This article was originally written for and published on Forbes
As we settle into 2021, we can finally, finally say goodbye to a year that brought countless challenges and the upheaval of normal life for almost all of us.
I’m sure most folks are saying good riddance, too.
The bar for making 2021 a good year might be pretty low, but that doesn’t mean you shouldn’t make an effort to plan ahead and consider what you can proactively do to set yourself up for maximum success.
When it comes to your finances, that combination — planning and proactivity — are extremely powerful forces that you can use to your advantage.
To help you get started, we recommend using our simple, three-step framework that will enable you to lay a solid foundation for your financial planning in 2021:
Step One: Find The Balance
Specifically, it’s about finding the balance between enjoying yourself today and planning responsibly for tomorrow.
Creating balance with your money means understanding how much is appropriate to spend now to live your life fully, while also knowing how much you need to save for tomorrow so you can ensure you’re going to be secure in the future.
If you’re asking “how much can I spend?” to figure out that balance, though, you’re asking the wrong question.
Instead, start by looking at what you need to save. You can do that by setting a savings rate that will allow you to build financial security and achieve your biggest long-term goals, like financial independence or retirement.
The precise savings rate for you will depend on exactly what those goals are, what your assets currently look like, and what you have in mind for a timeline between now and when you want to achieve your goal.
Traditionally, experts recommended saving anywhere from 10 to 20 percent of your income for long-term financial goals. That might be appropriate for you (and it’s certainly a good range to start with if you’ve never put a serious savings plan in place before; anything is better than saving nothing).
But the more aggressive your goals, the more you need to save. At our financial planning firm, the baseline target we recommend for clients is a 25%-of-gross-household-income savings rate — and for those who want to achieve financial independence or a very early retirement, the range is more like 30 to 40%.
Once you save enough to meet your target rate, you can likely spend whatever is left over on fixed or discretionary expenses — without worry or guilt. Savings is important, but money is a tool that’s meant to be used. That means you should be able to spend freely, too!
Even folks who are saving large percentages of income could likely find ways to save even more… but if you’re saving enough, what’s the point? We believe there is such a thing as saving too much, and you hit that point when you find yourself consistently sacrificing being present and enjoying experiences today in favor of socking away every available dollar for a distant future “someday.”
Using this system that prioritizes and locks in your savings first gives you the opportunity to freely choose how you want to spend the remaining amount of your cash flow on whatever you want to live well today.
Step Two: Set Intentions And Priorities
Making financial decisions can be extremely difficult because, unless you have an unlimited supply of money, you simply can’t afford everything you want all at the same time.
You have to make tradeoffs. You have to say “no” to some things so you can fully embrace and enjoy others.
That’s why you must to get clear about your priorities. And to do that, you have to understand what it is that is most important to you in the first place. You need to identify your values.
For our financial planning clients who aren’t sure about how they’d define their values, we refer them to this great list of 50 core values from James Clear. We recommend that they pick 3 to 5 (but no more than 5) that deeply resonate with how they want to live and the experiences that matter most.
For couples, we recommend they go through this list twice: once, individually, and then again a second time, together as a couple.
Even though you may be committed to a significant other, you are ultimately your own person — and you may not have the exact same individual values as your partner or spouse. We want to understand what those differences are, as it can help clarify thinking around planning items or goal setting.
You also need to under what your intentions are. You can dig in here by asking questions like, what do you want to accomplish? What experiences do you want to have? How do you want to spend your time? What makes life meaningful to you, and do you feel connected with a purpose?
You might not have answers to all these questions, and that’s okay. The point is to start the conversation and explore with the goal of getting clear on what might be important to you… and what perhaps isn’t as critical. From there, you can more easily define priorities and be intentional about how you want to use your time, energy, and money.
When you are in tune with what matters most, making financial decisions becomes easier, too — because you know what’s important and what is less so.
Step Three: Focus On What You Can Control
The last year showed us that there’s a great big world outside of our personal lives that we have very little control over. Such a realization can make you feel powerless, or leave you questioning the point of your financial goals is if you’re aware that at any moment, external forces could show up to thwart your progress.
That’s why it’s critical to focus on what you can control. Identify what’s actually within your ability to influence, and then put your energy and attention there.
You can’t stop bad things from happening, but you can plan for them. You can’t avoid all challenges in obstacles in life, but you do get to decide how you respond to them. You can’t control every single thing that happens, but you can focus on what you can control and do something about it.
It’s not always easy. There’s not much on the road to financial success that’s without difficulty, though.
Times may get tough and the unexpected should certainly be expected. But that’s exactly how you can plan ahead and secure your financial future, even when things don’t always go your way.
If you can take these 3 steps, you’ll be well on your way to making 2021 a good year for your finances and your goals.
Want more financial advice you can actually use? Beyond Your Hammock is a fee-only financial planning firm for motivated professionals who want to use their money as a tool to build wealth and enjoy life.