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Saving money for tough times: Money moves to make in 2021

Mortgage concept by money house from the coins
Posted at 5:00 AM, Dec 21, 2020
and last updated 2020-12-21 09:04:28-05

PHOENIX — Most of us won't be sad when the ball drops and 2020 is over. It's been a terrible year for a lot of us financially.

One thing we've learned is that saving money when you can isn't just a good idea. It's absolutely crucial for many Arizona families.

So how can you do that in 2021?

Increase 401k contributions at work. With traditional 401ks, contributions are tax-deferred and gains are not taxed.

$19,500 is the limit this year and in 2021, more if you're over 50.

Consider refinancing a mortgage. Rates are very low. Recently, I found just a 2.91 rate for a 30-year fixed refinance and 2.42 for the average 15-year. Experts say 40% of people with mortgages can save an average of $309 a month. Check your rate, fees, and see if it makes sense for you.

Want better loan and credit card rates? Pay off debt.

Your debt-to-income ratio is what you pay towards debts divided by your monthly income. 36% or less is the goal. Think about that as you holiday shop.

The pandemic taught us we need to put some money aside when we can. That takes a budget. You may have to adjust it, but the 50-30-20 rule is popular now. That means take 50% of your income for living expenses, rent, groceries, necessities, 30% for recreation/entertainment, and 20% for savings and debt.

Finally, how much is taken out of your paycheck to cover income taxes? If you're getting a refund, it's too much. Instead, consider lowering your withholding so you have more money for your other goals.