Many have already felt the economic impact of COVID-19. As we will likely continue to face the monetary ramifications of pandemic, financial planning has become even more important.
The new year presents a great opportunity to evaluate your financial situation, revisit your goals, and create a detailed plan to achieve them. While building healthy spending and saving habits is a continuous process, having a plan in place will help set you up for monetary success in 2021.
When it comes to setting financial goals, you may not know where to start. To help, here are five considerations to keep top of mind to ensure you start the year off on the right financial foot:
Account For Both Short- And Long-Term Objectives
Setting both short- and long-term goals is important as they’ll help guide your spending and ensure you meet your current financial obligations and get to where you’d like to be in the future. As you balance competing objectives, you’ll need to create a budget and set tasks that work toward multiple goals simultaneously.
While more immediate expenses like padding your emergency fund, maintaining your home, and paying down debt should take precedence in the short-term, your long-term goals might include saving up for a new car or home or stowing away money to start a family or for retirement. Be sure to account for both types of goals, so you can determine the steps you need to take, both now and over time, to achieve them.
Prioritize Your Goals
Balancing competing goals can seem tricky, which is why it’s important to prioritize. To effectively prioritize your financial goals, consider separating them into critical expenses, needs, and wants. After you are sure you can cover your most important expenses (your critical expenses and needs), you can then decide how you’d like to disperse your money toward your wants.
First, ensure that you are able to cover essential expenses like your monthly rent or mortgage payment and groceries. Then, factor in other high-priority accounts like high-interest credit cards, emergency funds, personal savings, and your retirement account. Lastly, allocate your remaining budget to wants, such as saving for a vacation or for personal spending.
Factor in Housing Costs
Like many, your housing needs might have changed during the pandemic. Spending more time at home, you may have discovered repairs, maintenance, or improvement projects that need to be completed. Or, you might’ve determined that your home is no longer meeting your needs. Maintaining your home or moving altogether are significant financial obligations, and both require strategic financial planning.
Chances are, you don’t have the money on-hand to pay for a new home in-full. If buying a new home is on your radar in the new year, you will need to start planning as soon as possible so you can set appropriate savings goals. For instance, you should expect to have at least 20% for a down payment on hand. However, opting for a government-insured loan could lower your monthly savings goal, making home-ownership more attainable as you would only need to save 3.5% to put down.
Consider Your Debts
It’s also important to take your outstanding debts into consideration. While not all debt is necessarily bad, too much credit card or consumer debt can impact your credit score and hurt your chances of qualifying for credit in the future. Certain loans and credit accounts also tend to carry higher interest rates, meaning you may spend more than the principal amount over time, especially if you don’t have a plan in place.
When creating your debt repayment strategy, determine the amount you are able to pay off each month, ways you can reduce spending, how you can reallocate your budget to meet minimum payments, and what extra steps you may need to take to generate enough money to pay down outstanding balances.
Establish A Tracking System
Most people have financial aspirations, but those goals will only become realities if you stick to a plan. Once you’ve established realistic goals and tied them to timelines, it’s important to track your progress. To help keep your finances organized, consider keeping a spreadsheet or using a spending tracking app to keep a pulse on your financial health.
While things may not always go according to plan, implementing a tracking system will help you stay on top of your financial goals. Visualizing your progress will also hold you accountable as you work toward your goals. If you notice yourself getting off track, you can refer to your tracker to identify any areas of improvement and adjust your strategy accordingly.
There is no one single solution for maintaining or improving your financial health in the new year. However, by taking your personal situation into account and building out a plan, you’ll put yourself in a better position to achieve financial success in 2021 and beyond.