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Set Your Financial Goals For 2021

We are a few days into 2021, and some of those resolutions are starting to fade away- mine being exercising and keeping fit. I will get to it, I am sure. What I am keeping at, though, is my resolution for better financial health this year. I have been going through my finances and updating the necessary for the last few days. Here’s what I have done to set my new financial goals for 2021:

Redefining Financial Goals

By now, you should have reviewed your 2020 financial goals, congratulate yourself for the ones you achieved, and redefine those that you did not achieve. While 2020 taught us that things could change abruptly, it also taught us to be very flexible with our goals and plans.

So, whatever financial goals you set this year, have some flexibility. Most importantly, be very clear with your financial goals. You cannot measure your progress from a vague description. Rather than having a “pay debt” goal, define it as “I want to pay Ksh. 100,000.00 bank debt and have Ksh. 100,000.00 in my savings account by August 2021”.

With this, you can easily plan how much you need to save every month for the savings account and the loan repayment and start working towards it.

Remember to separate your goals into short term and long term. It makes it easy to set a realistic timeline for each goal.

Short Term Goals 

Short term financial goals are those that you need to achieve within the year. Your short term goals should include items like:

  1. Building an emergency fund if you have none yet or yours is yet to hit the ideal target. An emergency fund must have at least 6 months of your monthly expenses. If you can increase this to 12 months of expenses, the better. With what we experienced in 2020, I am definitely working towards a 12-month emergency kitty. 
  2. Paying off short-term debts, like mobile loans, credit card debts, and debt from individuals. 
  3. Tweaking your monthly budget, which is easy if you have a reference point from your 2020 budget. Find out if you can cut from your expenses, so you have more money to save. If not, do not sweat it. There is only too much one can cut from their expenses. 
  4. Saving for travel – start saving for this year’s vacation, whether you are taking it at the end of the year or mid-year. 
  5. Major household expenses- for any significant household purchases or renovations you are thinking of undertaking, start setting money aside in advance. I would advise putting this money in a high yield short term investment account, like a money market fund account. Alternatively, you can save in a Sacco and borrow to leverage against your deposits.

Related post: My Experience Investing in Money Market Funds

Long Term Goals 

On the other hand, long term financial goals require investing for more than a year. These include:

  1. Saving for your retirement – if your employer does not offer a pension plan, you need to open an individual pension plan. The sooner you start saving for retirement, the sooner your money can begin to benefit from compounding interest. Apart from saving for retirement, the pension contributions will also help you reduce your tax liability. 
  2. Building an education fund – the cost of college education is set to go up, with public institutions planning to increase the fees from $265.00 (Ksh. 26,5000.00) to $600.00 (Ksh. 60,000). Private institutions also want to follow suit. In the coming years, we can still expect the cost of education to keep going up. That, plus the monthly expenses, like accommodation and meals, the price will be too high. Start saving for your kid’s college in advance, and let the money earn from compounding interest. 
  3. Homeownership – start saving for that mortgage deposit you need to make to buy your home. If you are planning to build, start saving for that, too.

Learn more in a related post: Individual Pension Plan; Why You Need One

Creating a Budget Plan

You cannot achieve any financial goals without a clear budget. You need to know how much money you bring in, where it goes and what you can tweak in your budget to achieve your set financial goals.  

First things first, do you have a budget for 2021? If not, start by creating one. Gather all your bank and mobile money statements so you can track the expenses from the last 3 months or so. It will help you figure out how much you spend every month on utilities, debt repayments, and other variable expenses. 

If you already have a budget in place for 2020, you can use it to estimate your 2021 income and expenses. Try to revise it to suit your 2021 financial goals.

If one of your goals is to save more or build an emergency fund, you need to find ways to reduce your expenses, like money spent on variables. If there is no expense to reduce, you need to figure out ways to make extra income to achieve this goal.

The rule of thumb when it comes to budgeting is 50/30/20. 50% of your income should go towards your necessities, rent, food, transport, and utility bills. 30% is for your wants, like entertainment. The remaining 20% is what you channel towards your savings. This rule might not work, but you can adjust the percentages, like reducing entertainment costs and putting that money towards savings or debt repayment.

When planning your expense, remember to factor in major expenses that might come up like tax payments and insurance renewals.

Most importantly, review your budget regularly and make any necessary adjustments. Again, nothing is fixed; life changes, and you should be ready to accommodate any unexpected changes in your budget.

Related Post: Best Budgeting Apps

Learn More About Personal Finance Planning 

This is the year you need to start learning more about managing your finances. It is the only way you will get skills to handle your financial matters, from savings to investment and budgeting. I know the math or accounting bit of finances might not be appealing, but if you want to achieve your financial goals, learn at least the basics. 

Luckily, the internet never disappoints when it comes to getting information. Here are some of the contents to look for:

  1. Read personal finance blogs. 
  2. Listen to personal finance podcasts.
  3. Get a financial advisor. 
  4. Subscribe to magazines with personal finance topics
  5. Start reading books on finance practices, like saving and investing.
  6. Debt Management
  7. Join online discussions on personal finance topics – sometimes, it is good to share or hear others’ ideas. Their methods might not work for you, but you can learn a few things from their experiences. You can join our community here

What financial resolutions have you made this year to achieve better financial health? Hopefully, this guide helps you set your resolutions if you are late to the party, and you can start working towards financial independence. 

DISCLOSURE: THE INFORMATION PROVIDED TO MY READERS IS GENUINE AND PRECISE TO THE BEST OF MY KNOWLEDGE. THE LINKS PROVIDED IN THIS ARTICLE DO NOT BELONG TO ANY AFFILIATE PARTNERS AND I AM NOT PAID FOR THEM.

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