January 18, 2021 5 min read
Opinions expressed by Entrepreneur contributors are their own.
If you’re like most, you’re ready for a new year with fewer challenges to your health and wealth than 2020 presented. While this post won’t help you avoid Covid or shed any of that unwanted quarantine weight, it will give you essential tips to refocus your financial goals.
Even if you don’t care for annual “resolutions,” the new year is a perfect time to reflect on the past, analyze the present and dream about the future. That’s the best way to bridge the gap between where your personal and business finances are today and where you’d like them to be.
Having goals and an overarching plan is one of the easiest ways to control your finances and reduce stress. Use these tips to identify your big and small financial goals and stay focused on achieving them in 2021.
1. Do an annual review
No matter if looking back at the past year is painful or fun, you can probably learn lessons that will make next year better. Ask yourself critical questions about your personal and professional life, including:
- What did I accomplish last year that I’m proud of?
- What, if anything, worked out well for my finances?
- Which business products or services brought me the most profit?
- What about last year disappoints me the most?
- Where are my best opportunities for financial growth?
- What did last year teach me?
Use an accountant or accounting software to run financial reports, such as an income statement (also known as a profit and loss or P&L statement) for last year. It shows your revenue and expenses for a given period. Review what you earned and spent, and look for ways to increase your profit.
2. Analyze your current finances
After you look back at the prior year, turn your attention to your current financial situation. By running a balance sheet or updating a personal financial statement, you’ll have a snapshot of your financial health today.
Your balance sheet shows what your business owns, owes and the owner’s equity. Likewise, a personal financial statement shows your assets and liabilities and calculates your personal net worth.
If you’re not comfortable reading various financial reports, get help from a business consultant or accountant so you can use these valuable tools to better manage your personal and business finances.
3. Dream about the future
For financial goals to stick, they need to be meaningful to you and your family. Spend time thinking about how you want your business to evolve. Consider what you want your life to be like in the near future. What business and personal accomplishments would you be proud to achieve between now and then?
If it’s difficult for you to dream about a new and improved future, another approach is to identify aspects of your financial life that worry you the most. Do you need to find a business partner, use better contractors or accumulate a bigger cash reserve to ride out lean times? Creating solutions that reduce your business and personal stress can be terrific goals to achieve in 2021.
You might choose a word, slogan or theme for the year to rally around and support your financial goals. For instance, 2021 could be “The Year of Reinvention,” “The Year of Emergency Savings” or “The Year of Outsourcing.”
4. Build goals into your budget
Once you’ve reviewed the past, analyzed where you are now and fully considered what you want to accomplish, it’s time to incorporate your goals into your financial plan or budget. Most accounting programs link up with your financial accounts so you can budget, create reports, pay bills and perform many advanced functions.
Once you understand your cash flow, you may need to alter it to meet your goals. For example, if you want to max out a retirement account for the self-employed or build a cash reserve in 2021, you can break it down into smaller quarterly or monthly goals.
If you don’t shape your spending plan to account for your business or personal financial goals, they aren’t likely to happen.
5. Remember your goals
After the shine of a new year wears off, it’s easy to forget your financial goals. One way to make sure you stick to them is through the use of automation. Here are some ways you might automate your financial goals in 2021:
- Use digital tools, such as automatic email sequences, to connect with existing and potential customers and gain market share.
- Set up automatic contributions to a retirement account for the self-employed — such as an IRA, SEP-IRA or solo 401(k) — before you have the chance to spend them.
- Create recurring transfers from your business or personal checking into a savings account to build your cash cushion.
- Set up recurring payments to send extra toward debt that you want to get rid of faster.
Having a realistic plan to turn your business and personal dreams into realities will go a long way toward achieving success no matter what’s happening in the world.