As we finally settle into 2021 and bid goodbye to 2020, a year that gave us challenges and changed the idea of normal life for all of us, it is time to reflect on your finances. The bar for making 2021 a great year might be low but it does not mean that you should not make an effort to plan ahead and look for ways you can achieve success. It is important to plan proactively when it comes to your finances. With the right steps, you will be able to reach your goals and achieve financial success. To get you started, here are a few steps that will lay a strong foundation for 2021.
- Find your balance
The first step is to find the right balance between enjoying today and saving for tomorrow. You need to create a balance so that you can understand how much you should spend now to live your life fully and also be aware of how much you need to save for the future. Always keep your secure future in mind and then make the spending and saving decisions. Identify the amount you need to save and you can do this by setting aside a savings rate. You need to build financial security to achieve your long-term goals like buying a house, retirement, or financial independence. So do not ask how much should you be spending but ask yourself how much should you be saving.
You will have to identify your goals and estimate an amount that you will need to achieve the same. Based on this amount, you will be able to pick a savings rate. It is advisable to save anywhere from 10 to 20 percent of the income for your long-term goals. If you can save more than 20 percent, it is even better. Your savings rate will depend on how aggressive the goals are. After you have saved enough to meet the target rate, you can spend whatever is leftover on your fixed expenses. Identify your expenses into fixed and discretionary and then spend accordingly. Finding the right balance will help prioritize and lock in the savings. It will give you a chance to choose how you want to spend the amount.
- Identify what you can control
2020 has shown us that there is a big world outside of our lives that we cannot control. With this realization, you may feel powerless or wonder whether your financial goals make any sense. This is why it is essential to focus on what you can control. You need to identify the areas within your ability to influence and put your attention there. If you plan your finances well, there are several decisions you will be able to make. You may not be able to avoid challenges in life but you will be able to handle them in an efficient manner.
Whenever you make a financial decision, understand the product and the costs associated with it. If you are older than 62, have enough home equity, and are in need of funds, consider reverse mortgage but remember to use the reverse mortgage calculator before making a final decision. If you want to own a car, consider all the costs associated with it and then head to the dealership. These are costs and decisions you can control and you need to focus on them.
- Set your priorities and intentions
It is not easy to make financial decisions unless you have am abundant supply of money. One cannot afford everything you want at the same time. You will have to learn to make tradeoffs and say no to some things that you cannot afford. Hence, get very clear about your priorities and understand what is it that you want in the first place. Next, identify whether you can afford it, and then think of how you can get it. Pick the top three to five things you want and then make a decision. If you are married, you need to consider the priorities of your partner as well.
The idea is to start a conversation with yourself on where you see yourself in the next few years. There is no right time to start financial planning but the sooner, the better. When you define your priorities, understand the amount of money you have and learn more about the investment products, you can become financially secure. When you remain in tune with what matters, it becomes easier to make financial decisions because you know what is important and what is not. 2021 has only started and now is the time to get hold of your finances. No matter how much you earn or save, you can start by finding the balance today. Small but significant moves will lead to a strong and secure financial future.