January’s Gone: Here’s How You Can Still Make Financial Resolutions You’ll Keep All Year
It’s already the end of January 2021, and though you likely had the best intentions, it’s quite possible you haven’t made any headway on your financial resolutions — or perhaps you haven’t even decided what they are yet. The good news is there’s still time to make attainable goals and follow them. GOBankingRates talked to experts in financial planning to help you make a plan for success in 2021.
1. Make SMART Goals
The caps lock wasn’t just for dramatic effect. SMART stands for specific, measurable, achievable, realistic and timely goals. Matthew T. Gray, a financial advisor at Personal Capital, swears by this method for his clients. Here’s how it breaks down:
- Specific: Attach an exact dollar amount to each of your goals.
- Measurable: Make sure your success is trackable. For example: I want to pay off my credit card debt by the end of the year.
- Achievable: Ask yourself if you can feasibly commit to this goal given your income.
- Realistic: Note any life changes that might affect your goals. Are you planning to buy a house or expecting a child? These circumstances might affect your monetary reality.
- Timely: Set a date when your goals should be achieved.
Gray noted that though “achievable” and “realistic” might seem similar, they’re slightly different. “Achievability refers to your ability to complete a task, while realistic is how a goal will fit into your larger plans,” he said.
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2. Automate Savings
Saving more is a resolution on almost everyone’s list. It seems simple in theory, but if you just plan on saving what’s left over at the end of the month, many times there’s not much — if anything — left to set aside. Instead, Gray recommends setting up automatic recurring contributions to your savings account so you never have to give it a second thought.
“Your future is your most important bill to pay, so make sure you pay that first, and then spend whatever you have left,” Gray said.
3. Pay Off Bad Debt
If one of your goals this year is to pay off your debt, it’s most important to pay off credit cards with high interest rates, personal loans and payday loans first. According to Gray, these bills tend to do more damage to your credit score than debt like student loans or mortgages.
Here are two commonly used ways to pay off debt that Gray recommended.
- Avalanche method: Pay off the card or loan with the highest interest rate first, then move to the next in descending order. You pay less in interest, but it can take a while to see major results if that card has a lot of debt on it.
- Snowball method: Pay off the card or loan with the lowest amount of debt first, then move to the next in ascending order. You make progress quickly on small debts, which could serve as motivation to keep paying off larger debts.
“I think of paying off debt as financial cardio: It helps your finances become leaner and more energized. Once you don’t have the drag of interest payments on your cash flow, you can use that cash in other ways,” Gray said.
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4. Review Your Insurance Coverage
You usually review your health insurance elections once a year for open enrollment, but plans like car insurance and home insurance should be reviewed to make sure they still fit your current lifestyle. Andrew Crowell, vice chairman of wealth management at D.A. Davidson, said this review should be done yearly. “A comprehensive insurance inventory with a specialist could not just save in premiums, but also potentially improve or expand coverage through consolidation.”
If you create manageable financial goals and stick to them, your 2021 may be an even bigger success than you’d hoped!
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Last updated: Feb. 1, 2021