By: Onari Tariah
Personal finance is an essential skill that can either be an eternal source of stress, or it can allow you to live the life you’ve always dreamed. The good news is that if you’re just starting out, or if you’re trying to get back on track after 2020, there are a few simple personal finance goals you can accomplish in 2021.
Building an Emergency Fund
Having a rainy day fund acts as a cushion in the event of unanticipated expenses. Like with insurance, you don’t appreciate having it until you need it. The amount you have in your emergency fund will depend on your current financial situation, however best practice is to have between 3-6 months’ worth of living expenses stashed away.
Advantages of an Emergency Fund
- Peace of Mind – 2020 demonstrated very clearly the unpredictability of life. Having a buffer in place during uncertain times can be a great comfort. When you know your survival isn’t on the line volatility is a little more tolerable.
- Money Management Tool – Building an emergency fund is a great way to practice saving towards any financial goal!
- Intermediate Funding Source – It can serve as a middle ground between your paycheck and your investment accounts, so you don’t have to disturb your long-term investments when there’s an immediate need for cash.
Not sure when it’s okay to dip into your emergency fund? Check out this blog.
The key to paying off debt is a disciplined strategy. Look over your budget and find areas where you can cut back. Do you buy lunch every day? Consider making it a Friday treat instead. Completely sacrificing the things you enjoy isn’t necessary and it’ll make it harder to stick to your new plan.
When you are having trouble sticking to that plan, remember what being debt free will mean:
- Freedom – Freedom from the burden of debt can reduce stress and anxiety. It can feel liberating when you’re no longer carrying that weight on your shoulders.
- Control – Paying off debt means you get to keep more of your hard-earned income and spend or save it how you please.
- Saving & Investing – More money in your pocket for saving and investing enables you to reach your other personal finance goals faster.
Set Up a Financial Plan
A financial plan serves as a road map for your personal finances. It’s not an exact gauge of how things may turn out, though at a minimum it will offer financial direction in your life. A financial plan can be more impactful than simply setting random goals without consideration of the bigger picture. Remember, if you fail to plan, plan to fail.
Benefits of a Financial Plan:
- Financial Goals – Defining your personal financial goals (the ones in this blog included) can help you determine if they are realistic given your time horizon and current situation. When you have a defined goal it will allow you to measure your progress and can be motivating!
- Cash Flow Management – Understanding where your money is going and how it’s being spent will empower you to improve your budgeting skills and find where you could be saving.
- Confidence – Knowing that you’re in control of your financial life will improve your confidence and allow you to make changes that get you closer to all of your life goals.
Here are some tips to getting financially organized before you start planning.
These simple personal finance goals can set you up for a life of success in 2021 and beyond. Remember,
“You can’t go back and change the beginning, but you can start where you are and change the ending.”
― James Sherman