After an incredibly difficult 2020, many of us used the Christmas period as an opportunity to splash out and make up for what we missed out on during the year. But if the urge to say good riddance to 2020 put your finances on shaky ground, here’s how to reset for the year ahead.

After being separated from family and friends for much of the year, many people felt the urge to turn up the dial on their Christmas and holiday celebrations to say goodbye to 2020.

For some, it was finally taking a holiday after a year in various stages of lockdown, for others we chose to shower our friends and family with gifts to show our affection, and with many borders still closed or uncertain, we were forced to send those gifts instead of delivering them in person.

For others we simply felt that after a year of stress and uncertainty, we were entitled to take advantage of the retail sales that abounded and treat ourselves!

Unfortunately, many of us weathered tough financial times over the past year as a result of the pandemic.

A whopping 40 per cent of people surveyed by the Financial Planning Association (FPA) of Australia say they’ve lost some or all of their income due to COVID-19. Of those, 11 per cent are struggling to get by, while 31 per cent have been forced to dip into their savings.

And yet, the urge to reward ourselves for surviving such a difficult year can override our financial common sense. If you over-spent during the holiday period, you might have started 2021 feeling quite stressed.

Certified Financial Planner (CFP^(R) Christine Lusher says while everyone has been affected differently by COVID-19, overspending at Christmas can compound pressures many of us have been under.

“No one likes a hangover and starting 2021 with a debt from last year’s overspending won’t feel great,” she says.

“Poorly managed personal debt can lead to increased levels of stress, which can lead to sleep problems, mental health concerns and a decline in overall physical health. Having your debts under control will provide you confidence and the peace of mind that part of your financial life is in order.”

Read more: Don’t let overspending be your undoing

If you did overspend, it’s ok – there are steps you can take to get yourself back on track and put some measures in place to help your finances thrive in 2021.

Health check your finances

Start by taking a financial health-check to get a clear view of where your finances are at.

Take into account existing debts and be sure to include any expenses that haven’t cleared yet, such as deferred payments or Buy Now Pay Later arrangements.

Include any expenses and outgoings you have coming up over the next few months (such as big bills). This will help you set a realistic budget that won’t cause you any extra stress.

Read more: How fit are your finances?

Don’t overcommit to paying down debt

When we have large debts hanging over us, we might feel motivated to develop a ruthless repayment plan, assigning ourselves a strict budget in order to clear the debt as soon as possible.

However, this approach can actually set you up to fall short. If you try to cut your expenses to the bare bone and slip up because you haven’t left yourself any wiggle room, you may feel like you have failed and become discouraged.

A better approach can be to be a bit more conservative in your plans to repay any debt – while still aiming to meet or exceed the minimum repayment requirements, and always by the deadline to avoid additional charges.

If you come in below budget at the end of the month, you will feel a sense of accomplishment and be able to siphon additional payments to service your debt, which can give you more motivation to continue.

Prevention is better than cure

Once your debt is paid off and the financial hangover has cleared, consider planning for the year ahead.

Use your 2020 holiday spending as a guide to what your expenditure might be in 2021.

“This way you can work towards saving extra during 2021, so you are cashed-up and ready to go next Christmas. Include your Christmas savings needs as a line in your budget”, says Christine.

If you don’t have a budget, now is the perfect time to create one!

Read more: Creating a flexi-budget for 2021

Avoid using credit

Whatever you do, try to avoid spending money you don’t actually have. That goes for spending on credit cards, as well as store credit and buy now, pay later services.

“Buy now – pay later services such as Afterpay and Zip are becoming increasingly popular, but, like credit cards, they just defer the debt,” Christine says.

Instead, be savvy with your spending and look for ways to enjoy the day without the price tag.

Read more: Be a smart gift-giver this holiday season

Get financial advice

If you’ve taken a hit this year and Christmas spending got out of hand, or you just want to put yourself on track to financial freedom in the new year, consider getting professional financial advice.

Job insecurity, depleted savings and loss of super were the three most common financial worries for Australians in 2020. Yet FPA research shows that people who were already working with a financial planner were less affected by the economic downturn, and wouldn’t have done anything differently.

Read more: Here’s how financial planning works

If you’d like to get on the road to financial freedom in 2021, speak with a financial planning professional. You can find a Certified Financial Planner^® near you using our Match My Planner tool.