Being financially secure is more prevalent than ever, but it still remains a challenge to many people.
Let’s discuss how to achieve your financial goals – and actually stick to it this time.
After a long and arduous 2020, more and more citizens have set their sights on being financially stable. In fact, research shows that almost 50 percent of Americans have a financially related New Year’s resolution.
Unfortunately, as reported by U.S. News & World Report, roughly 80 percent of people fail their New Year’s resolution by the second week of February.
If achieving a financial goal was a resolution for you, here are some things to help you avoid becoming part of that 80 percent.
Setting A Financial Goal
Finances are different for everyone. Perhaps you’ve set a financial goal without fully realizing it. Nerdwallet defines financial goals as “personal, big-picture objectives you set for how you’ll save and spend your money.” Some examples include:
- Purchasing a bike
- Buying a home
- Paying off debt
- Starting a business
- Saving for retirement
No matter how grand the scale of your goal is, there are certain things you should be doing in order to make it a reality.
Basic Steps to Achieve Your Financial Goals
Becoming financially secure or independent means many things to many different people. Money is different for everyone, but there are basic rules that everyone should follow. These include:
- Creating and sticking to a budget
- Building an emergency fund
- Managing credit score
- Money organization
- Savvy shopping
- Knowing where your money goes
Creating a Budget
Budgeting is a word that everyone knows, but not everyone is able to accomplish. According to Investopedia, a budget is an estimation of revenue and expenses over a period of time.
Creating a budget is the first step in achieving any financial goal.
In order to set a budget, you must first determine your income. This is your net, take-home pay each month. Once you’ve calculated that, you need to differentiate your expenses into three categories: needs, wants, and savings.
Comb through at least a year’s worth of expenses to have the most accurate expense chart. Begin by totaling up all of your necessary expenses. This includes rent, car payments, insurance, groceries, etc. Anything you need to live will go in this category.
From there, see how much money you have left over for wants and savings. A portion of this should go into a savings account, emergency fund, and/or investments. But keep in mind you should have some money set aside for yourself to accommodate your wants. This doesn’t mean spending frivolously, but very few people will stick to a budget that doesn’t allow them to have any fun.
Sticking to a Budget
Now that you have created your budget, you need to stick to it. If you budgeted $400 for wants, you have $400 to spend on wants. If it is Friday night and your friends are going to the movies but you only have $20 left in this category, you need to have the willpower to say no. The most important step to achieving your financial goal is not spending above your means. That is why sticking to your budget is so crucial.
Building an Emergency Fund
It is incredibly important to have an emergency fund for whatever life may throw your way. An emergency fund, which differs from a savings account, is an account where the money is saved for major, unexpected expenses. Financial experts have stated that an emergency fund should hold at least enough money to cover three to six months of living expenses.
As we’ve all noticed, especially in the last year, life challenges can come at you unexpectedly. Pew Research found in September that over 15 percent of Americans had lost their job over the previous six months.
Many people have not been able to achieve their financial goals in the past because of unforeseen circumstances or expenses.
With an emergency fund, you can stay on top of these unexpected costs rather than making up for them later.
This will help keep you on the right track towards reaching your financial goals.
Setting aside money for an emergency fund should factor into your budget as to how much you will be saving and spending. Once you have saved enough money to cover at least six months’ worth of living expenses, that money can be budgeted elsewhere.
Managing Your Credit Score
A credit score is a number between 300-850, the highest being the best, based on your credit history. You can check this number by ordering your credit report from Equifax, Experian, or TransUnion. Everyone is entitled to one free report per year.
Managing and maintaining your credit score is a crucial step in accomplishing your financial goals. A good credit score can help you in a litany of ways, most importantly: qualifying for loans or mortgages with more favorable interest rates.
To strengthen your credit score you must first make sure you pay all your bills on time. Generally speaking, a credit card, used wisely, is a great way to build your credit as well.
Attaining a good credit score is an important factor in achieving your financial goals. You’ll spend less money on interest rates, therefore, your loans will be paid off quicker.
Staying organized is key to becoming financially secure. This means keeping a record of your bank and credit card statements, bills, and other expenses.
You should also organize what you’re saving for. With a savings account and an emergency fund, it can sometimes be confusing to keep track of all your money if they flow into the same account. Staying organized is even trickier if you’ve set multiple financial goals, like paying for a trip, saving for a home, and budgeting for new skis.
Trying out programs like Marygold & Co.’s Money Pools is a great way to stay organized and stick with your budget. Separating your goals into Money Pools allows you to visually see how much progress is being made towards each one. Programs like these will keep track of each account while also earning interest on every one of them.
Though it seems like a no-brainer, many people fail to consider their spending habits when trying to attain a financial goal. When making a budget, sometimes ‘necessary’ expenses may not be exactly that.
Every expense adds up.
Consider a trip to the grocery store – are you:
- Making a list and sticking to it?
- Using coupons?
- Buying the cheaper options?
- Comparing prices?
Every time you spend money, how much you’re spending must be taken into account. You can lower your ‘necessary’ spending simply by being fiscally responsible. Did you really need that pack of skittles sitting in the check-out line?
Knowing Where Your Money Goes
Everyone has noticed throughout their lives that sometimes, money seems to magnificently disappear. Though it can feel like that, this is simply not the case. If you are on top of your finances, you’ll know where every penny goes.
A cup of “joe” every day doesn’t feel like it would cost that much; research has found that some people spend up to 1,000 dollars on coffee and 2,000 dollars a year on lunch. Seeing that number, many people would reconsider their drive-through coffee-drinking habits. Coffee is an overused example but you get the point.
When learning about how to achieve your financial goals, it’s vital to know where your money is being spent. Go over your bank statements and account for every single dollar spent to find out how you are spending your money and where you can cut back.