Frances Cook: Three financial resolutions for 2021

After a year of uncertainty, there are lessons to make us stronger for 2021. Photo / File

OPINION:

This time last year, I got one thing right. I dubbed 2020 "the year of uncertainty" – although I was actually referring to the uncertainty brought about by elections, both here and in the US.

Who would have thought we'd have so much uncertainty land in the world that elections would almost become a sideshow.

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The biggest lesson for me through 2020 was how much the financial basics start to shine when the world comes crashing down around you.

Trite truisms show their worth, even when it's a pandemic that's thrown everything out of kilter.

So, as we head into another new and unknown year, here are the biggest lessons I'll be carrying with me.

1. Cash is king

A cash savings account may seem boring, but studies have shown it's one of the changes that leads to the most money happiness.

Having cash on hand means you can get through smaller things like a car breakdown, or bigger things like a job loss. That peace of mind is priceless, even if you never end up using it.

$1000 is usually recommended as the best place to start, and even better is three months of your core living expenses. Don't be put off it that seems a lot, as even putting aside $20 a week will get you to $1000 in less than a year.

Don't kid yourself that you can put your savings somewhere other than cash. While you might feel like you're "missing out" by not putting that money somewhere like a shares account, don't forget the lesson from when the markets tanked last year.

Investments can go down overnight, and it takes a certain amount of time to get the money out. It's no problem in the long run, but if you need the money soon, it's not good at all.

You don't want an emergency at the same time as the markets go down, taking 30 per cent of the value of your savings with them.

2. Fight job uncertainty with financial security

While job security is something all of us should have, the reality is the past year showed us how precious and rare it can be.

This year could also be a rough one, as the reverberations of Covid-19 will continue even as the vaccine rolls out.

A healthy savings account is a good place to start, and learning about investing, or taking on some side income for extra security, can all help shore up your place in the world.

You can't always control how much job security you have, but you can do your best to give yourself more financial security.

3. Knowledge can be the biggest stress relief of them all

Simply knowing how money works can do a lot to lift the weight of stress from your shoulders. Let's turn our minds back to the end of March 2020 again, and the sudden plummeting of our KiwiSaver balances.

It was one of the first truly sharp falls since KiwiSaver has begun, and it was horribly panicking for many.

Some opted to switch their KiwiSaver into a conservative fund, not knowing that they were actually solidifying the damage, and making their worst fears come true.

When the market falls, it's called a "paper loss", as it's only theoretical lost money until you sell it. By switching to conservative, those losses came true, as the devalued shares were sold and the money put into other assets.

Those who knew how markets worked may have felt nervous on seeing the fall, but also (hopefully) knew that from time to time, it's expected that the market will go down. The standard advice is to sit tight, and wait for the value to go back up again. As it did.

Knowing when something is normal, even if it's unpleasant, is very helpful to stop the panic that you're about to lose everything.

So if nothing else, check out a financial book or podcast to arm yourself with the knowledge that can ease money stress.

This article is general information only, not financial advice.

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