4 Smart Financial Goals for 2021 (And How to Achieve Them)
The new year brings new opportunities to start your path to financial freedom. While money never guarantees happiness, security within your lifestyle can provide peace of mind and alleviate potential stressors from your daily routine.
Financial goal-setting can feel overwhelming at first, making it important to start small. If money management is a new skill you want to develop, don’t try to do it all at once: a gymnast doesn’t become an Olympian overnight! To help you get started, we’ve outlined four effective initiatives to add to your smart financial goals. Each one can be scaled and modified to fit your individual circumstance and should be adjusted accordingly.
1. Prioritize Your Debt Payments
According to a 2019 survey, the average American citizen has roughly $90,460 of debt, spread anywhere between student loans, a mortgage, car loans or credit cards. In the journey to become debt-free, prioritize your payments based on four key criteria: the total debt amount, minimum payment required, interest rate and payment due date.
Focus on paying off your debt with the highest interest rate first; in doing so, you’ll save more money long-term as you decrease the accrual amount. For example, if you have two sources of debt, pay the minimum amount on the source with the lower interest rate, paying extra on the source with a greater rate to decrease the amount of interest you pay over time.
2. Begin Investing
Investing can feel complicated and overwhelming—but it’s one of the best ways to build passive income. Instead of trying to become an instant stock market professional, we recommend starting with one of the following:
- Mobile app investing support: various financial apps help you make smart investments and provide resources to understand the market. Some of them even help you build your financial portfolio without extra effort, rounding up the cents from your purchases and putting them toward long-term investments. For options, check out our article: The Best Apps to Start Investing.
- Exchange-traded funds (ETF): ETFs offer a simpler way to invest as ETF providers create “baskets” of stocks for investors to purchase. With lower fees and tax advantages, they’re a smarter long-term investment for newbies to the market.
3. Create an Emergency Fund.
If 2020 has taught us anything, it’s that we should be prepared for the unexpected. As such, a smart financial goal is to give yourself a buffer. Before saving for a new car or upgraded TV, build your emergency fund to help out when unplanned expenses arise. Experts recommend saving three to six months worth of living costs, depending on what you can afford. To determine this number, analyze your monthly bills like rent, utilities, and debt payments, against weekly expenses like groceries or gas. Combine these costs and multiply by your desired month time frame and you’ll have your target amount.
If you’re worried about spending your savings, consider opening up an account with a separate bank or credit union to store your funds. This will make the process of spending with this money more difficult and prevent you from draining your hard work.
4. Build a Long-Term Budget Tracker
While many financial planners focus on weekly expenses, they often don’t provide adequate resources to plan for long-term financial stability. To examine the effectiveness of your budgeting process, ask yourself if your cadence and tracking allows you to:
- Meet your savings goals
- Build passive income
- Pay off debt
- Invest in a retirement plan
If you’re not sure how to build a budget tracker that addresses each of these smart financial goals, there are consultation resources available—some of them free—to help you begin your journey to financial freedom. Don’t get discouraged if you’re not wealthy in a week; this process takes time, patience and taking smart risks!
