Getting your finances in order is the perfect way to start in 2021. The new year is a good time to start off right by practicing good money habits for the entire year.
1. Set goals
Goal setting is the foundation for your 2021 financial intentions. How do you want your year to look? Do you want more money to travel? Do you want to pay off your credit card? Increase your Thrift Savings Plan (TSP) contributions? Setting goals for your debt, spending, savings and investing helps you get your finances in order.
2. Do a review
Looking back on the past year is helpful to prepare your finances for the new year. What are the things you did that worked? What didn’t? Did your past savings goals go as planned? Let last year be a jumping-off point to prepare for the year ahead.
Then look at your current situation. You need to know how much money you have coming in and going out. List out your income and all of your expenses in order to create a budget.
Review your investments next. Do you have the TSP or an Individual Retirement Account (IRA)? Reviewing your retirement and savings accounts is important to know your current financial state. Don’t forget to get a free copy of your credit report and review it for errors. Or if you’re unsure of some of your debts, your report will have them listed.
3. Create a budget
After doing a review, you will know your income and expenses which is the starting point for a budget. Budgeting isn’t everyone’s favorite thing to do, but it’s really just a game plan for your finances. Having a clear understanding is key.
Write down all of your income minus all of your expenses. What’s left is your free cash flow. If you subtract your income from expenses and you’re in the negative, it’s time to reduce some of your spending. If you have extra money, you can use the free cash to put towards your financial goals, like paying off debt.
Do not forget to include expenses that don’t have every month like vehicle registration, new tires or oil changes. If you don’t, they’ll cause financial problems later.
4. Build your savings
Building up your savings is an essential part of getting your finances in order. Financial opportunities and challenges will always come up—that’s life. Savings will make a world of difference when financial problems come up. When you don’t have savings, it can make the smallest problem become a financial crisis.
Make 2021 the year you start or put more money aside for emergencies and for your future. Pay yourself first by setting an allotment or auto-transfer at your bank to move $50-$100 to your savings account each month. If you aren’t already doing it, start contributing to your TSP or increase your contribution percentage.
And don’t forget Christmas and the holidays. The beginning of the year is the perfect time to start setting aside money each month so come December, you can enjoy the holidays debt free.
S.M.A.R.T goals will help you get your finances straight
When it comes to goal setting, make sure they are SMART goals. Your goals should be specific, measurable, achievable, relevant and time-based.
Specific – Make a goal specific rather than vague so you know precisely what you want to achieve.
Measurable – A measurable goal is to make your progress trackable. For example, if you want to pay off $1,000 in debt, you can measure that.
Achievable – An achievable goal means you can complete it. Think about how you’re going to get it done.
Relevant – Does your goal have meaning to you? Make sure it matters to you and is consistent with what’s important to you.
Time-based – When is this going to happen?