The beginning of a new year is a great time to consider refocusing your finances and the question that I hear the most each year is “where do I start?”. The New Year is a great time to set some good financial goals, but don’t go crazy. Be sure to set small realistic goals that will help you work toward your larger goals. Regardless of your goal, it’s smart to set up a system to make it easier to reach your financial goals. It’s also important to measure your progress periodically throughout the year.
So, here are five basic goals to consider and a few tips on how to stick with them:
- Plan out your spending. This approach is a little less restrictive than a traditional budget and you can have more variability in how you spend each month. You should start with your fixed expenses such as mortgage, rent, savings and car payments, then move to the more flexible expenses like groceries and entertainment. Instead of establishing a fixed amount, bucket the flexible expenses together and adjust how you allocate your money monthly to address your needs and plans for that month.
- Automate where possible. It’ll ease your mind if you can automate the fixed expenses tied to maintaining your necessities. It’s also one of the easiest ways to build savings. If you automate the necessities (savings, rent, car payments, etc.), you’ll be less tempted to use those resources for luxuries and entertainment.
- Create an emergency fund. This can start with $500 depending on your income. I recommend starting with $1,000 and setting a goal to put three to six months of expenses into your savings account. Saving for your emergency fund can start with the automated savings process outlined in goal two.
- Pay down credit card debt. If you maintain credit card debt create a plan to eliminate it. There are a lot of different ways to do that, but I am a fan of the debt snowball method. The debt snowball is where you pay your smallest debt balance first, and once it’s zeroed out, add the minimum payment from that debt to the next debt payment. This will increase the payment of each subsequent debt until you eliminate all your debt. I like the method because you can quickly see progress.
- Take advantage of retirement savings plans. If your employer offers a retirement plan, invest with an automated contribution. In addition, if your employer offers a contribution match, make sure to contribute enough to receive the match offer, it’s free money. When it comes to retirement saving, it helps to have a plan and a vision of the future. Participants who set specific goals, calculate their basic retirement costs, or envision their ideal retirements are more likely to contribute 15% or more to their retirement plans. And according to a recent Lincoln Financial survey, given the widespread economic impact of the COVID-19 pandemic, a full 78% of respondents agreed that the unexpected stresses of 2020 have caused them to think more seriously about their plans for their and their family’s financial future. So, now is a great time to get a head start on 2021 and start thinking more closely about your retirement savings goals.
It’s important that you’re honest with yourself about where you are financially and what your goals are. With a little discipline, knowledge and guidance, you can have a strong financial year and see long lasting results. When it comes to guidance, a financial professional can assist in developing a financial plan that fits your needs and help you stay on track to reach your financial goals for today and the future. If you need help locating a financial professional, please visit “Find a Financial Professional” on LFG.com.
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