How to Reach Your Financial Goals in 2021
By: Krystal Wascher
Tags: Investing, Money, Budget, Money Management, Finance

Calculate Your Cost of Living

When I create my financial plan for the year, the first thing I do is look at how much I spend on living expenses each month. These are recurring expenses like rent/mortgage, car payments, utilities, food, credit card payments, insurance, etc.

I list all of these things in a spreadsheet to make it easier to track and tally up.

Once you understand how much you spend each month on essentials, you’ll know how much is left over for other things like discretionary purchases, savings, and investments.

Monitor Your Spending

Next, I track my spending to understand exactly where my money is going. This is important because left unchecked, I will spend considerably more than my base cost of living.

Then I look for discretionary items that I can cut out or reduce.

For example, at one point last year, I was paying for half a dozen streaming subscriptions. I only used one of them regularly. Canceling the others saved me nearly $100 a month.

If you find that you are overspending in certain areas, such as takeout, set a monthly budget for that item to keep your spending under control.

The goal here is not to be overly restrictive and cut out everything that you enjoy. It’s to cut out or reduce expenditures that aren’t adding to your life in any meaningful way so that you have more resources available.

Create a Plan to Pay Down Debt

At this point, you should understand how much additional income you have leftover each month after covering your basic living expenses.

If you have credit card debt, I recommend paying your balances as aggressively as possible with the remaining funds that you have available each month.

The reason for this is because the interest rate on consumer credit cards is often far higher than the amount you would earn by investing or keeping funds in a savings account, so it’s best to tackle this obstacle first.

Paying down high credit card balances will also help you improve your credit score, thereby making it easier for you to gain access to business loans or mortgages for investment purposes in the future.

Set a Savings Goal

If you are starting with very little savings like I did years ago, financial planning expert Dave Ramsey recommends stashing away $1,000 for emergencies as your first step.

Once you’ve achieved this goal, the next step is to work up to saving three to six months' worth of expenses.

Using these guidelines as a starting point, decide how much you would like to save by the end of 2021. Then figure out how much you would need to put into savings each month to reach your goal.

Don’t worry if you can’t reach your savings goal with the amount of income that you currently have coming in. That’s not the point. The objective here is to understand what your savings goal should be so that you can make a plan to achieve it.

Create an Investment Goal

While cutting out unnecessary expenses and building your savings is a great start, the best time to start thinking about your financial future is right now.

Investment vehicles such as retirement accounts, index funds, property investments, and stocks will help you build wealth for the future.

The particular investments you choose are completely up to you, and you should do your own research before jumping in. However, setting aside a specific amount each month that you can invest is a smart move.

For example, you might decide to put $10,000 into an index fund by the end of 2021 or save up for a downpayment for a rental property.

Decide how much you want to invest this year and calculate how much you would need to set aside each month to reach your investment goals.

Make a Spending Wishlist

Believe it or not, financial planning can be fun!

Want to go on your dream vacation eight months from now? Great! Figure out how much it will cost and how much you would need to put away each month to make it happen.

I recommend setting up a separate bank account to save for the items on your wishlist.

When making your spending wishlist, don’t limit yourself to things that “seem reasonable” for your current income level. Allow yourself to dream big. Once you know what you want, you can create a plan to fund your goals.

Create a Plan to Fund Your Goals

Tally up the amount that you will need to fund your financial goals for 2021. Then divide that number by twelve. This is the amount you will need to earn each month to reach your financial goals for the year.

In all likelihood, you may not be earning enough income right now to fund all of your financial goals fully. That’s good! The purpose of creating goals is to give you a target to work toward.

But where will the extra income come from?

Author and real estate investor Grant Cardone has a saying,

Who’s got my money?

What he means by this is, where is the income that I need to reach my financial goals going to come from?

Many of us are already earning money from traditional 9 to 5 jobs or freelance work, but there is an unlimited number of ways to earn extra income, especially online.

Who has your money?

If you are not earning the amount of income you need to reach your financial goals, make a list of potential new income sources and how much you could earn from each one per month.

I built a healthy six-figure income in under three years by continually building small income streams. In my case, I’ve done it through self-publishing, freelancing, referral marketing, and creating digital products.

All of these things add up over time. You don’t have to build a massive business or come up with one big idea to be successful. There is an endless number of side hustles out there that can help you achieve your financial goals. You just have to find what works best for you.