Five Financial Goals for the New Year

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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.

You may want to start with a large goal such as buying a house or retiring early and then look at the things you will need to do to reach that larger goal. Regardless of your goal, it's wise to set up a support system to make it easier to reach your financial goals. It's also important to measure your progress periodically throughout the year.

Consider these financial goals to take on in the New Year.

Start Budgeting

Budgeting is the most important thing you can do is be financially successful. People can make a lot of money and still struggle financially if they do not manage their money well. Budgeting has two important parts–creating a budget and sticking to it.

Setting up a personal budget for the first time may be intimidating, but you shouldn't let that stop you. Tracking your income and expenses for the month can not only help you get a better picture of your finances but it can also help you plan better for any financial decisions. For example, looking at your spending may help you differentiate between things you want and things you need, and that can lead to a change in spending habits. Once you've decided to set up a budget, it can be as simple as using a budgeting app.

So, you have your budget in place, but sticking to it might not be as simple. If you have a hard time sticking to a budget you may consider using the envelope system. This will help you to stop spending once you have reached the limit each month.

Goals for Your Budget

  • Set up a monthly budget to track income and expenses
  • Differentiate between spending categories and prioritize needs instead of wants
  • Reduce your spending in specific categories each month
  • Make some provisions for unexpected spen
  • Stick to your budget for a whole year
  • Budget with your spouse or other family members

Repay Your Debt

Getting out of debt is another key step to taking control of your finances. A budget will give you a pretty good idea of how much debt you owe and what means you have to repay it.

The first step is to prioritize paying debt with the highest interest rates off as soon as possible (most likely your credit cards). By doing that you can reduce the amount you pay in interest. For example, if you have $10,000 in credit card debt and pay 19% interest, you're paying $1,900 per year in just interest cost. By discharging your highest interest debt first, you're not only bringing down what you pay as interest, but you can save or use that money elsewhere.

Falling behind or defaulting on your debt payments can hurt your credit score and make it harder for you to take out loans again.

You should start by setting up a debt payment plan, then make a commitment to stick to your payment plan all year long. It is also an incredible feeling to be debt-free. You have more freedom to do the things that you want to do. You achieve greater job flexibility and more peace of mind. While it may take some sacrifice to make it happen, it is worth the effort. 

Goals to Get Out of Debt

  • Identify and prioritize repaying high interest debt as quickly as possible
  • Set up a debt payment plan
  • Consider reducing non-vital spending or sell items to pay off debt
  • Take up a side gig or second-job to create additional income to pay off debt

Start Saving Money

Saving money is another important key to financial success. The answer to how much you should save is not a one size fits all and depends on a lot of factors specific to each individual. Many experts suggest, saving at least 15% of your income each month but that may not be for everyone. You could instead adopt a goals based approach to saving. Categorize the goals you wish to save for in buckets and set aside money for both short and long term goals. A short term goal could be, for example, buying a car over the next two years while retirement can be a long term goal. Remember, any amount you save will only add up over time.

Theoretically, keeping aside a portion of your paycheck is a great way to save. However, that's not always possible. There's no formula for saving but consistency is key so you should try sticking to setting some money aside each month. This is where the budget you created comes into play. It can help you analyze which expenses you could cut back or where you could find money to save. While cutting back on eating out is a great way to save, but it doesn't have to be the only way to find money to build you savings.

As a first step, use whatever amount you are able to save to create an emergency fund. An emergency fund should be able to help you cover expenses for at least six months. Such a fund can be very useful to tackle surprise expenses or unexpected circumstances. Also, having funds at your disposal during emergencies can prevent you from using your credit card in such situations and adding to your high-interest debt that may be harder to pay off.

An emergency fund should only be used for emergencies. Dipping into your emergency funds for other expenses, may be tempting but, defeats its purpose.

Goals to Help You Save

  • Set a monthly savings goal
  • Analyze your budget to look for how much and how you can save
  • You can save a portion of your paycheck or adopt a goals-based approach to saving
  • Start by creating an emergency fund

Learn About Money and Finances

Consistently committing yourself to learn as much as you can about the financial markets, the nature of money, and investments in general, is absolutely essential to creating long-term wealth. It will also help to learn more about how to successfully manage your money. You can do this by researching online, taking classes, or reading financial books.

While there may be a lot of information online or on social media, take investment advice from trusted sources only.

Set a goal to read at least one in-depth source a month; a book or magazine will give much greater insight into a specific area of financial matters. You could start with reading about personal finance and delve deeper into investing and stock markets.

Goals to Help You Learn About Finances

  • Enroll in a personal finance classes
  • Read books about personal finance and investing
  • Subscribe to personal finance newsletters

Begin Investing

Investing allows you to grow your money at a much quicker rate. Consider investment options based on your financial situation and the amount of risk you're willing to take.

Stocks are considered riskier than bonds but they also offer higher returns than bonds. If you're unsure of picking stocks, you may consider investing through mutual funds or exchange-traded funds that allow you to pool your money with other investors and get shares in a portfolio of investments.

You can also invest for a specific goal such as retirement. Contributions via a 401(k), a 403(b), or an IRA are an easy way to do that.

If you are wary of investing because of the current market conditions or because you do not understand how the markets work, take the time to talk to a financial planner or an advisor. A good financial planner will ask you questions about your financial and life goals, and then give suggestions on how to achieve them. They will help you understand the risks and benefits of investing and should be able to help you find investments that match your current comfort level when it comes to risks.

Risk tolerance is different for different people. Generally, for risky assets, consider investing only what you are comfortable losing.

Goals to Help You Start Investing

  • Analyze your financial situation and see how much money can you invest
  • Assess your risk tolerance. Invest only what you're comfortable losing
  • Make goals to invest a certain amount each month
  • Consider goal-based investing such as 401(k) or 403(b) contributions
  • Work with a financial planner or advisor, if you're unsure of how to invest

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