To make progress in your financial life, you need to know where your money is going (budget) and have clear financial goals. Not having clear financial goals is one of the reasons we tend to spend randomly.
Financial goals might be paying off debt, saving up, or investing for the future. Take some time and brainstorm where you want to be financially in a few years. You’ve got to think about both big and small things when you’re writing this out.
After you’ve taken some time to brainstorm, it’s time to prioritize. By doing this, you’ll know which goal you’re focusing on and where your extra income needs to go each month.
During my journey, I followed the Dave Ramsey steps. Although they worked out well for me at the time, I don’t think his exact steps apply to everyone. Going through this pandemic has made me realize how small a $1,000 emergency fund really is.
I generally recommend the following goals:
- Save up a mini-emergency fund (decide on an amount you feel comfortable with)
- Become debt free except for your mortgage
- Fully fund your emergency fund (3-6 months of expenses)
- Start contributing money to future savings/investing accounts while paying off your mortgage
If you don’t know where to start, focus on saving up your mini-emergency fund & becoming debt free (except for your mortgage) as your number-one priorities. The freedom and decreased levels of stress that result from being debt free are worth making this your focus.
Remember, you can always review and redesign your plan, but make sure you write it down. Writing down your goals will keep you motivated and make it easier to track your progress.
Don’t forget to take time every quarter to review how far you’ve come and make adjustments.