Home Finance 6 Top Powerful Tips For Setting Financial Goals In 2018

6 Top Powerful Tips For Setting Financial Goals In 2018

2018 has arrived a few days back. Most of us have decided to make our lives better in this New Year. Some of us want to live in a better house. Some of us want to buy a new car whereas others dream to explore magnificent destinations in the country.

Leading an independent financial life is a great goal. But only a few people know how to start and from where. If your goal is to achieve financial freedom in the New Year, then here are the 6 tips to set your financial goals in 2018.

1. Find out where you are: It’s important to set financial goals especially if you wish to prosper in life. But before you can set any goal, you need to know where you are standing financially. Check your bank statements, credit card bills, and investment portfolio. Figure out how much you have saved in total and how much you owe. It might be stressful to analyze your current financial situation but once you gain the knowledge, it will be easier for you to set financial goals for the year 2018.

If you have too much credit card debt, then your first financial goal should be to pay it off in 2018. If you have not saved a penny in your retirement saving accounts, then your goal should be to build your nest-egg in this year.

2. Create a household budget: The best financial move you can make in 2018 is to create a household budget. But there are a few points you need to remember before making a budget and these are:

(i) Your budget should be practical

(ii) It should be achievable

(iii) It should be flexible

(iv) It should have a category for food, utility cost, and housing

(v) It should have a category for miscellaneous expenses

Stick to your budget no matter what happens in your financial life. Overcome the temptations that induce you to break your budget. Review your budget once every quarter to know if it is helping you to save money.

You can use Mint budgeting app. It’s a good one.

3. Knock off your debts: Debt can ruin your financial dreams and your personal life. I have seen many couples part ways due to financial disputes and disagreements. If you owe a big amount on your credit cards or payday loans or medical bills, then think about the strategies to pay them off.

Compounding interests are simply stealing your money. If you’re making 16% in the commodity market, but paying 19% in interest, then you’re wasting money.

Here are a few strategies to pay off your debts:

(i) Take advantage of the debt relief programs: Debt relief programs help you pay back your creditors and save money simultaneously. Know about all the debt relief programs, their pros and cons, and pick the best one for you.

If you want to save money on the interest, then consider paying off your debts with a debt management program.

If you wish to save on the principal amount, then consider paying back your creditors with a debt settlement program.

(ii) Snowball your debts gradually: The debt snowball method is a payoff strategy where you get rid of debts from smallest to biggest. In this method, you pay the minimum amount on all your debts, except on the credit card with the smallest balance. Pay an extra amount on the credit card with the smallest outstanding balance every month. Once you pay off the balance, roll the money you were paying on the smallest debt to the next smallest balance. Gain the momentum gradually and kick out your debts one by one.

Here is the step-by-step guide:

  • List all your debts in the ascending order
  • Pay as much as you can on the smallest debt
  • Pay the minimum amount on all your debts
  • Repeat the process till all your debts are paid in full

(iii) Target the credit card with the highest interest: Debt-snowball method gives you psychological boost since it is easy to get rid of smallest debt. But if you want to get rid of quickly, then debt avalanche method is a good option for you.

Note down the interest you’re paying on each debt and arrange them in a descending order like this.

(i) Credit card A – 25% interest rate. Minimum monthly payment amount – $350

(ii) Credit card B – 20% interest rate Minimum monthly payment amount – $300

(iii) Credit card C – 18% interest rate Minimum monthly payment amount – $200

(iv) Credit card D – 15% interest rate Minimum monthly payment amount – $150

Calculate the minimum payment you need to make on all your credit cards. The total amount you have to pay for making the minimum monthly payment is $1000. Now calculate how much extra you can pay on the credit card A. Once you decide the figure, pay more than the minimum on credit card A and make minimum monthly payments on credit cards B, C, and D.

Continue this process till you pay off credit card A.

After you have paid off credit card A, roll the total amount toward the credit card B. If you were paying $500 for credit card A [minimum monthly payment (350) + extra payment ($150)], then put that amount toward the credit card B. This means you have to pay total $800 [$500 + $300] till you pay off the credit card B. Repeat this process till you knock off the other 2 credit cards too.

Proponents of debt avalanche method say that you can get rid of debt quickly by attacking the toxic debt first. On the other hand, proponents of the debt snowball method say that small victories are way better than doing nothing at all.

Ultimately, the choice is yours. If you want to relax and get rid of debt, then opt for the debt relief options. If you want to take the DIY route, then choose between the debt snowball or debt avalanche method.

4. Organize everything: My dad always says, ‘Planning is everything’. He didn’t earn much yet he managed to save a good amount just by planning in advance. My earliest recollection of my dad is noting down everything on a piece of paper and keeping it in a blue folder. I didn’t give any importance to it till I started working as a financial content writer many years later.

The best part of keeping financial documents organized is that you can track everything. My dad can easily tell me how much he paid for the electricity bill in January 2016 in a fraction of a second. This helps him to track if his electricity bill has increased in the last 1 year.

You can use various online financial tools and budgeting apps to track your finances. This would help you stay organized financially.

5. Look at your investments: Have a look at your investment portfolio and check out the figures. What are the figures saying? Have you reaped profits or have you incurred loss? You need to know where your hard earned dollars are going. Otherwise, you may lose money due to lack of knowledge.

Analyze your portfolio carefully and start making the changes. For instance, if you have incurred a huge loss by investing in the stock market, then consider shifting to mutual funds where there is less risk.

6. Build an emergency fund: Life can throw stones at you in the form of financial problems anytime. It’s your job to tackle it tactfully. If you can’t handle the problems deftly, you’re doomed. Your budget could fall apart, your credit card balance could increase, your payday loan debt could increase, and so on.

An emergency fund helps you cover unforeseen expenses. It helps you survive financial disasters without increasing the balance on your credit cards. Make it your goal to set up an emergency fund this year. It will help you cover emergency expenses without breaking the bank.

Your emergency fund should be 6 months worth of expenses. It may take a few months to set up this fund, but the financial independence you gain from having the fund is worth the wait.

What else you can do

Do you have a big event coming up in this year? Are you getting married in 2018? Are you planning to buy a new apartment? Are you planning to have a baby this year? These are big turning points in our lives and are quite expensive.

If you have decided to get hitched or buy a new home, start saving as much as possible. Save 10% to 20% of your income every month. The figure may vary depending on the type of home you want to buy or wedding you want to organize. Remember, you have to save more for organizing a destination wedding or buying a big apartment. Many people use credit cards or borrow personal loans for covering wedding expenses, and then get into debt. This is a wrong financial move and you should try to avoid it.