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Looking to get your finances together in 2021? Check out the CNBC Select 7-day money challenge

CNBC Select is helping you align your money choices with what you care about most in the year ahead. Here’s a guide to getting your personal finances in order in 2021.

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16 min read
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To kick off the new year, CNBC Select has created a seven-day financial challenge to help you make 2021 your best money year yet. Think of these tasks as a financial deep clean, based on expert advice, to help you align your money choices with what you care about most. These are simple tasks, but they do require a commitment. Are you in?

Ahead, we help you focus on what you want to achieve with your money in the new year, and how to evaluate whether your current spending and savings habits are helping — or hurting — your chances of achieving your goals.

You can tackle our step-by-step guide over seven days or more. Some of the tasks will take longer than others, but by the time you're finished, you'll have a clear view of where you stand financially and where you want to go.

Day One: Calculate your net worth

The first step to taking control of your money is to figure out where you're at. You can calculate your net worth in just 30 minutes, or a up to a few hours, depending on how many financial accounts you have in your name and how long it takes you to gather your info.

Start with your assets and add up how much you have in checking, savings, investment and retirement accounts, plus the estimated value of any properties you own. Then, add up the value of your liabilities. This includes all of your debts — credit card balances, student loans, mortgage, car loans, etc.

Then do this simple math equation: Assets - liabilities = net worth

You can use a pencil and paper to do the math, or create a spreadsheet. If you prefer, you can use a net worth tool on a personal finance platform like Mint or Personal Capital.

Learn more: Why calculating net worth the first step toward financial freedom in 2021.

Day Two: Evaluate your spending so you know where your money is going

After you calculate your net worth, it's time to take a deeper look at how you spend your money.

Pull the past 12 months worth of credit card statements and/or checking/savings account statements. Some banks and card issuers may let you download a annual review of all your transactions organized into charts and graphs so you can get a clear look at your 2020 spending.

For most people, the top-three biggest expenses include:

  1. Housing
  2. Transportation or car payments
  3. Food

Once you understand how you spent your money last year, you'll be better equipped to set goals for the future. Use your 2020 data to set a realistic budget for the year ahead, taking into account one or two areas where you'd like to adjust according to your priorities.

Learn more about budgeting: After calculating your baseline budget, don't forget these costs.

Check out the best budgeting apps of 2021

Basic budgeting apps show you how much you earn and organize your expenses into separate categories so that you can see where and how much you spend. They can also monitor your savings and investments and keep tabs on your debts and/or your credit score.

We analyzed over a dozen apps, and here are our favorites:

Day Three: Decide how much you need in your emergency fund

After you've added up your net worth and gotten a sense of how you spent your money in 2020, it's time to start thinking about your savings. It's smart to prepare for the worst-case scenario like job loss or a big medical bill.

Even having just a small nest egg of $1,000 will lower your risk of falling behind when the pipes start to leak or you get a flat tire. A recent report suggests that $2,467 is the magic number to have in your savings account for when disaster strikes. Yet, even $100 in savings could be the buffer you need to keep up with your utilities, another study finds.

Here are some questions to help you decide how much you might need in an emergency:

  1. Is my job more or less secure? If you feel confident that you won't lose your job, you might be able to get by with a little bit less in reserves when making room for other financial priorities, such as debt payoff.
  2. Do I expect any big expenses in the near future? Evaluate whether your household appliances are in good condition and/or check under your car's hood to make sure that everything is working properly. That way, you won't be surprised when the day comes for a big repair.
  3. How much credit do I have available to me? If you have existing credit cards or home equity lines of credit, you can turn to them in a pinch. Remember that charging emergencies on borrowed money will come with extra interest costs, so it's not the ideal first choice. It's still good to know all your options.
  4. How is my health? You may have already mapped out any health costs you expect to pay this year in step two as you reviewed your expenses from the past year. But if you're living with a chronic condition, it's good to have extra savings to cover any expensive health-care related costs.
  5. Do I have dependents? Emergency fund sizes are relative to your monthly cost of living, and if you are supporting children and/or dependents, you might want to put more aside.
  6. Do I expect any windfalls in 2021? In 2020, Americans received a stimulus payment of $1,200, and another $600 payment right as the new year arrived. Of course, you can't always anticipate windfalls, but you could plan ahead for expected tax returns, large commissions, employee bonuses or even just birthday cash. Come up with a plan for these windfalls, and if you don't need them for everyday expenses consider putting at least a portion in savings.
  7. Do I have any debt? If the answer is yes, factor in how much you're paying in interest. As you save up your nest egg, you might be delaying other goals like paying off credit cards. If saving three months' worth of cash is going to take a few years, it might be wise to rethink how much you really need.

Learn more about preparing for the unknown: How to decide on the right-sized emergency fund for your needs.

Stretch your savings with a high-yield account

Putting your money in a high-yield savings account can help you reach your goals quicker.

See CNBC Select's full list of best high-yield savings accounts.

Day Four: Set your money goals

No matter your income level, most people juggle conflicting financial priorities. Sometimes money goals work together, such as saving and/or investing for retirement. But other times goals can seem to conflict — like deciding between paying off debt or saving for an emergency fund.

In order to figure out what should be your priority, start by asking yourself a few questions:

  1. Am I happy with my net worth?
  2. What are my advantages? (Due for a raise, good health benefits, homeowner, great credit score, comfortable pension, etc.)
  3. What are my disadvantages? (Worried about a layoff, paying off an old credit card, high mortgage or rent, etc.)
  4. If I continue saving at this rate, when will I be able retire? (Or have enough saved for a down payment? Be able to afford vacation? etc.)
  5. How much could I save if I put $10 more into a savings account every month? Or $10 a week?
  6. How much am I spending every year on interest on personal loans, credit cards, mortgages and auto loans. Is it worth it?
  7. How much am I spending on checking account fees, and should I consider switching banks?
  8. What is my biggest dream/goal for this year? The next five years? The next 10 years?
  9. What trade-offs am I willing to make so I can achieve those goals?
  10. Should I adjust my goals?

Or, try these fill-in-the-blank questions to get your wheels turning:

  • I feel __________ about my finances, but I would feel better if _________.
  • Paying off __________ would help me accomplish _________ and make me feel _________.
  • Buying __________ would help me accomplish _________ and make me feel _________.
  • Making $_____ more per month would help me accomplish _________ and make me feel _________.

Once you nail down your goals, work backwards to decide on the baby steps to get there. If you want to save $2,000 more, for instance, that works out to about $40 per week you need to set aside. Focusing on the small goals just as much as the big ones is important for success.

Learn more about achieving your goals: Follow this advice to make 2021 the year of financial success.

Day Five: Set up your investing plan

Even though high-yield savings accounts earn a higher APY than traditional accounts, you're still likely making less than 1% APY on your savings. Meanwhile, the stock market has historically yielded between 5% to 10% growth each year.

You could be missing out on a lot of money if you just let your cash sit in a savings account. But investing also involves some risk, so you need to make sure you have all your bases covered first.

Here's how to make 2021 the year you start investing:

Step 1: Assess your readiness

If you have enough cash in your monthly budget to cover your basic expenses, you're debt-free (with the exception of low-interest loans) and you're maxing your match on your employer-sponsored 401(k), you're probably in a good position to start investing.

Before you get started, it's not a bad idea to speak to a financial planner, especially if you're facing a life transition, still paying off debt or aren't sure if you're emergency savings is big enough.

Step 2: Know your budget

Look at the monthly budget you created in step two and decide how much money you feel like you can comfortably afford to invest after you've met all your financial obligations.

Step 3: Know your timeline

Some people find it easier to invest when they have a specific goal on the horizon. That might be buying a house, paying for your kid's education, taking a sabbatical or mini-retirement, etc.

Keep the money you'll need in the next two years in an accessible savings account so you don't have to worry about the ups and downs of the stock market. For mid-to-long term goals, financial advisors often suggest you invest your money according to these guidelines:

  • Goals within three to five years: Make sure at least 40% of your investments are in bonds (which are less volatile than stocks).
  • Goals within six to 10 years: Invest in 75% stocks and 25% bonds.
  • Goals past 10 years: This is most aggressive allocation since you have more time to weather market ups and downs. Keep 90% of your investments in stocks and up to 10% in bonds.

Can't nail down a specific goal? Try this financial planner's simpler approach to asset allocation.

Day Six: Plan your 2021 charitable gifts

In 2020, more people made charitable donations, according to Mint financial planner Brittney Castro. Even though November and December are the most common months for giving, there's no reason why you can't spread out your giving throughout the year.

Below are a few ways you can donate to your favorite nonprofit or charity this year.

Recurring donations

Even $5 or $10 per month will make a difference. Many organizations allow you to set up recurring donations online — simply input your credit card or debit card info and check the box to automate a monthly charge. (Keep in mind that credit card processing fees may apply.)

Take advantage of company matches

Many big employers offer donation matching as part of the company's benefit package.

Ask your HR representative if your company offers this perk and what you need to do to have your donations matched. If they match up to a certain amount each year (say $500), see if you can reasonably meet that match (or at least a portion of it).

Donate with credit card points

Select card issuers let you redeem rewards as donations to partner charities and nonprofit organizations. Log in to your card's online rewards account and navigate to 'charity redemptions' or a similar link.

Currently, Amex, Citi, Discover and at least 12 airline or hotel credit cards let you redeem rewards for donations (check out our guide to donating credit card rewards to learn how.)

Volunteer

If money is tight, but you've got time to spare, consider volunteering for an organization you care about. Your interactions might be virtual to comply with coronavirus precautions, but organizations still need people to assist. Remote work might involve helping with newsletters and communication, coordinating donation drop-offs, tutoring, mentoring, card-making, reading books to patients and even sewing. Inventory your skills and decide on a realistic time commitment.

Read more: 7 ways to donate and spend with impact.

Day Seven: Plan your money dates

Congratulations! You've made it to the final day of our 2021 seven-day money challenge.

Today, take the time to put dates on your calendar every month or so when you can review your finances and make sure you're staying on track.

But don't think of these calendar dates as boring. Make them fun so you won't put them off. Here's some advice to get you started.

Step One: Set aside 'chunks' of time

In order to make sure you're keeping up with your finances, Betterment managing director Dan Egan recommends you set aside blocks of time (he calls them "chunks") every month, and then commit to using that time for monitoring your money situation.

To make sure you actually stick to those money dates, Egan recommends pairing the task with something you love. Light some candles, cook dinner, grab your favorite chocolate or wine or even bake cookies.

Aim for your routine check-ins to take place at least once a month, biweekly or when you get your paychecks, based on works best for you.

Handle recurring tasks like checking your credit report for errors, balancing your deposit accounts (making sure your paychecks are deposited and you have enough to cover your bills/transactions), looking for flagged transactions that could signal identity fraud, etc. The point is to make sure that everything is running smoothly and your accounts show business as usual.

In addition to the routine money dates, also set aside at least two to four larger blocks of time throughout the year. Some say every six months, while others might find that quarterly (every three months) works best.

Tackle the bigger tasks in your quarterly money dates, like the stuff we're prone to putting off, or the bigger-picture money stuff that requires more attention (and some phone calls). Do a deeper dive into your finances and review how things are going versus what you planned. This is also a good time to handle tasks like opening a new credit card, canceling a card, setting up a new bank account or rolling over an old 401(k).

Step Two: 'Slice' up your tasks

Most tasks have smaller to-dos, like updating spreadsheets, linking or unlinking accounts, recovering passwords, etc. This is especially true when you're merging retirement accounts, opening a new checking or savings account, signing up for an investment platform, opening a business checking account, researching and hiring a financial planner, taking out a personal loan, etc.

Make these tasks less intimidating by planning ahead so you're not caught off guard when something you thought would take you five minutes takes an hour.

"Break them down into incremental tasks," says Egan.

For instance, opening a new checking account may get "sliced" up into four smaller subtasks:

Task 1: Research new accounts and products (1 hour)

Task 2: Decide on one account and submit application (30 minutes)

Task 3: Transfer money to new account (30 minutes)

Task 4: Update your autopay, bill pay information for all subscriptions; update your paycheck direct deposit settings (1 hour)

You'll be more likely to finish when you count each individual subtask as a win. Which brings us to the last step: celebrating.

The power of small steps

You can put aside $20 per week in order to save $1,000 in a year. Double that to $40 per week (or $160 per month), and you'll save $2,000 before the ball drops in 2022.

The best savings accounts don't require a minimum balance to open, like the Marcus by Goldman Sachs High Yield Online Savings, the Synchrony Bank High Yield Savings and the Varo Savings Account.

Step Three: Celebrate your wins

Reviewing your finances and taking care of money-related tasks should make you feel good. After you've marked your money goals on the 2021 calendar and set accountability dates to track your progress and/or knock out tasks, plan low-cost ways to celebrate yourself when you hit your targets.

Whether 2021 is the year you will max out your IRA, pay off your debt, buy a new house or negotiate a raise, trust that pairing discipline with pleasure will encourage you along the way. This will lead to better progress and habits (plus more fun!).

Don't miss: How to make the most out of your money dates, according to a behavioral researcher.

Bottom line

Congratulations! You've made it all the way through our seven-day money challenge. Since day one, you've calculated your net worth, planned your budget, shored up your emergency savings, drew up an investing plan and took some time to think about how spend with impact in the new year.

Now put those money dates on the calendar and get ready to give yourself a high five when you achieve your first goal.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.