2020 has not been very kind to most people. The pandemic has caused havoc to many plans people made for the year. Nevertheless, the economy seems to have recovered much faster than expected, and we are all stepping into the new year with a lot of positivity and with the hope of a much better year ahead.
The Covid induced lockdowns have given people time to introspect and understand their priorities better. It has also compelled many people to rethink their relationship with their money and how they manage their finances. With the new year just around to corner, it is the perfect time to set some goals for oneself and put those plans to action. While developing a habit of reading, eating healthy, hitting the gym, and journaling have been the most common new year resolutions for a long time, we believe that this year, many people should focus on setting financial goals as part of their new year resolutions. In this blog, we will talk about what money goals are, why it is essential to put money goals, the impact money goals can have on your financial health, and 15 best money goals you can set for 2021.
Money Goals: Money goals are goals you set for yourself to achieve certain milestones in your financial journey. There are a variety of things that you can put money goals for. For example, starting to keep track of your expenses or getting rid of your debt are some of the most common money goals. Money goals are not much different from other plans for yourself. Reasonable money goals will have all the features that any useful purpose would have. We recommend you focus on the three most important aspects of goal setting while planning your money goals.
Measurable - Any goal that you must set should be measurable. For example, I want to be rich is not a money goal. I want to have Rs. 1,00,000/- in my emergency fund is a measurable goal. When you set measurable goals, you can track progress. You can plan on how to achieve the goal and work on that.
Time-Bound: Your goals should be time-bound. The right way to set a goal would be to have Rs. 1,00,000/- in my emergency fund in 8 months. This way, you will plan your budgets for each month and make sure that you save enough to reach your goal after eight months. You can even break down your goal into smaller sections like if you wish to save Rs. 1,00,000/- in 8 months then you should be able to save Rs. 50,000/- in 4 months. This will help you stay on track and reduce pressure as you get closer to the timeline.
Reasonable - The third most aspect of goal setting is that your goals should be useful. If you can comfortably save Rs. 10,000/- each month then setting a goal of having Rs. 1,00,000/- in your emergency fund in 10 months is a reasonable goal. Developing a plan to save the same amount in 2 months would be unreasonable and not work. It will not only stress you out but also compel you to give up on your financial journey.
Importance of Money Goals: If you wish to excel at anything in life, then it is essential for you to to have a plan. The same is the case with financial well being. If you wish to manage your finances better, you have to set financial goals and measure progress. They will also motivate you and guide you on your journey. Without a plan, you might not know on a day to day basis, what steps you can take to improve your financial health. But with money goals all set and a plan ready, you will know exactly what you need to do each month to reach where you want to go.
Impact of Money Goals: Much like physical health, financial health also takes time and effort to develop. You will have to focus on your financial habits daily and work actively towards improving your finances. Setting money goals can have a substantial positive impact on your daily financial actions. Once you get into the habit, you will start feeling the positive changes. Every small bit you will contribute towards your financial goal will add up and sooner than you will realise you will have travelled a long distance on your financial journey.
15 Best financial goals for 2021
Pay yourself first - One of the first steps you should take on your financial journey is to get into the habit of paying yourself first. Every month your salary arrives, the first thing you should do is transfer at least 10% of your income into a different savings/retirement account that you will. You are saving before spending is the only way to be consistent with your saving habit.
Keep track of your expenses - Much like journaling, keeping track of your expenses is a great way to practice self-control and understand where your money is going. When it comes to your finances, ignorance is not bliss. To manage your finances, you must first measure them, and the best way to do that is to make sure that you have clarity on where you are spending your money.
Make a budget - Making a budget each month is a great money goal to have. All you need to do is categorise your expenses and pre-decide how much you wish to spend on each category. This will give you a plan to follow to be more consistent with your saving and spending habit. There are multiple tools available online that you can use to create and manage your budget. If you are not tech-savvy, then you can even use just a pen and paper to plan out your expenses for the month and keep a record in a diary. One of the most important things to keep in mind while creating a budget is to realise that it is a self-learning process and that you should keep reviewing and improving your account each month until it is in sync with your financial goals.
Build an emergency fund - The pandemic has made us realise the importance of having an emergency fund, also known as a rainy day fund. Ideally, it would help if you had at least six months worth of your living expenses in your emergency fund, but you can change that number as per your needs. You should park this money in a liquid, and safe investment option such as a fixed deposit or savings account so that you can access the funds as soon as you need it. Remember the purpose of this investment is to keep the principal amount safe so you should not invest it in fluctuating assets such as stocks or gold.
Get debt-free - Another excellent money goal to have is to get debt-free. Financial well being requires you to be in a position where you are prepared for the worst. Being in debt does not fit well with that definition. If you have an active obligation, make a plan to pay it off as soon as possible, even if it means putting on hold your other investments or even cutting down some of your expenses.
Get insured - Getting insurance is an essential part of any financial plan and can be added to your list of money goals for 2021. You must at least have a term life insurance and health insurance. Understand your needs and be prepared for risks. Find the plan that suits your requirements best and understand all the rules of the policy you are investing in.
Start investing - If you have your emergency fund and insurance figured out, you might want to start investing for a goal, like buying a house or retirement. There are many investment options like mutual funds, index funds, stocks, debt funds etc., and it can be overwhelming to decide which one you need. However, the only way to find out is to start studying. Add investing in your money goals for 2021 and begin your journey to financial freedom. It is essential to make your money work to beat inflation and lead a financially healthy life.
Automate your finances - if you are inconsistent with your bill payments, investments etc. then set a goal to automate as many of these processes as possible in 2021. You can sign up for a systematic investment plan that will automatically deduct a pre-decided amount from your bank and invest it in the investment instrument of your choice. This way, you will not have to actively support each month, and you will be much more consistent. You can do the same thing for your phone bill payments etc.
Take a no-spend challenge - A no-spend challenge is when you decide not to spend any money at all for a fixed period. This is a great way to practice self-control and understand your urges for impulse purchases. You can pre-plan all the things you will need in the duration of the no spend challenge and buy them beforehand.
Find a money buddy - A great way to stay consistent and motivated on your financial journey is to find a money buddy. Set a goal with your friend, colleague, cousin or anyone as passionate about improving their finances as you are and plan your journey with them. Just like when you have someone to go to the gym and you, you suddenly start becoming more consistent, similarly when you have a money buddy, you automatically start getting more committed to managing your finances.
Avoid addictions - While this is not just a money goal and will count as a health goal, it will surely help you improve your finances. If you start to calculate the amount of money you spend on smoking, drinking etc. you will realise how important it is to make this resolution a part of your money goal for 2021. Even if you do not wish to give up drinking entirely, you could plan to put a cap on the amount of money you want to spend on any of these habits.
Find a side hustle - Having more than one source of income is the best form of diversification you can do. Find something that you are passionate about and then find a way to make sure it earns some money for you. It could be as simple as teaching a skill you excel at on weekends or taking mentoring sessions after work.
Organise your paperwork - Keeping your financial documents organised and updated is essential. If you have a lot of pending paperwork that you have been postponing since forever, now is the time to put it on your money goals for 2021 and finish them all off. Also, make it a point to regularly check your credit score and ensure that your credit reports are error-free.
Cut out the unnecessary - If you have a habit of purchasing subscriptions, or memberships that you do not end up using, it can be a good idea to set a money goal to control that habit.
Learn about personal finance - Improving your finances is a self-learning journey. The more you read and study personal finance, the better you will manage your money. If you are an avid reader, add a few individual finance books to the list of books you wish to read in 2021. It will have a significant impact on your finances.