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.
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:
Or, try these fill-in-the-blank questions to get your wheels turning:
There are many tools out there that can help you attach real dollar values to the above goals:
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.
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:
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.
This is day four in CNBC Select's 7 Day Money Challenge.