Best Financial Goals To Set this Year

As we embark on a new year, it’s a perfect time to set financial goals that will help you achieve your desired level of financial security and freedom.

Whether you’re looking to build an emergency fund, pay off debt, invest for the future, or achieve other financial milestones, setting clear and realistic goals is the first step towards success.

In this blog post, we’ll explore some of the best financial goals to consider setting this year.

Note: You don’t need to start these goals from January itself. You can start anytime you want, and make sure you have a complete timeframe of around 12 months to crush and achieve them.

Let’s begin.

Best Financial Goals To Set this Year

1. Create a Budget

Creating a budget involves systematically organizing your income and expenses, allowing you to have a clear understanding of your financial inflows and outflows.

This process helps you identify areas where you can cut back, prioritize your spending, and ensure you are living within your means.

A well-planned budget is the cornerstone of sound financial management, paving the way for savings, debt reduction, and financial stability.

Step-by-Step Process:

Gather Financial Information: Collect all your financial statements, including bank statements, investment accounts, recent utility bills, and any sources of income or expenses.
List Income Sources: Identify and list all sources of income, such as salaries, dividends, or side hustles. Focus on your net income (after-tax income).
Track Expenses: Categorize your expenses into fixed (like rent, car payments) and variable (like groceries, entertainment) categories. Track every expenditure for a month.
Set Expense Categories and Limits: Based on your tracked expenses, set realistic spending limits for each category.
Adjust as Needed: If your expenses are more than your income, find areas to cut back. This might involve reducing discretionary spending or finding cheaper alternatives.
Review and Update Regularly: Regularly review your budget, ideally monthly, and make adjustments as your financial situation changes.

2. Build an Emergency Fund

An emergency fund is a financial safety net designed to cover unexpected expenses or financial emergencies, such as job loss, medical bills, or urgent home repairs.

The goal is to have a readily accessible fund that can cover 3-6 months of living expenses, providing peace of mind and reducing the need to rely on high-interest debt in emergencies.

Step-by-Step Process:

Determine Your Emergency Fund Size: Calculate your monthly living expenses and multiply by the number of months you want to cover (usually 3-6 months).
Set a Monthly Saving Goal: Based on your budget, determine a realistic amount you can save each month towards this fund.
Open a Separate Savings Account: Open a savings account specifically for your emergency fund to avoid the temptation to spend it.
Automate Your Savings: Set up automatic transfers from your checking to your emergency savings account right after each payday.
Gradually Build the Fund: Start small if necessary and gradually increase your contributions as your financial situation improves.
Only Use for Emergencies: Reserve this fund strictly for genuine emergencies and replenish it if you ever have to use it.

3. Reduce Debt

Reducing debt, particularly high-interest debt like credit card balances, is crucial for financial health.

High-interest debt can be a significant burden, eating into your budget and preventing you from reaching other financial goals. The goal is to create a structured plan to reduce and eventually eliminate these debts.

Step-by-Step Process:

List All Debts: Compile a list of all your debts, including the creditor, total amount of the debt, monthly payment, and interest rate.
Prioritize Debts: Identify high-interest debts and prioritize them for repayment. These typically include credit card debts and personal loans.
Choose a Repayment Strategy: Decide on a debt repayment strategy, like the debt snowball method (paying off smaller debts first for psychological wins) or the debt avalanche method (paying off high-interest debts first).
Create a Repayment Plan: Allocate a specific portion of your budget for debt repayment. Consider cutting back on non-essential expenses to free up more money for debt reduction.
Negotiate Lower Interest Rates: Contact creditors to negotiate lower interest rates or transfer balances to a lower interest rate card.
Avoid Accumulating New Debt: While paying off existing debt, avoid taking on new debts. This includes using credit cards judiciously or not at all.

4. Increase Savings

Savings can act as a financial buffer for future needs or goals, such as purchasing a home, funding education, or preparing for retirement. The key is to treat savings like a recurring expense that is non-negotiable.

Step-by-Step Process:

Determine Savings Rate: Decide on a percentage of your monthly income that you can realistically save. A common recommendation is 20% of your net income, but this can vary based on your financial situation.
Set Savings Goals: Define what you’re saving for – short-term goals (like a vacation), medium-term (like a car), or long-term (like retirement).
Create a Separate Savings Account: Open a dedicated account for your savings to avoid the temptation to spend it.
Automate Your Savings: Set up an automatic transfer from your checking account to your savings account shortly after you receive your paycheck.
Periodically Review and Adjust: As your income grows or expenses change, adjust the amount you save accordingly.
Cut Unnecessary Expenses: Find areas in your budget where you can cut back to increase your savings rate.

5. Start Investing

Investing can involve stocks, mutual funds, bonds, or real estate, among others. The goal is to build wealth over the long term, taking advantage of compounding interest and market growth.

It’s important to understand the risks associated with different types of investments and to invest according to your risk tolerance and time horizon.

Step-by-Step Process:

Educate Yourself: Learn the basics of investing, including different types of investments and the associated risks.
Define Your Investment Goals: Understand your investment objectives, time horizon, and risk tolerance.
Start Small: If you’re new to investing, start with a small amount you can afford to lose.
Diversify Your Investments: Don’t put all your money in one stock or sector; spread your investments to manage risk.
Consider Low-Cost Index Funds: For beginners, low-cost index funds can be a good way to get broad market exposure.
Regularly Contribute: Make consistent contributions to your investments, possibly through an automated plan.
Monitor but Don’t Micromanage: Regularly review your investments, but avoid the urge to react to short-term market fluctuations.

6. Improve Credit Score

Improving your credit score is crucial for financial health as it affects your ability to borrow money and the interest rates you’ll pay.

A good credit score can save you money in the long run and open up opportunities for favorable financing options.

Improving your credit score involves managing credit responsibly, making timely payments, and keeping credit utilization low.

Step-by-Step Process:

Check Your Credit Report: Obtain a free copy of your credit report and check for any errors or discrepancies.
Make Timely Payments: Ensure that all your bills, especially loans and credit card payments, are paid on time.
Reduce Credit Card Balances: Aim to keep your credit utilization ratio (the amount you owe divided by your credit limit) below 30%.
Limit New Credit Applications: Each new application can slightly lower your credit score, so apply for new credit sparingly.
Keep Old Accounts Open: Length of credit history affects your score, so consider keeping older accounts open.
Deal with Delinquencies: If you have past due accounts, work on paying them off and bringing them current.
Monitor Your Credit Score: Regularly check your credit score to track your progress and understand the impact of your financial behaviors.

7. Retirement Planning

Increasing contributions to retirement accounts such as a 401(k) or an Individual Retirement Account (IRA) is a key component of this.

Effective retirement planning involves understanding how much you need to save, choosing the right investment vehicles, and consistently contributing to build a sufficient retirement fund.

This ensures a comfortable and secure retirement, where your lifestyle can be maintained without the regular income from employment.

Step-by-Step Process:

Determine Retirement Needs: Estimate your retirement expenses based on your desired lifestyle, considering inflation and potential healthcare costs.
Review Current Savings: Assess your current retirement savings and any other sources of retirement income (like pensions or social security).
Set a Savings Goal: Based on your needs assessment, set a realistic savings goal for each year.
Choose the Right Retirement Accounts: If available, maximize employer-sponsored plans like 401(k)s. Consider opening or contributing more to an IRA.
Decide on Investment Strategy: Choose an investment strategy that aligns with your risk tolerance and time horizon. Diversification is key to mitigating risk.
Automate Contributions: Set up automatic contributions to your retirement accounts to ensure consistent savings.
Regularly Review and Adjust: Periodically review your retirement plan and adjust contributions or investments as needed, especially after major life events or changes in income.

8. Create a Will

Creating a will is an essential part of financial planning, ensuring that your assets are distributed according to your wishes upon your death.

It helps avoid potential disputes among beneficiaries and can also be used to designate guardians for minor children.

A will is a legal document that provides clear instructions on how your assets should be handled, offering peace of mind and clarity for your loved ones.

Step-by-Step Process:

Inventory Your Assets: List all your assets including properties, investments, valuable personal items, and bank accounts.
Decide on Beneficiaries: Determine who you want to inherit your assets. This can include family members, friends, or charities.
Appoint an Executor: Choose a trusted person to carry out the instructions in your will (the executor).
Designate Guardians for Minors: If you have children under 18, appoint a guardian for them in the will.
Consult with a Lawyer: While there are DIY will-making tools, consulting with a lawyer ensures that the will complies with state laws and your wishes are clearly articulated.
Sign and Witness the Will: Sign the will in front of witnesses as required by your state’s laws.
Store it Safely: Keep the will in a safe place and inform the executor and a close family member of its location.

9. Learn About Finance

Learning about finance is integral to making informed decisions about money management, investments, and overall financial planning.

This includes understanding basics like budgeting and saving, as well as more complex topics like investment strategies and market trends.

Gaining financial literacy empowers you to make better decisions, potentially leading to greater wealth accumulation and financial security.

Step-by-Step Process:

Start with the Basics: Begin with fundamental concepts like budgeting, saving, compound interest, and debt management.
Read Books and Articles: Regularly read books and articles on personal finance and investment strategies.
Take Online Courses: Enroll in online courses or webinars that cover various aspects of finance and investing.
Follow Financial News: Stay updated with financial news to understand market trends and economic factors that can impact your finances.
Join Financial Forums: Participate in online forums or local groups where you can discuss and learn from others’ experiences.
Consult with Financial Advisors: Consider consulting with a financial advisor for personalized advice, especially for complex financial decisions.
Apply Your Knowledge: Implement your learning into your personal financial strategy, starting with small, manageable changes.

10. Cut Unnecessary Expenses

Cutting unnecessary expenses is about identifying and eliminating spending that is not essential to your well-being or happiness.

This process involves scrutinizing your spending habits and distinguishing between ‘wants’ and ‘needs’.

By reducing these non-essential expenses, you can free up more funds for saving, investing, or paying off debt, thereby improving your overall financial health.

Step-by-Step Process:

Review Your Spending: Go through your bank statements and credit card bills to track where your money is going.
Categorize Expenses: Separate your expenses into ‘needs’ (essentials like housing, food, utilities) and ‘wants’ (non-essentials like dining out, entertainment).
Evaluate Non-Essential Expenses: Critically assess your ‘wants’ and decide which expenses can be reduced or eliminated.
Set Spending Limits: For categories where you tend to overspend, set strict spending limits.
Find Alternatives: Look for cheaper alternatives for necessary expenses and eliminate unnecessary subscriptions or memberships.
Monitor Regularly: Regularly check your spending to ensure you are sticking to your new budget and adjust as needed.

11. Start a Side Hustle

Starting a side hustle involves initiating a part-time business or freelance work alongside your regular job.

This can be a powerful way to generate additional income, explore your passions, or develop new skills.

The key is to find something that you’re interested in and that can feasibly be done in your spare time without overwhelming your schedule.

Step-by-Step Process:

Identify Your Skills and Interests: Reflect on what you are good at or passionate about. This could be anything from writing, graphic design, tutoring, to crafting.
Research Market Demand: Look into the market demand for your chosen hustle. Ensure there’s a viable market for your skills or products.
Create a Plan: Develop a business plan outlining your services, target market, pricing strategy, and time commitment.
Set Up Your Side Hustle: Depending on your hustle, this may involve creating a website, setting up social media profiles, or preparing products.
Manage Your Time Wisely: Balance your full-time job and side hustle without burning out. Set specific hours for your hustle.
Promote Your Work: Use various channels like social media, word of mouth, or networking to promote your side hustle.

12. Save for a Large Purchase

Saving for a large purchase, such as a car or a home down payment, requires a dedicated and strategic approach to finance.

It involves setting a clear savings goal, creating a timeline, and regularly contributing to a savings plan.

This goal encourages financial discipline and planning, helping to avoid the pitfalls of impulsive buying or excessive borrowing.

Step-by-Step Process:

Determine the Total Cost: Research to determine the total cost of the purchase you’re saving for, including any additional fees or taxes.
Set a Savings Goal: Based on the total cost, set a clear savings goal, considering how much you need for a down payment if applicable.
Create a Timeline: Decide on a realistic timeline for your purchase, which will help determine how much you need to save each month.
Open a Separate Savings Account: Consider opening a savings account specifically for this goal to avoid spending the money on other things.
Automate Savings: Set up automatic transfers to this account each payday to ensure consistent saving.
Cut Back on Expenses: Look for ways to reduce your expenses to free up more money for your savings goal.

13. Review Insurance Coverage

Regularly reviewing and ensuring adequate insurance coverage is essential to protect against significant financial losses due to unexpected events like illnesses, accidents, or property damage.

Adequate insurance coverage provides financial security and peace of mind for you and your family.

Step-by-Step Process:

Assess Your Current Coverage: Understand your existing insurance policies, including their terms, coverage limits, and premiums.
Evaluate Your Insurance Needs: Consider changes in your life like marriage, parenthood, home purchases, or career changes that might affect your insurance needs.
Shop for Competitive Rates: Regularly compare insurance rates from different providers to ensure you are getting the best deal for your needs.
Consider Additional Coverage: Look into additional insurance types such as disability, long-term care, or umbrella policies if they fit your circumstances.
Consult with Insurance Professionals: Seek advice from insurance agents or financial advisors to get a professional perspective on your insurance needs.
Regularly Update Your Policies: Ensure your insurance policies are updated to reflect any significant life changes or financial decisions.

14. Plan for Children’s Education

Planning for your children’s education involves setting aside funds to cover future educational expenses.

This is crucial given the rising cost of education.

Early planning can ease the financial burden and open up more opportunities for your children, whether that’s attending a prestigious school, pursuing higher education, or studying abroad.

Step-by-Step Process:

Estimate Future Education Costs: Consider the potential costs of your children’s education, including tuition, books, accommodation, and other expenses.
Explore Saving Options: Research and choose a saving plan suited for educational expenses, like a 529 plan or an education savings account.
Set a Monthly Saving Goal: Determine how much you need to save regularly to meet the estimated education costs.
Start Saving Early: The sooner you start saving, the more time your money has to grow through compound interest.
Invest Wisely: Consider investing in low-risk investment options that offer steady growth potential.
Regularly Review and Adjust the Plan: Monitor the progress of your savings plan and make adjustments as needed, especially if your financial situation changes.

15. Automate Savings and Bills

Automating savings and bill payments is a strategy to ensure consistency in saving money and paying bills on time.

This approach minimizes the risk of late payments and their associated fees and helps in building savings without requiring active, daily management.

By automating these financial tasks, you can focus on other aspects of your finances and life, knowing that these crucial elements are taken care of.

Step-by-Step Process:

Choose Your Accounts: Decide which accounts will be used for savings and which for bill payments.
Set Up Automatic Transfers for Savings: Arrange for a portion of your income to be automatically transferred to your savings account. This could be a fixed amount or a percentage of your income.
Schedule Automatic Bill Payments: Contact your service providers or use online banking to set up automatic payments for regular bills such as utilities, rent, or mortgage.
Align with Pay Cycle: Ensure that the timing of your automated savings and bill payments aligns with your income cycle (e.g., monthly or bi-weekly).
Monitor Regularly: Check your accounts regularly to ensure that the automated systems are working as intended and adjust as necessary.

16. Negotiate Better Rates

Negotiating better rates on loans, credit cards, or insurance policies can lead to significant cost savings over time.

This process involves contacting your service providers and discussing the possibility of lower interest rates or premiums, based on your history, market rates, or competitor offers.

Effective negotiation can reduce financial burdens and contribute to overall financial health.

Step-by-Step Process:

Research Market Rates: Before negotiating, research current rates offered by competitors or for new customers.
Review Your History: Gather your payment history and credit score. A good history can be a strong bargaining chip.
Contact Providers: Call your loan, credit card, or insurance providers and inquire about lowering your rates.
Present Your Case: Explain why you deserve a lower rate, using your research and payment history as leverage.
Be Willing to Switch: If your current provider won’t budge, be prepared to switch to a competitor offering better rates.
Review and Repeat: Regularly review your rates and repeat the negotiation process as market conditions change.

17. Track Your Net Worth

Tracking your net worth is a critical aspect of understanding your overall financial health.

Your net worth is the sum of all your assets (what you own) minus your liabilities (what you owe).

Regularly calculating and monitoring this figure helps you see the big picture of your financial progress, identify areas that need improvement, and make informed decisions about your financial future.

Step-by-Step Process:

List Your Assets: Include cash, bank accounts, investments, real estate, and personal property that has value.
List Your Liabilities: Document all debts and obligations like loans, credit card balances, and mortgages.
Calculate Net Worth: Subtract your total liabilities from your total assets.
Use Financial Software or a Spreadsheet: Consider using financial software or a simple spreadsheet for tracking these figures over time.
Update Regularly: Update your net worth calculation at least annually, or more frequently if you have rapidly changing financial circumstances.
Analyze and Plan: Use changes in your net worth to guide financial decisions and future goals.

18. Financial Networking

Financial networking involves connecting with financial professionals, joining finance-related groups, and engaging in communities that can provide valuable insights, advice, and support.

This can include interactions with financial advisors, accountants, or joining online forums and local investment clubs.

Networking in the financial realm can lead to better financial decisions, learning new strategies, and staying informed about financial trends and opportunities.

Step-by-Step Process:

Identify Relevant Professionals and Groups: Look for financial advisors, accountants, or investment groups that align with your financial interests and goals.
Join Online Communities: Participate in online forums, social media groups, and webinars focused on finance and investment.
Attend Seminars and Workshops: Enroll in financial seminars, workshops, or local meetups to gain knowledge and meet like-minded individuals.
Engage Actively: Ask questions, share experiences, and engage in discussions to gain the most from these networks.
Establish Relationships: Build relationships with financial professionals who can offer personalized advice and guidance.
Stay Informed and Adapt: Use the knowledge and insights gained from your network to adapt and refine your financial strategies.

Before I leave, I want to ask?

Which financial goal are you setting this year?

Let me know in the comments below.