The start of a new year usually brings an opportunity to start afresh and set new goals. Whether your goals are to build your emergency fund, pay off debt, invest, or put more money towards your pension, here are a few tips that could help you reach them.
Take stock of the year before.
A great starting point for setting financial goals for the year is performing a review of your finances from the year before. A review allows you to identify what worked and what did not. These findings will inform you of what changes you might need to make. Without a doubt, 2020 was a challenging year and for many, it greatly affected their finances, so it is of the utmost importance to see if and how much damage was caused. ” Did your savings strategy work? Is your emergency fund still intact? Do you have any debt?” These are the questions you should be asking yourself. A review allows you to get a sense of how you previously managed your finances and help you set more realistic and achievable financial goals in the new year.
Make a Budget.
If you already have your budgeting nailed down, that’s great. A review of your most recent expenses would not hurt. If you don’t have a budget yet, the start of a year is a great time to start one. A budget allows you to make the most of your money and encourages you to manage your money with a bigger picture in mind. To create a budget — a plan on how you intend to spend your money, you’ll first need to compare your income to all your expenses and determine your discretionary spending. If you notice that you tend to spend more than you made or you spent a lot more than you expected, you can cut unnecessary expenses by shopping around for deals on services that offer you more value for your money.
The most important part of a budget is ensuring you have one that works for you. A budget that is too restrictive reduces your chances of success. The ideal budget is one that allows you to balance your financial goals while still enjoying some flexibility.
Prioritise your emergency fund.
Your budget should include building your emergency fund. Having an emergency fund gives you the peace of mind to know that should something unplanned happen, such as losing your job, you can worry about dealing with the emergency itself and not worry about how you’re going to survive financially.
If you do not have one, this is an excellent time to start. You can start small by putting money aside monthly to build up to a long-term goal. Financial experts recommend having anywhere from 3–6 months of living expenses. There is no one size fits all approach; this will depend on your personal financial circumstances. Focus on your mini-goals to start small, from 2-weeks to 1 month. It is much easier to achieve when broken down. Remember, it’s a marathon, not a sprint! If you’re seasoned, then set yourself bigger goals to build this financial cushion further.
Make a schedule for the year.
Setting goals is the easy part; sticking to them is a whole different ball game and it can be challenging. One way to increase your chances of meeting your goals is to set aside time during the year — monthly or quarterly to track your progress and go over your finances. Doing this allows you to figure out whether you are overspending, what you’ve spent on, how well you’re sticking to your budget, and if you have been able to meet your savings goals for the month or quarter. You can also have a friend with similar goals, serve as an accountability partner and arrange regular check-ins to track your progress.
Explore your investment options.
If you haven’t already started investing, now would be a great time to begin your investment journey. The reality is while savings is good, if the amount of interest on your savings account is not enough to neutralise the effects of inflation, you’ll essentially be losing money in the long run. When it comes to investing, there are a variety of options. Our previous post on How to Start Investing with Zero Experience is a good starting point to familiarise yourself with the options available. That being said, you could either take a DIY approach where you make your investment plan and buy and sell various financial products yourself or, you opt for a service like Wealth8 where you access funds which are managed by leading investment providers like Blackrock; investing in a fund that suits your personal risk appetite and expected returns.
Whatever your financial goals may be, making a budget, tracking your progress and making changes if necessary, can help you stay on course to achieving your goals.
When investing, the value of your investment may rise or fall and there are no guarantees you will get back all the capital you have invested.