21 Ways To Jump-Start Your Financial Goals
At long last, 2020 has come to an end. While it couldn’t come soon enough and was a year full of strain, loneliness, and loss for many, 2021 offers new hope.
It’s the time of year that New Year’s resolutions are in full swing. I can tell from the number of diet and fitness ads clogging up my Instagram feed. However, about 80% of such resolutions are dropped by mid-February. This is often because people don’t create SMART goals or design a system to achieve them. It’s like going on a road trip without a GPS.
“Goals are good for setting a direction, but systems are best for making progress. A handful of problems arise when you spend too much time thinking about your goals and not enough time designing your systems.”
– James Clear, Atomic Habits
When creating your New Year’s resolutions, be them financial or otherwise, make sure they are SMART — specific, measurable, achievable, relevant, and time-bound.
Creating SMART Goals
Specific
Many goals are too vague to achieve anything. Take the goal, “I want to save more.” What does “more” mean — more time commuting, more baby seals, or in this case, more money?
Instead, make sure your goals are specific and simple. Keep the five “W” questions in mind to help frame your thinking.
- What do I want to accomplish?
- Why is this goal important?
- Who is involved?
- Where is it located?
- Which resources or limits are involved?
Here is an example of how you can leverage the questions above to “save more.”
- What do I want to accomplish? I want to save more of my net income than last year.
- Why is this goal important? I want to complete building a 6-month rainy day fund and begin saving for a down payment.
- Who is involved? Myself, but also my employer since my salary is subject to change and bonus is variable.
- Where is it located? At first, in my standard bank savings account since I am building my rainy day fund first. Once I complete my rainy day fund, I need to open an investment brokerage account to work toward my long-term goal of saving for a down payment.
- Which resources or limits are involved? One resource is my salary. An additional resource is the supplemental income from side contracting work. A potential limit is not getting a raise this year.
Revised goal: “I want to save more of my net income to complete building a 6-month rainy day fund and begin saving for a down payment.”
Measurable
Specificity lends itself to being more measurable, which enables you to better achieve your goals. It also helps you track meaningful progress and keep you motivated.
Using the example above, how much more do you want to save than last year? Is it a fixed dollar amount or a percentage of your total income? Evolving your goal from “saving more of my net income” to “saving 5% more of my net income” enables you to calculate how much you saved last year and determine how much more you need to save each month from achieving that goal.
Revised goal: “I want to save 5% more of my net annual income to complete building a 6-month rainy day fund and begin saving for a down payment.”
Achievable
On that note, make sure your goals are achievable based on your own actions. If you want to save 5% more but are only able to accommodate that with a raise, you might need to adjust the goal to something more feasible. If you are able to meet your goal, automate as much as you can to reduce potential barriers.
Revised goal: “I will set up automatic, scheduled transfers of my paycheck. The amount will be 5% more of my annual net income than I saved last year to complete building a 6-month rainy day fund and begin saving for a down payment.”
Relevant
Make sure you set goals that are applicable to where you are in your life right now and are goals you actually want to achieve.
For example, if you are still burdened with credit card debt, your focus should be on paying that off rather than building additional reserves (as long as a base rainy day of at least $1,000 is in place).
Or, if everyone is telling you to buy a house, but you have determined renting is better for you and you prefer to invest in the stock market, align your goal accordingly.
Time-bound
Create a deadline for yourself to help you stay on track. Schedule periodic check-ins to make sure your original timeline is still feasible and adjust either the goal or time-bound, if needed.
For additional support, find an accountability partner and ask them to join your check-ins. You could even have a financial incentive on the line. For example, at the beginning of your goal period, send your accountability partner $20 to hold on to. If you achieve your goal, you can spend the money on something you want or donate it to a cause you care about. If you don’t achieve your goal, perhaps your partner is directed to send the money to a cause you don’t want to support.
Revised goal: “In the first week of my goal period, I will set up automatic, scheduled transfers of my paycheck to complete building a 6-month rainy day fund and begin saving for a down payment. The amount will be such that I will save 5% more of my net income than I saved last year by the end of December.”
21 Financial Tips to Consider for 2021
Now that you know how to create actionable goals that enable you to achieve your resolutions, here are 21 financial housekeeping items to consider building into your 2021 plan.
1. Do a debt check-in.
How much debt do you have from all sources (credit cards, student loans, mortgage, auto loans, etc.)? Are you paying your credit card in full? Do you have a plan to tackle your other loans?
2. Review your financial household.
Make sure you know where all of your important financial paperwork, passwords, account information, etc., is located. Do you remember all of your PIN numbers, or do you need to call your bank and reset them? Are you on track with your financial plan?
If you have a live-in partner or family, are you aligned in your financial strategy? Do you have an open dialogue about finances, or is this something you could improve?
3. Check your credit score.
You can request a free copy of your credit report from each of the three major credit reporting agencies (Equifax, Experian, and TransUnion) once per year. Set calendar reminders with a note of which institution you are requesting from so you keep it straight. Since you are requesting the credit score, it is considered a soft inquiry.
4. Pay off any high-interest debt.
Double down on debt that has interest above 6%.
5. Build your rainy day fund.
Make sure you have enough liquid assets to support you for at least 6 months in the case of an emergency. Some experts recommend increasing this up to 12 months during the pandemic.
6. Pay yourself first.
Set up automatic transfers, so at least 20% of your paycheck is going to your savings.
7. Set savings targets.
Create incremental, perhaps quarterly targets, to break down larger savings goals.
8. Create or update your budget.
Whether a budget means creating lots of subcategories or covering the basics and then allowing the rest to be used at will, find a budgeting style that works for you and use it! This will help you spend on what matters to you.
9. Rebalance your retirement accounts.
Revisit your retirement timeline and strategy. If you invest in more than one portfolio or fund, the ratio of your total retirement savings likely shifted during 2020. Rebalance your portfolio, so you have the proper proportion of each holding to achieve your desired risk distribution.
10. Maximize your tax-advantaged accounts.
If you have access to a traditional or Roth 401(k) or 403(b) with an employer match, contribute the minimum amount to get the full match. If you already do so and can afford to contribute more, work towards maximizing your tax-advantaged accounts.
- Traditional/Roth 401(k) & 403(b) contribution limit: $19,500
- Traditional/Roth 401(k) & 403(b) catch-up contribution: $6,500
- Roth IRA contribution limit: $6,000
- Roth IRA catch-up contribution: $1,000
- Health Savings Account (HSA) contribution limit: $3,600 (individual)/$7,200 (family)
- HSA catch-up contribution: $1,000
- Healthcare Flexible Spending Account (FSA) contribution limit: $2,750
- Dependent Care FSA contribution limit: $5,000 (individuals or married couples filing jointly), or $2,500 (married person filing separately)
If you have to choose between the accounts, consider your upcoming year. Do you have a lot of expected medical expenses? If so, consider focusing on your HSA or FSA. If not, you may be better served to maximize your retirement accounts that offer a broader set of investment options.
11. Consolidate your accounts.
Have you changed jobs, and do you have several different retirement accounts or HSAs? Consolidating them makes it easier to rebalance, reduces the risk of losing track of the money, and lessens potential administrative fees.
12. Automate your savings and investments.
The last thing anyone wants or needs is another chore. Take the 15 minutes now to automate your systems. It’ll be like having your own little colony of worker bees. For investment accounts, also make sure to automate your trades. You don’t want to accidentally leave it in the core account, earning no returns!
13. Set up your beneficiaries.
Make sure you have designated your beneficiaries across all of your assets — retirement accounts, stock investments, life insurance, bank accounts, etc. Do any of these need to be updated?
14. Create an estate plan.
It can be morbid to think about our own mortality, but the fact is we will all die at some point — near or far, expected or unexpected. And while this is perhaps one of the least sexy parts of life’s unsexy toolkit, having an estate plan is important for easing the grief and stress on your loved ones.
While many think this only refers to a will, your estate plan should also include a healthcare power of attorney, financial power of attorney, and advanced healthcare directive. This is a very personal and nuanced space and can go deeper for those with particularly large estates. But the four items mentioned here are a good starting place. Ask your HR team about your Employee Assistance Program (EAP) for a free consult with a lawyer.
15. Re-evaluate your subscriptions.
2020 was the year of streaming subscriptions, am I right? Netflix, HBO, Amazon Prime Video, Disney+, Hulu, Peacock…you name it! While I’m sure we all had our fair share of binge sessions, do you really need all of the services? If you said “yes,” note that having all six of the services listed above costs you $611-$851 per year. Do you need all of them now? Think about what you actually use and consider paring it down.
16. Review your insurance policies.
While open enrollment season for health insurance has passed for many, take a look at your other insurance policies (renters, home, auto) and see if there is a cheaper or more appropriate plan available. Don’t let inertia get the best of you.
17. Begin gathering 2020 tax documents.
As of now, the U.S. government has not announced any additional extension to the 2020 tax filing deadline. Begin gathering together your paperwork now to make it easier down the road.
18. Kick a bad habit.
Bad habits run the gamut, but one thing they all have in common (apart from being bad habits and contributing negatively to your life) is that they have some sort of financial impact. Yes, you can have finance-related bad habits, but their relation to financial impact is obvious, so I’m going to skip over them.
Health-related bad habits, such as smoking or alcohol and drug addiction, can be expensive to maintain. In addition, they can lead to greater need for medical care later on, which adds to the overall cost. While I don’t seek to trivialize these health issues at all, I do want to acknowledge their general financial impact.*
19. Increase your income.
There are many creative ways to increase your income. While over one-third of Americans participate in the gig economy, if that is not your calling, you can also earn additional bucks through participating in focus groups or research studies, leveraging workplace rewards programs, or selling things you no longer need. Get creative!
20. Read at least one personal finance book.
Keep educating yourself on personal finance. Financial literacy is one of the core manuals to life’s unsexy toolkit. It will help you know what information and advice is useful and what is disingenuous or downright wrong.
“Formal education will make you a living; self-education will make you a fortune.”
– Jim Rohn
21. Make it fun.
Personal finance can and should be fun! Whether it’s grabbing a latte before sitting down to a budgeting session or creating the ultimate hygge ambience when cracking open your next personal finance book, find ways to enjoy the journey and make it part of your self-care routine.
Not all 21 of these financial household items may be necessary for you. Even if they are, they should not be tackled all at once. Prioritize and keep your goals SMART so that you can build better habits and continue working toward financial flexibility and success.
Have questions for Life’s Unsexy Toolkit? Send them to unsexytoolkit@gmail.com, and I’ll address them in future articles.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
*If you or someone you know needs support for a mental and/or substance use disorder, contact SAMHSA’s National Helpline, 1-800-662-HELP (4357). It is a confidential, free, 24-hour-a-day, 365-day-a-year information service, in English and Spanish, for individuals and family members. This service provides referrals to local treatment facilities, support groups, and community-based organizations.
