Perspective | How to get into better financial shape in 2021

According to the Federal Reserve Bank, more than half of American households lost income last year. The unemployment rate was 3.5 percent in February, jumped up to nearly 15 percent in April and has since fallen back to 6.7 percent. Since mid-March, the initial weekly claims for unemployment benefits have exceeded 780,000, and more than 900,000 if you count those who filed claims under the pandemic unemployment assistance program (for those who are self-employed or who don’t qualify for regular unemployment benefits).

And although way down from the historic numbers we saw in March and April, the initial filings for unemployment are still about four times what they were in February.

The good news is that the government learned some important lessons from the last recession, quickly passing the Cares Act, providing financial relief to the vast majority of Americans and businesses, instituting foreclosure and eviction moratoriums, and putting nearly all federal student loans into forbearance. That took a tremendous amount of financial pressure off those who had lost their jobs.

Starting in mid-March, Americans went home. The economy began a K-shaped recovery, with some people living their lives as though (almost) nothing happened, while a huge number received unemployment assistance and started looking for a new job. As we begin 2021, central business districts remain eerily empty. Business owners in the retail and restaurant industries wonder whether they’ll even have a business when all this is over.

Money lessons are different this year. Americans stopped spending, started paying down their debt (called “deleveraging”) and added to their savings. The stock market and bitcoin hit record highs. Mortgage interest rates fell to 15 record lows in 2020 (and then broke through that floor to yet another record low at the start of 2021). Americans started buying new homes at an even faster pace.

It’s hard to imagine what 2021 will hold when it comes to money or the economy. Or when things will return to normal. Even if last year was good for you, remember that having enough cash on hand helps, no matter what. So as we say goodbye to 2020, here are some personal financial resolutions you might want to make:

1. Spend less — and track it.

In 1960, Americans saved about 11 percent of their income. In 2019, they saved 7.6 percent. According to Statista, in April 2020, they saved about 33 percent. That number has since fallen back to 13.6 percent (as of October), but clearly, having cash on hand has become more important.

Do you know how much you spend each month? Write down every cent you spend. You can keep track online, in an Excel spreadsheet or in a little notebook. Don’t forget to factor in all of those recurring expenses, such as your online accounts, and things you may pay only annually, such as insurance premiums. We guarantee that you’re spending more than you think, and wasting dollars (not just cents) on items that don’t matter in the long or short run. Coffee, cigarettes, marijuana and Uber can cost you $5,000-plus per year without even trying.

2. Save more — and track this, too.

No matter how much you’ve socked away, plan to save more. We made a habit of saving an average of 20 percent of our salaries for the past 25 years. How did we do it? A few simple tricks: Do more yourself instead of hiring others (including yard work and, where possible, home repairs); eat in instead of going out; and shop around for great deals on everything from insurance to cellphones to cable service.

3. Pay down as much debt as you can.

If you’re buying a home this year, eliminate as much debt as possible. Mortgage lenders require borrowers to follow very strict rules regarding debt-to-income ratios, so be smart about the debt you carry, and try to “snowball” your debts by paying off the smallest debt first and then adding that amount to the next smallest debt once it’s gone. If you’ve had a break from paying your student loans as a result of forbearance, where the interest rate fell to zero, try making some of those payments because every dollar will go toward paying down that loan. Prepay your mortgage.

At the end of 2020, we paid off the mortgage on our primary home. Although no one shot off fireworks, we did toast that last payment. We wish you a new year of financial well-being and achieving your financial goals.

Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (fourth edition). She is also the chief executive of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate lawyer. Contact them through her website, bestmoneymoves.com.