Whether or not you see the new year as a time to set new goals and stick by them, this period after the festivities of Christmas and New Year is arguably one of the best times to seriously set your financial goals into shape.
Very few people know where and how to start their journey towards financial independence. The road to get there can be tough, but it's definitely doable. If you've decided to actively make your way towards financial freedom this year, here's how you can set yourself up to successfully achieve this goal.
Working towards financial freedom does not require you to be an expert in stocks and investments nor pay all of your debts overnight. Your personal finance goals should depend on your current financial situation.
To set yourself up for success, make sure that your personal financial goals are realistic. There is no single, correct template to what a list of financial goals should look like. Start simple but stay consistent. Here are five doable and realistic steps to help you get started:
Achieving financial security doesn't mean you have to make a lot of money—you simply need to learn to live with what you have and manage it well. You can do this by setting a budget, which can be done weekly or monthly.
To create a budget, set goals to achieve first. Good goals include building emergency funds or saving for retirement. You can even consider any short-term goal you want to achieve.
Then, simply deduct your bills from your cashflow. If your expenses are more than what you make, then it's time to cut off unnecessary purchases. This could mean reducing monthly subscriptions or eating out less. You can also start following the 50-30-20 rule, where you spend 50% of your cash flow on costs, 30% on wants, and 20% on needs.
Paying off debt should be your top priority if you want to be truly in control of your finances. Student loans and credit card debt are some of the most common debts people have, and tackling it as soon as possible can get you working toward achieving financial freedom.
Try to snowball your payments by prioritizing debt with the smallest dues or the smallest interest rate first—it may even help you feel more accomplished as you'll get to finish it sooner. You can also do the opposite and avalanche your payments by tackling the debt with the highest interest and highest dues.
If you're having difficulty, you can consider getting a financial planner to help you become debt-free and tackle your student loan or other debts. They can also help you with retirement planning and getting a tax refund.
It's difficult enough to get out of debt, so adding to it seems counterintuitive. Of course, there are a few situations where debt is considered a necessity—such as buying a home, etc. However, small purchases like buying take out weekly can rack up your credit card balance every month just from interest rates.
If you're really serious about reaching a long-term financial goal, then it's time to sacrifice small pleasures and embrace the concept of delayed gratification.
This also means you need to stop using your credit card accounts, and committing to a certain amount of money or how much money you've given yourself based on your budget. If you can do this, you'll be able to start putting funds towards other savings goals.
Identify your short-term financial goals and long-term financial goals and start putting aside money for them. Again, think of your emergency fund, retirement savings, or even life insurance. It doesn't have to be a big amount immediately. Start small but be consistent.
You may even want to use some of your short-term goals as motivation to keep saving money frequently. In the beginning, discipline is required. But armed with a reasonable budget and a focus on your goals, you'll be able to start building your savings in no time.
If your current expenses exceed your income, then it may be beneficial for you to look for a side hustle to help augment your earnings. Assess your situation and see if you can allocate some of your free time to activities that will help boost your income.
This tip goes with the saying "do not put all of your eggs in one basket". More income streams will give you more security. The recent pandemic has proven that the once secure corporate job can be taken away from anyone in a snap.
These goals are usually attainable in three months to one year. Your immediate expenses and things that you like to spend on typically fall under this category. Some examples are: buying new furniture, funding for minor home improvements, and saving for a new car.
Before you get to long-term goals, there's usually an in-between area that takes around 3 to 5 years to achieve. Mid-term goals are different for each person and can vary depending on what the goal is. Some examples are down payment for a house, paying for a wedding, and taking a dream vacation.
These are goals that have a time frame of more than 10 years. It will take you more time, effort, attention, and money to achieve a long-term goal. Some examples are: saving up for college education, retirement, and paying off your mortgage.
An effective financial goal is something that is tailor-fit to your behavior and your needs and wants. Thus, there is no single financial goal that everyone may want to achieve.
For a goal to be effective, it must:
The new year is arguably the best time to start assessing your financial status and identifying your short-term and long-term goals. This clean slate gives you the chance to start anew and do things right this time. If you are looking for more, visit Any Credit today!