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2020 has been a tough year for us all, not only emotionally but also financially. People have been laid off or didn’t get paid for months on end, putting their financial well-being at stake. How does your financial plan look?

If you didn’t have savings, you were most likely hit hard by the COVID-19 pandemic and had to drastically cut back on expenses to just survive.

How can you take all the uncertainty and confusion that has been felt to build a robust financial plan for 2021? In this article, we talk about how you can create the ultimate personal financial plan for 2021.

Set goals

You’re probably here for a reason. You want some financial certainty so you can plan for the future.

A great way to start is by writing down your goals to serve as the anchor for your planning.

Is it to cut back on spending, buy a house, save more for retirement, or even all of the above?

There’s an old chestnut in the business world for goal setting called SMART goals, which stands for goals that are Specific, Measurable, Achievable, Relevant, and Timely.

Do a financial review

Get printouts of your banking and credit card statements for 2020 and do a review. This will help you understand where your money is going and see trends in your spending.

List out all of your expenses and income sources. Pay attention to taxes, rent and utilities, mortgage payments, phone and internet, insurance payments, and living expenses. Categorize these things as necessities or luxuries.

Once you have all this laid out, you should be able to see the money left over at the end of each month that you can put away as savings. If it’s a negative number, see which expenses can be cut back to leave more room for savings.

Make a budget

You knew this was coming, didn’t you? Make a budget for the year or the month, or the time frame that makes sense to you and your financial situation.

Draw up a spreadsheet for how much you intend to spend every month. A rule of thumb is the 50/30/20 rule of budgeting. Simply stated, 50% of your after-tax income goes on necessities, 30% on wants, and 20% into savings.

There will also be irregular expenses such as an emergency trip, the wedding you need an outfit for, an unforeseen expensive vehicle repair, or other home repair. These expenses should also form part of your necessities.

Find ways to save money

While our income levels are not always in our hands, we can definitely have a look at ways to cut back on our spending. Are you spending on to-go coffee five times a week? Are you buying lunch instead of bringing precooked meals every day? You’d be surprised at how quickly this can add up.

Look at your credit card charges and the bundles for your internet, cable, streaming services, and phone. Do you fully understand the terms of your credit card and loans? Can you pay less in utilities if you switch companies? Little shifts can go a long way in helping you save money.

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Create a personal investment portfolio

The first step to wealth accumulation is making your money work for you. Building a portfolio involves distributing your income amongst various asset classes to optimize risks and returns, ensuring a decent liquidity level.

Understand the various investment options out there. This will depend on your risk appetite, investment horizon, and financial goals. Term deposits and bonds are usually low risk but also offer modest returns. Equity and mutual fund investments offer higher returns but come with considerable market risks.

Investment in productive assets will go a long way in padding your emergency fund and creating savings for your retirement. And make a goal to not dip into your investment portfolio for any reason.

Get insurance

Life is uncertain. Whether it’s an ailment or an accident, insurance will protect you or your family from the possibility of needing to beg for money when you’re desperate.

Losing a provider can be devastating for a family. Not only emotionally, but financially. Life insurance can help mitigate the financial affects. Ideally, buy life insurance coverage that equals at least 10 times your annual income.

Building a fortress

With each of these steps, you’re building yourself a financial fortress. Financial independence is one of the key components of resilience in this life.

Sometimes, it takes a little bit of planning and analysis to understand what financial independence means to you. That can differ from person to person, depending on their lifestyle, dependents, and goals.

Developing a habit of saving and living within your means can be the most challenging part of your journey. Following the steps above will help you craft the ultimate financial plan for 2021.


This article is for general educational purposes only and is not written by a financial advisor.

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