What are your financial goals for the New Year? Do you wish to buy a new home, save more, have an early retirement or to be completely debt free? As we review our goals for the past year and set new ones for the year ahead, we may start off feeling determined to stick to them. However, review your goals 3 months later and you may find yourself adhering to less than half of your goals. This is because being overly ambitious we may unintentionally draw up a long list of goals to achieve in the new year. However, while they sound good in theory, they may be too complex and unrealistic to fulfil. As such, it is important that the goals set are practical and realistic. In this article, we therefore elaborate on four important financial goals and how they can be achieved in 2018.
#1 Managing Your Finances
A common financial goal for many would be to save more in the new year. However, if you find that you have not been meeting your saving targets for previous years, then perhaps you have not been properly managing your finances.
For starters, try allocating your finances according to the 50/20/30 rule. This means using 50 per cent of your income for fixed expenses such as mortgage, transport, insurance and other essentials. Then, set aside 20 per cent for your financial goals such as your saving goals or investments. Lastly, use the remaining 30 per cent for your wants. This refers to the things that you want but may not necessarily need and includes travel expenses, movie tickets and other entertainment expenses. By setting and adhering to a budget, it ensures that you are spending within your means while also allowing you to achieve your monthly or weekly savings target.
#2 Pay Off Your Debts
Would you want to still be repaying debts or worrying about your finances when you're 70? If you wish to be financially secure then perhaps it is time to start clearing your debts and to spend within your limits so as to avoid amassing new debts.
One common debt repayment method is the debt snowball method. This means to pay off debts starting from the smallest to the largest amount. For instance, start by paying as much as possible for your smallest debt while paying the minimum payment for the rest of your debts. After your smallest debt has been cleared, move on to the next smallest debt. Doing so, this gives you the psychological satisfaction of reducing your outstanding number of debts while also motivating you to clear all your remaining debts.Alternatively, you can also use the debt avalanche method where you start by paying off the debt with the highest interest rate while making minimum payment for the remaining debts. While this may require a longer time to strike off your list of debts, you would actually be paying less interest each month thus resulting in less money loss to interest rates.
#3 Be Financially Ready
What happens if a disaster were to strike, would you be financially prepared and able to cope? As such, it is important to have an emergency fund and adequate insurance coverage to ensure that you will be financially ready in the event of an emergency. To begin, calculate how much you require for your monthly expenses then save at least 3 to 6 months' worth of expenses in your emergency fund. Additionally, do also review and ensure that your insurance policies are relevant and can provide sufficient coverage for your protection gap. Having sufficient coverage and an emergency fund would then allow you to be protected in the face of unforeseen financial emergencies.
#4 Save For Your Retirement
It is never too early or late to start planning for your retirement. This is because your retirement is likely to span over 20 to 40 years and would therefore require a substantial amount of money. As such, the earlier you start planning for your retirement, the longer time horizon you will then have to accumulate and grow your retirement nest egg. This would then allow you to comfortably retire at your ideal retirement age.
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