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2021 money challenge: Setting financial goals for the year

For the New Year, CNBC Select is helping you align your money choices with what you care about most. Here's how to set your 2021 financial goals in 2021.

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To ring in the New Year, CNBC Select is posting a new money challenge each day for the first week of 2021. Think of these tasks as your 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?

This is day four of seven.

If you've been following our 2021 money challenge since day one, you should already have made a list of your assets and liabilities to get a sense of where you stand. On day two and day three, we looked at how much you are spending and how much you have in your emergency savings. Once you've got the basics down, it's time to think where you want to go in the future.

Day Four: Set your money goals

When planning for the year ahead, you have to know where to aim.

No matter your income level, money is still finite, which means you have to choose how and when to use it, and for what. You often have to juggle priorities that sometimes 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.

Let's face it: We all know where we want to be. That's easy. Most of us would choose to be debt free and probably have a few extra zeros added on to the total we have in our checking, savings and retirements accounts.

But it's not always clear how to get there. It can take a long time to achieve our big financial goals, and at times it can seem overwhelming to know where to begin. You've already laid the foundation by getting a sense of your spending and income. Next up, start asking yourself some questions so you can really understand your goals.

Here are a few examples of questions you might want to ask:

  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 _________.

Financial tools to help you plan

There are many tools out there that can help you attach real dollar values to the above goals:

  • Mint: Set a custom goal after linking your accounts, and Mint will calculate how long it will take you to achieve it. Goals can include credit card and loan payoff as well as saving up for big purchases like college, homes, cars and vacations. Set your target and adjust your monthly budget to see what's realistic for you.
  • Retirement income calculator: This free tool from Vanguard helps you decide how much money you'll need to live on in retirement. (Try to avoid comparison: Your definition of a comfortable retirement might be very different than your friends or family members.)
  • Personal Capital: The free retirement readiness tool can help you determine whether you're on track to retire based on the stock market and the current state of your retirement accounts.

Once you plug the numbers, you will start to have a sense of how long each goal will take you, as well as how much money you need to put toward your goals every month. At this point, you will have a realistic timeline and know whether you need to tweak your budget or even take on a side hustle to meet your goals faster.

Choosing your priorities for 2021

If you've made it this far, stop and take a breath. Drink a glass of water (or wine, if that's your style) and come back for the final step: Picking one to three goals to focus on this year.

Consider this template as a launching point for your 2021 priorities:

  1. Make sure you have an emergency fund. (How to decide the right amount.)
  2. Have a plan to pay off debt with interest rates over 10%. (Here's where we got that number.)
  3. Bump up retirement contributions.
  4. Start investing for short- and long-term goals. (Check out this financial planner's guide on the right asset allocations for your goals.)

If your 2021 big picture involves buying a home, renting a new apartment or financing any big purchase (like a car), you should also take a look at your credit score and sign up for a credit monitoring service like CreditWise® from Capital One or IdentityForce®. Improving your credit score can help you save money and qualify for the best rates.

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.