Top 5 Personal Finance Goals
The Top 5 Personal Finance Goals to Have Right Now and How to Achieve Them
2020 was a tough year for most, given the pandemic. Everyone was affected in some way, with many being affected financially. 2021 has been the year of financial cleanup. Whether you’re just starting out in managing your money, or have years of experience, we’re here to provide you with the top 5 personal finance goals to have right now and tell you how to achieve them.
1. Personal finance goal: Pay off your debt
Yes, for many this sounds like a daunting goal. Especially because the debt more than likely didn’t happen overnight. Depending on your situation this could take several years, which isn’t uncommon. As a country, we had a great start in 2020. According to CNBC, Americans paid off almost $83 billion in credit card debt in 2020. Why? This was due to the Coronavirus. As consumers saw others losing jobs left and right around them, it became increasingly important to pay off debt, rather than continue spending in the event of a financial emergency.
So, where do you start? Start with the whole picture. Compile the totality of your debt into one number. You must understand the total amount before you start to make progress paying it off. Once you have the total number, you’ll then break it down into who the lenders are.
Identify which lender has the highest interest rate, this is who you will pay off first. Make the largest payment you can without sacrificing your other bills. Make minimum payments to the other lenders and do not take on any further avoidable debt. Create a goal for yourself to have each lender paid off within a certain timeframe to hold yourself accountable when wanting to make unnecessary purchases.
2. Have an upcoming major purchase? Be prepared in advance with your personal finances
Once again, thanks to the Coronavirus, interest rates are historically low, driving consumers to make larger purchases like homes. When it comes to personal finance, making a decision on emotion is the number one way to create debt.
If you have an upcoming life changing purchase, make sure you know your personal data and be prepared to pull the trigger when the time is right to purchase.
The home market in the US is experiencing an intense high right now. Buyers are finding it harder and harder to go into contract on a home due to the sellers’ market. Ensure you are prepared for whatever large purchase you want to make. Do this by reviewing your credit score and report. Getting pre-qualified is crucial in this market as well.
No matter what the purchase is, ensure you have your personal financial documentation, including tax information, in one place for easy access.
3. Build an emergency savings fund
Whether we’re in a global pandemic or not, life always has a way of surprising us when we least expect it. Majority of the time these surprises have financial impact. Don’t feel intense pressure to have a bunch of money saved right off the bat. Interest rates on savings accounts are low, but they add up over time.
To build an emergency savings fund, start by taking inventory of your monthly spending. Review your budget for discretionary spending categories. Saving $5 a day (or more) on that morning coffee will quickly add up by the end of the month. Look for trends in shopping, dining and entertainment to cut back on.
Let’s assume it takes one to three months to land a new job after a job loss or life changing event. Plan to have at least enough money to cover three months. More is outstanding, but shoot for three months at first.
4. Stop impulse purchases
Remember that thing about acting on emotions? Here’s where it comes into play with your personal finances. Making a financial decision while reacting on impulse is a great way to put a halt to wise spending habits.
This may sound difficult because it’s going to remove convenience for you, but removing saved cards from websites and apps is the first step to stopping this behavior. How many times have you bought something because it was easy due to having payment information saved? You are less likely to get up and grab your card to make purchases if you don’t have it on file right in front of you. The act of this alone will cause you to think twice about making any online purchases.
5. Take instant control of your personal finances, live off of the cash diet
Have you heard of the cash diet challenge? If you’re the competitive type, this is a great way to approach your finances as a little game. Think about the last time you went out to eat or ordered drinks. What about that last trip to Target? It’s very easy to swipe a card for purchases when it doesn’t require us to immediately see a balance.
The cash diet challenge requires using cash to pay for everything, rather than a card, with the exception of your monthly bills. This is another great way to force yourself to think twice about discretionary spending. Doing this also forces you to go to an ATM to withdraw funds, count cash, and hand it over for every purchase. Seeing those funds diminish in your wallet will most certainly make you more aware of your spending habits up to the minute.
As you embark on embracing these 5 personal finance goals take time to understand the why behind them. What are your ultimate goals? Do you want to retire early? Do you want to make a large purchase? Maybe it’s saving for college funds in the future. No matter what the reason is, having a healthy financial outlook is important for everyone. Keeping your goal in mind each time you spend money will not only motivate you, but drive you to make better overall financial decisions. What are you doing to take control today?