5 Steps to Set Financial Goals for the New Year

This year has passed by in the blink of an eye and in another few weeks it will be 2021. While everyone is looking forward to a better year, it is also important to plan for the same, especially financially. 

We understand that this process can be daunting and hence, we have come up with a quick and easy guide on how to set financial goals for 2021 without getting overwhelmed.

Step 1: Assess Your Current Situation

2020 has been messy in many ways and a lot of people have lost their jobs, livelihood and even family members. In the midst of all this, it is essential to understand where you stand financially. What were your major expenses? Did you save more than you wanted to? Did you use up your emergency fund? What debts do you have to pay off?, how are your investments shaping up and are there any big-ticket purchases coming up? Assessing your existing financial situation can help you plan better for the upcoming year.

Step 2: Set Goals and Start Budgeting

Once you have understood your existing financial situation, you can start putting a plan in place. Start by figuring out your most necessary payments such as electricity bills, water bills, rent, EMI etc. and how much you would like to continue spending on the same. Can you cut corners or are you expecting your bills to increase?

Once this is done, plan your purchases. Is there a new car you wish to buy or change houses? Factor in vacations and travel plans as well, at least those that can be pre-planned. Additional goals based on your requirements can also be added. The next step is to start budgeting and stick to the same. This is perhaps the most important step. Also make provisions to track all of your expenses as well as income. There are a number of apps that can be used for the same such as the MoneyView Money Manager app, which is also a top personal finance app in the country.

Another important step is to ensure that your emergency fund is up to date. Ideally, this fund should contain at least 3 to 6 months of your income.

Step 3: Pay off All Debts

Becoming debt-free is a goal that everyone must strive to achieve regardless of how large the amount to be repaid is. Make a plan to pay this off at the earliest. If part payments can be made or if the loan can be foreclosed, then go for it as long as it is in line with your financial goals. Additionally, if you plan to take on additional loans, make sure that you have a sound plan to clear the same without it affecting your finances detrimentally. Keep a tab on your credit score as well and try to build it up as much as possible.

Step 4: Ensure that You’re Insured

If there is one thing this year has taught us, it is that life is uncertain and a lot of things are beyond our control. However, the good news is that we can be protected to a large extent with insurance plans. Ideally, everyone must have a term insurance as well as a health insurance plan. Go for a cover that provides benefits tailored to suit your needs and not just one that is popular. The amount paid towards insurance is also eligible for tax benefits. Individuals must also read all the terms and conditions thoroughly before availing an insurance plan.

Step 5: Save and Invest

One of the most important steps is to save as much as possible and cut down on unnecessary and impulsive spending. While impulse buying has declined in India due to the pandemic, it may return with a vengeance in 2021 if left unchecked. Aim to save at least 10% to 15% of your monthly income. You can either save this in a savings account, add it to the emergency fund or invest in an RD or FD.

While budgeting, figure out how to cut down on your spending without compromising on your quality of life. Additionally, money thrives when money can grow. Try to invest a part of your savings into mutual funds or stocks based on your risk appetite. This will ensure that your savings are not idle. However, one must ensure that they understand all the terms and conditions as well as the risk posed by investment opportunities before pursuing the same. 

Bonus

Knowledge is power. Start reading up on and understanding how finances work. Learning how to successfully manage your money will ensure that you are always on top of your finances and can also help your money grow. Saving up for retirement is also essential. While EPF helps with that, starting an additional fund for the same will also be beneficial.

Additionally, one does not have to make drastic changes in order to have a financially sound lifestyle. Simple changes like eating out less, cutting down on unnecessary expenditure can make a huge difference. Plan out vacations that can help you recharge especially ones that are not too expensive. Small actions lead to big changes.

2020 cannot get over fast enough, but that does not mean that one should cut down on their financial discipline for 2021. While figuring out your new year’s resolutions, ensure that you add in some financial goals as well. Use the above-mentioned steps and set simple, yet achievable financial goals for next year and enjoy the peace of mind that comes with it.