Financial Goals for 2021
To achieve financial goals, you first have to set them. Spend some time focusing on what you want to achieve this year, but also think about what you’d like to achieve long term. Maybe this year’s goals are the first steps to achieve those bigger long-term goals? Continually review your goals and continue to review your progress towards them to make sure that you remain on track, annually, monthly, weekly, possibly even daily!
The physical act of actually writing down your goals means that you are far more likely to achieve them. But this isn’t enough. You then need to set out a plan as to how you will achieve these goals. So, set a goal, write it down, plan it out, but most importantly, actually take action.
Five actions to kickstart the year
Getting your house in order and then maintaining it might be the first steps to achieving financial security. With this in mind, the following five things would be a good place to start.
- #1 – Get your credit in check and plan to pay off high interest debt
Paying off high interest debt, like credit cards or personal loans, is probably even more important than finding good investments. Paying unnecessary high interest will decrease your disposable income and reduce your net worth. If you don’t have the resources to pay it off, research and switch to lower interest options, being careful to watch out for exit charges on the original debt and entry charges on the new debt. Most importantly, create a plan for reducing the debt and the interest payable.
- #2 – Get your emergency fund in place
Either separate funds away from your normal accounts or look to start to build an emergency fund, an account that is not touched, except for a completely unforeseen expense, or for if you were to have a loss income, for example. A good rule of thumb might be to have three months’ essential outgoings in an instant access account. So, if you spend £2,000 per month on mortgage, food, bills and other things you can’t live without, you should aim to have £6,000 in emergency savings.
- #3 – Review your bank and savings accounts
Interest rates are at all-time lows, but that doesn’t mean you can’t make your cash work a little harder for you. Don’t be scared of switching for fear of messing up payments and direct debits. The Current Account Switch Guarantee makes the process simple and easy. Which? recently published their guide to the best and worst banks. This could be a useful place to start when thinking about who you might switch to. You can find all the detail here.
Interest rates have been low for years, but banks and building societies have slashed rates in the last 12 months. The main high street banks have a notorious reputation for paying very little in the way of interest, so it’s worth searching for alternatives. Use of the comparison sites like Moneyfacts to help find the best deals and increase the interest you receive.
- #4 – Look for cost savings, budget and set a spending plan
First, check your direct debits. Do you actually use all these things? Do you need to continue everything you’re paying for?
Next, look for savings on your utility bills. There’s lots of services out there that actually do all the research and switching process for you, but then also continue to monitor and switch on an ongoing basis. Here’s a guide to how it works and reviews of the main companies.
You’ll have non-discretionary expenses that have to be paid, for example, your household bills. But much of what a lot of people spend is actually discretionary; clothes, meals out, days out, holidays etc. Set yourself a spending plan for other things, like food, social, hobbies. When I bought my first home, my way of budgeting was having envelopes of cash for certain things. Now, I have accounts for bills, accounts for day-to-day spending and I have other accounts to which I save regularly. I set an annual budget and then saving monthly for things like tax, holidays, house and garden and annual costs like insurances or car maintenance. This guide by The Money Advice Service explains the Jam Jar Approach in more detail. Thankfully, technology has moved on from envelopes and there are far easier ways of doing this now. You might want to look at one of the newer banks like Starling or Monzo where you can easily manage multiple “pots”.
- #5 – Get to grips with what you’ve got
As we move through life, we tend to accumulate plans, policies, accounts and investments. Get all that paperwork out, file it in order, by provider and policy number. But then think about collating a brief summary (that you can update regularly) to help you keep track. It’s useful for you but could be invaluable to someone else who might need to pick things up on your behalf, for example in the event of death or ill health. We’ll happily provide you with a template to start the process of recording the important details.
So, you’ve now got a set of goals, and you’ve got the basics straight. But, what next?
We’re delighted to receive consistently excellent feedback from our clients who know and understand the benefits of financial planning. We’re sure you all know someone, a friend, a member of the family or a work colleague that could benefit from working with myself and the rest of the team at Jane Smith Financial Planning. We’d love to speak with them, and rest assured if we’re not best placed to help, then we’ll be able to point them in the right direction.