given that they are one of the riskiest ways to invest. Instead, focus on a retirement fund.
A retirement fund is a “tax advantage place where your money can grow, and the government is incentivizing you by giving you tax breaks” says Dunlap. Not only is it a safer way to invest, but the future tax breaks on top of your asset returns make it a great way to financially grow long-term and recover from your debt.
If your workplace offers a retirement account, you should take advantage of it (especially if they offer an employer match). If this isn’t offered by your employer, look into an IRA which is a great alternative.
Debt can make it difficult to look towards the future with hope. Yet, with 2020 behind us and vaccines on the way, hope is the one thing we must believe in to recover. Tackle these looming liabilities and look towards a better and financially free future.
Here’s to a better 2021.
Jody Bell, 19, is Girls With Impact’s Chief Editor and a program graduate. Girls With Impact is the nation’s only online, after-school, entrepreneurship program for teen girls, turning them into tomorrow’s business leaders and innovators.