A new year provides a fresh slate to begin setting and tackling financial goals. Twelve months is also an ideal time frame to see significant progress in such goals as paying down debts and saving money.
With the uncertainty that COVID-19 has brought to our lives and the economy, getting organized, focused and clear about your finances, particularly in ways that will help plan for emergencies and the unexpected, will be even more important. Here are 10 tips for setting realistic financial goals for 2021.
Get Organized Early
The start of a new year is a great time to prioritize new financial goals. The first step in approaching any new goal is to get organized. If you’re still keeping paper receipts and statements, move them from messy boxes to labeled file folders. Digitize or upgrade to an accounting software like QuickBooks. This will help you get a better snapshot of where you are financially before you begin to set new milestones.
Set a Budget
The word budget often has negative connotations because we immediately think of how we can’t spend our money. But according to finance guru Dave Ramsey’s website, a budget is just “a plan for your money.” It’s also a snapshot of how you’ll spend and save your money. He recommends you start with the essentials first, such as housing, food and healthcare, then see what’s left for other things, from leisure to savings. Recognize that your budget might change some months and that you might have to renegotiate it if you or your partner has an income increase or decrease.
Establish Clear but Realistic Goals
Financial success works best when you put a concrete goal to what you’re trying to achieve. Set a number and a time frame in which you hope to achieve that goal, and be realistic; if you’re making minimum wage, saving $100,000 in five years is highly unlikely. But putting aside $50 a month could be realistic.
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Commit To an Amount To Put Into Savings
Without a conscious commitment to save (or an automatic draft out of your checking into your savings), it’s easy to say you’ll save and then never get around to doing it. Instead, make savings a habit. Plus, the earlier in your life you start saving, the better for your future. Whether you save for a house or a retirement plan (or both), a little bit every month adds up in a year’s time, and over more time. Commit to an amount you can comfortably put away and then do it regularly.
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Take a Hard Look at Your Emergency Fund
An emergency fund is money you set aside to be used only in a true emergency, such as getting laid off or encountering a huge expense, such as a car or home appliance repair. Experts recommend that you should have three months’ worth of income saved. If you don’t have an emergency fund, start with tax refunds, stimulus checks or bonuses from work. At the minimum, try to put $1,000 away.
Set Short-Term, Mid-Term and Long-Term Goals
Financial planning and growing your savings don’t happen overnight. To bolster yourself, start with short-term goals that are quicker to achieve in a year’s time, such as paying off debts and opening an emergency fund. Then plan for mid-term goals, such as paying off student loans, purchasing life insurance or disability insurance. Then look at long-term goals, such as buying a home and planning for retirement. The more you know about how much you need to save over time, the better you’ll be able to plan.
Evaluate Your Debt Repayment Strategy
In order to truly get ahead with finances, you eventually have to pay off your debts. But debts like student loans, particularly if you have a low interest rate, might be a lower priority than credit card debts with high interest. There are two main ways to do this: the “snowball” or the “avalanche,” according to Investopedia. In the snowball method, you pay off your smallest debts first, and then build up to the bigger debts. This tends to make you feel accomplished in your debt reduction goals.
In the avalanche method, you pay your debts based on which ones have the highest interest rates.
No matter which strategy you choose, try to pay more than the minimum amount due on every debt that you can.
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Take the SMART Approach to Finances
A common piece of advice from financial experts when approaching any financial planning is to use the SMART acronym when considering your goal. Is it specific, measurable, achievable, realistic and time-bound? If it’s not any one of those things, it might be time to rethink your goal.
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Consult a Financial Advisor
If financial planning feels overwhelming or confusing to you, then it might be time to consult with a financial advisor. You don’t have to be a millionaire to seek advice from someone in the know. From one-time financial advice to ongoing advice, there are no bad reasons to get a little extra help.
Involve Your Partner or Spouse
If you’re in a long-term relationship or married, your finances are no longer just personal to you — be sure to include your partner in all financial planning discussions. Not only is it just a good idea for your relationship, but it puts you both on the same page so that one person isn’t trying to budget and save while the other is spending as usual. Saving together can make it that much easier or faster to accomplish financial goals.
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