Financial planning for 2021 - 5 Practical Tips to Protect Your Money
The New Year is the perfect time to think about how you can bring positive changes to your financial life. It is time to sit with your family and create a financial map to reach your money goals for 2021.
In this post, we will discuss 5 tips that can help you to protect and improve your financial life.
5 Tips to Improve Your Finances in 2021
After a disastrous 2020, it is time to take care of your financial life.
Here are a few tips to help you improve your finances in 2021.
1. Set your financial goals for 2021: The first tip is to set up specific, achievable, and realistic financial goals for yourself.
Be specific about what you want. For example, your financial goal can be to stop making useless expenses and save money.
But is this specific? No.
What is a specific financial goal?
A specific financial goal is something like this. "I will save a thousand dollars every month."
When you are determined to save a thousand dollars every month, you know exactly what you have to do. It is a specific, realistic, and attainable goal.
Another example of a realistic and attainable financial goal is contributing $100 to retirement savings accounts every month.
Have you noticed that in both examples, there is a time factor? You are contributing $100 to your retirement savings plans every month. This means that you will have to gather money for the contribution within 30 days.
Do not set vague financial goals as it is hard to devise a plan for achieving them.
2. Create a budget that you can follow: Do you know what the foundation of a healthy financial life is? It is the household budget.
A household budget helps you to track your expenses. It helps you to understand where you are spending money and where you should not spend money. It shows you the areas where you can potentially save money. If you do not know how to create a budget, then you can download a budgeting app on your smartphone.
Read reviews of budgeting apps online and download any one of them to stay on top of your finances.
Make sure you create a simple and realistic budget that you can follow. Avoid making a shoe-string budget that doesn't give you any breathing space.
3. Pay off as much of your debts as you can: 2020 is gone. You have to think about 2021 now. Last year, you skipped payments on your debts without any trouble. But 2021 is different. You have to think about the best way to reduce credit card debt.
Ways to reduce credit card debt in 2021
You can settle your debts to pay less than what you owe.
You can consolidate your debt to pay back your creditors in easy monthly payment plans.
You can file for bankruptcy if you don't have enough financial resources to pay off your debts.
4. Build an emergency fund for unforeseen expenses: Several people suffered from a cash crunch in 2020 due to various factors like job loss and pay cuts. Most of them didn't have an emergency fund. As such, they couldn't do anything to protect their financial life.
Do not make this mistake in 2020. Save money to build your emergency fund. It will help you to tackle emergency expenses. Usually, financial experts recommend saving 3 to 6 months' worth of living expenses. However, in the present circumstances, when everything is uncertain, it is best to save 9 to 12 months' worth of living expenses.
If you do not have an emergency fund, make sure to create one in 2021. Reduce your expenses wherever you can and do side-hustles to generate enough cash to build your emergency fund.
5. Invest to grow your money and secure your future: Forget what happened in 2020. 2021 is a new year, and you should start it fresh. 2020 was financially challenging for everyone. If you received a pay cut in 2020, then you might not have invested your money anywhere. Think about how much you can invest, and where this year will be. Smart investments help you grow your money over time.
If you want to invest in the stock market, find out the companies that are likely to grow in the long run.
Make sure you invest your money in retirement savings plans, especially when you have not made a contribution in 2020. You need to build your nest-egg to secure your financial future.
Let's kick-start 2021 with a fresh resolve to build a healthy financial life. Let us avoid making expensive money mistakes and follow the five tips mentioned in this article. If you can do this throughout the year, you can improve your finances and achieve all your goals in 2021.
Best of luck!!!