If 2020 has taught us anything, it is to always be prepared for the unexpected. It is vital to plan ahead for the new year if you want to achieve your goals. Setting goals is the first step in turning the invisible into the visible. The next step is devising a realistic actionable plan to make your goals a reality.
2021 shouldn’t be a year to leave your personal finance to chance. Instead, take deliberate steps to improve your finance. Here are some steps you can take to help improve your financial situation:
1. Build a 3-month emergency fund:
This is crucial to save you from financial pitfalls that come with unplanned events that demand urgent financial remedies. It is advisable to save at least 6-month worth of your expenses to meet up with any unexpected needs. Try not to leave the emergency fund in a savings account. Instead, you can place it in a safe, high-yield investment vehicle to earn some interest.
2. Pay off all your debt:
If you’re in debt, it is advisable to include a debt payment plan in your budget. You can decide to pay it off by either using the snowball method (paying off debt from the smallest to largest regardless of interest rate) or the avalanche method (paying off debt with the highest interest rate first). Make paying off all your debt a priority so you can divert the funds to other important financial goals.
3. Save at least 20% of your income:
Saving is one of the healthiest financial habits you can adopt, and the importance of saving can’t be understated. 20% of your disposable income is just the suggested minimum, but you can decide to be more aggressive with your savings with a higher percentage depending on your financial goals.
4. Develop another source of income:
Building different income sources frees you from the dependency on a single paycheck. It also dampens the effect of economic downturns on your earning potential. If you plan to be financially free in the coming years, this is one of the most crucial steps to get you to that dream. Find a problem and solve it. Better still, monetize and capitalize on your hobbies/interests.
5. Start investing in safe instruments:
It is not enough to save. Take a step further by investing. When you invest for the long term, you’re making your money work for you which inadvertently helps you build your wealth. Start investing in safe instruments like OVERWOOD offers to protect your principal while earning high returns. By investing, you also enjoy the benefits of compounding interest, which is regarded as the eighth wonder of the world.
6. Re-invest your investment income:
Reinvesting your investment income can help you build your wealth faster. It grows your wealth steadily by increasing the earning potential of your investments. This compounds your total returns, which add up over time. When investing, think long term, and be deliberate about not touching your investment or investment income.
7. Write a will and buy life insurance:
These steps are two important financial decisions that are often overlooked. They provide a financial safety net when you need it the most. If you have loved ones depending on you, it is important to take these steps to secure their financial future. You can also insure other assets you own e.g. your car/home. Take your time to carefully go through insurance policies before making a final decision.