It’s the new year and you’ve finally made up your mind to make bigger financial goals. How do you set yourself up for financial success? Here are some smart goals for 2020 we think will pay dividends.

1. Build Your Emergency Fund

Having an emergency fund is a must for every financially responsible individual. The spare cash comes in handy when you’re faced with unexpected shortfalls such as a job loss, medical emergencies, unexpected home and car repairs or unplanned travel expenses.

Previous reports found that 60% of millennials are unable to cover a $1,000 emergency and 36% don’t have any money saved for unexpected expenses. As much as you want to go for an island vacation or put your money to work, building an emergency fund will help tide you over rainy days.

How much money should you be putting away? Finance experts usually recommend saving six months’ worth of expenses in your emergency fund. For example, if you spend $2,000 each month on food, transport, utilities and bills, insurance and loans, then an emergency fund that can comfortably sustain your needs for six months would therefore amount to $12,000 ($2,000 x 6).

Saving such an amount can be daunting. That’s why it’s important to have in place realistic goals and set smaller, achievable milestones to keep you motivated.

Let’s say you have an income of $3,500. After deducting your monthly living expenses, you’d have an excess cash flow of $1,500. You could look to cut back on optional expenses and set aside $1,000 each month – with a concrete savings plan and some self-discipline, you’d be able to build an emergency fund worth $12,000 within a year.

Keep your emergency funds in a liquid account that you can easily access at any time. Consider putting your money in a high-yield savings account or fixed deposits, instead of stocks and bonds, where a withdrawal penalty could be imposed.

2. Diversify Your Investment Portfolio

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Given the uncertainties in the financial market, you’ll probably want to diversify your portfolio to protect your wealth.

There are various investment options in the market – these include stocks, bonds, funds, Real Estate Investment Trusts (REITs), unit trusts, monthly investment plans, Forex and cryptocurrency. Options vary in terms of returns and risks. Put in some research and learn about different types of investments and how they might work for you.

To develop your own investment plan, make use of the numerous resources that are available online. Investopediaoffers a wealth of educational articles, while news sites such as CNBC and MarketWatch provide the latest updates in the stock market. You can also test your trading skills using online trading simulators by NinjaTrader, Investopedia and MarketWatch. Where necessary, consult a financial advisor to assess your financial goals and health.

3. Check Your Debt-to-income Ratio

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Lowering your debt-to-income (DTI) ratio should be one of your top financial priorities in 2020. The ratio is calculated by adding all your monthly debt and dividing it by your gross monthly income. For example, your gross monthly income is $5,000, and you pay $2,000 for your mortgage, student loans and credit card debts. That makes your DTI ratio to be 40% ($2,000 ÷ $5,000 = 40%). For those looking to qualify for a home loan, an ideal DTI ratio would be one below 30%.

So, what are some steps you can take to lower this ratio?

  • Cut your spending

Take a look at your monthly expenses. What adjustments can you make? Can you afford to set aside more money to tackle an outstanding loan or credit card payment?

  • Generate more income

Are there career advancement opportunities that you can leverage? Is it time to review your work performance and salary increments? Alternatively, do you have a skill that you can monetise? Whether it’s working as a part-time training instructor, virtual assistant or Grab driver, 2020 is the year to start your side hustle.

Studies show that credit card debt is the biggest source of financial stress for millennials. Here are a few tips to avoid being caught in this downward spiral:

· Work on clearing the amount with the highest interest rates first

· Consolidate the debts into lower interest rate credit cards

Your wealth is determined by your assets and liabilities. Paying off your debt can improve your credit score too, making it easier for you to secure loans with the best rates and terms.

4. Invest in Yourself

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This last point might sound cliché, but you are your biggest asset! Start investing in your physical and mental well-being in the new decade.

A 2019 Cigna report on stress-related issues estimates that 4-19% of total health expenditure across markets can be attributed to stress-related illness. The top three countries with the highest percentages are Australia (US$22,911 million, 18.8%), Singapore (US$2,342 million, 18%) and Hong Kong (US$3.758 million, 17.6%). Don’t become part of the statistic.

Carve out a few hours a week to spend quality time with your loved ones, immerse yourself in mother nature or release the tension in your body. Mobile apps like Headspace (a popular guided meditation tool) and Nike Training Club (covers workout tips, training and nutrition) can help to keep your fitness and mental health in check. If you’re keen on taking up new challenges this year, then consider enrolling in a certification programme that could help advance your career or get you started on your side hustle!

Investing in yourself is the smartest financial goal to make this year.