6 Financial New Year’s Resolutions for 2022
The New Year is finally here, and it brings with it the possibility of new beginnings. New Year resolutions are infamous all over the globe. People often resolve to build and follow certain habits, but, more often than not, fail to keep up. One of the main reasons for this is the lack of focus on goals. When you set a goal, it is important to be focused on it. New Year resolutions set on a mere whim may not see the light of day. However, a resolution that is chosen carefully and prudently can be turned into success with small yet consistent steps.
While New Year resolutions can be of several types, financial goals can be one of the most vital ones. Setting your finances in order can simplify many things in a ripple effect. Good financial goals help you set a routine in place. This alters your present lifestyle and sets an example for your future. New Year financial resolutions can be of any type or scale. It can be something as simple as creating a budget or something as major as getting rid of all your debt. The best way to find a good New Year financial resolution is by taking into account your present financial status and the areas of improvement there. Try to ascertain where you are lagging and what more you can do to better your financial situation. Check your credit score to see how it is faring at the moment. See if you have enough emergency funds and savings in your bank account. Calculate if your retirement fund so far is adequate for someone at your age. Also, check if it is enough for you to retire at your preferred retirement age. Go through your estate plan to ensure everything is in order and that your loved ones are financially secure in your absence. In addition to this, it is also crucial to evaluate your investment plan and regularly monitor the performance of your investments. Doing this will help you determine what kind of changes you can bring in to mend your finances. However, if you want an expert to take a look at your finances, you can consult with a professional financial advisor who can evaluate your present investment portfolio and retirement plan and advise you on the same, if something needs changing or improved upon. You can then go ahead and start new financial goals in 2022.
If you are still not sure how or where to begin, the following six New Year financial tips can help you enjoy a more financially free and secure future:
1. Create a budget
This one may sound like a very basic lesson in financial planning but can take you a long way and help you throughout your life. A sound budget is the foundation of a financially secure life. It helps you be disciplined and prevents you from making wrong decisions. Creating a budget is also important at every stage of your life, regardless of whether you are just starting your career or retiring. A sound budget will ensure that you do not overspend. It will also help you build your savings without any diversions along the way. To create a budget, first get an accurate idea of your spending. Try to eliminate all unessential and avoidable things that are not adding any value to your life. For instance, get rid of magazine subscriptions that you never read. Quit clubs that you rarely ever attend. Similarly, try to find out affordable alternatives to things. For instance, taking the subway can help you save more money than taking a cab. Making your own coffee can help you save money spent in a coffee shop. Once you have a clear view of your essential and non-essential expenses, you can pick out a savings amount from your monthly paycheck. You may aim to save at least 15% to 20% of your income every month. This can be a realistic goal and can help you build a sizable retirement corpus over time. Moreover, try to keep in mind that when you get your paycheck, you first save some money and then use the rest for your monthly needs. This way, you never risk overspending.
Another important thing to do when you create a budget this New Year is to ascertain your present net worth and compare it to the previous year. Your net worth should ideally increase every year. Take into consideration your assets like real estate, gold, cash, investments, etc., as well as your liabilities like loans, credit card debt, etc. See if your net worth is higher than last year or not. If it has increased, calculate the percentage by which it is up this year. This will give you a glimpse of your growth and progress. Check if it is as per your timeline and goals. If not, you can make a New Year savings plan to increase your savings and investments, find new sources of income, spend less, and be more careful with your money in general.
2. Clear your debt:
If you want to know how to get ahead financially, one of the simplest solutions can be to clear your debt. Debt is like rust on your savings. It erodes the value of your money and cripples it. Therefore, the sooner you get rid of it, the better it can be for your future growth. Of all the New Year financial resolutions that you make, settling your debt can be tricky. This is primarily because it can require a lot of time and focus, especially if you have a significant amount of debt, such as a student loan. Creating a budget can also help in reducing your debt, as it prohibits you from overspending. As a result, you refrain from adding on to your consumer debt, such as credit card dues. The budget instills better financial discipline and helps you stay on track at all times. If you already have credit card dues, try to limit your use in the New Year. Moreover, create a repayment schedule for your existing debt and repay it on priority. It can also help to not use your credit card before you clear your existing debt. For other loans like home loans and student loans, it can help to simultaneously invest your money. The returns from your investments can help you repay your loans faster. A financial advisor can help you in this regard.
3. Prepare for any medical or financial emergencies:
2022 is again likely to be unpredictable. New variants of the Covid-19 have begun to surface around the world and it looks likely that the virus is here to stay in 2022. Given this uncertainty, having an emergency fund is crucial. One of the most useful New Year financial tips right now can be to make sure that you have an emergency fund in place. An emergency fund should ideally be at least 6 to 12 times your monthly income. This money can help you if you happen to lose your job, get sick, lose your insurance, or have a pressing financial need of similar nature. It can help you stay afloat and keep your family safe. If you do not have an emergency fund, you can start building it on priority this year. You can pick a liquid account like a bank savings account or liquid mutual funds to hold your money. These options allow instant redemption in case of an urgent need and, at the same time, present low risk, so your funds remain safe from market volatility.
Apart from this, you must also ensure that you have adequate health insurance, life insurance, long-term care insurance, homeowners insurance, auto insurance, etc. You can pick the right products for yourself depending on your age and needs. For instance, long-term care insurance can be helpful for retirees as they might need additional care in their old age. On the other hand, health insurance can be vital for all ages. Preparing yourself for any eventuality is critical if you dream of starting the New Year right.
4. Invest more money in investments suited to your financial goals:
It can be beneficial to start new financial habits like investing more in 2022. Investing helps you increase your net worth. Saving is only one part of money management. The other part is investing the money that you save, so it can grow and beat inflation. Investing helps you secure your future, prepare for retirement, achieve your varied financial goals, help your loved ones achieve their distinct goals, and do a lot more. This New Year, start by assessing your risk appetite. Once you know your risk appetite, you can pick investment instruments that align with your risk. For instance, if you are young and have a high tolerance for risk, you can add more equity to your portfolio. Equity can deliver inflation-beating, high returns over a long investment horizon. Contrarily, if you have a low risk appetite, you can consider more debt options like corporate, municipal, or government bonds. These can help you preserve your money. This can be ideal for people nearing retirement and looking for some stability. You can also consider the mix of both to build a well-diversified portfolio. A professional financial advisor can help you determine the right percentage of these different asset classes and invest your money as per your present and future goals.
Once you have ascertained your risk appetite, set aside your investment budget – this is the amount of money you can comfortably invest each month towards your future goals. Make sure to stick with this budget and not stray from your goal. This will ensure that you reach your goals on time and there are no unnecessary delays on the route.
5. Open a retirement account:
Retirement planning is a long and arduous process. Therefore, the sooner you start, the better it can be. If your workplace provides a retirement account like the 401(k) retirement account, make sure that you maximize your contributions. This can be a systematic way to build your retirement corpus. Moreover, since a 401(k) is a tax-advantaged account, it also helps you save tax. You can choose between a Roth and a traditional 401(k) account. The latter lets you defer taxes on the contributions, so your withdrawals are taxed in retirement. On the other hand, the former allows you to enjoy tax-free withdrawals in retirement while taxing your contributions. The contributions for 2022 have been increased to $20,500 from $19,500 last year. For individuals aged 50 or older, there is a catch-up contribution of $6,500 per year additionally. The employer may also match your contribution which can further help you achieve your goals sooner. If your workplace does not provide you with a company-sponsored retirement plan, you can consider opening an Individual Retirement Account (IRA). This is another tax-advantaged account. The maximum contribution amount for an IRA in 2022 is $6,000 if you are below the age of 50. For individuals aged 50 or older, there is an additional catch-up contribution of $1,000 per year. An IRA also offers a Roth and a traditional version. So, you can make a choice according to your present and probable tax situation in the future.
6. Create an estate plan:
An estate plan is a necessity for all age and income groups. It is important to ensure that you have a solid estate plan that takes care of all loose ends. This includes having a will, a trust, a power of attorney, health directives, etc., as and when required. Estate planning ensures that your loved ones get your assets after your demise. It keeps your hard-earned money intact and transfers it to your heirs without being wasted in taxes or legal fees. Therefore, irrespective of your age or income group, one of your New Year financial resolutions this year can be to draft an estate plan that reflects your current wishes and clearly dictates how your assets are to be distributed after your demise. If you have been remarried, divorced, widowed, or if you have had children last year, these life changes must be reflected in your estate plan too. Moreover, creating an estate plan is also crucial given the uncertainty of life in the Covid era.
These six New Year financial tips can ensure that you end up starting the New Year right. They can also contribute immensely to your long-term financial security and stability and put you on the right path of achieving financial freedom. So, try to incorporate them into your routine as and when you can and begin 2022 on a positive note. It may not be possible to do them all right away, but you can consider small steps and take them one by one as the year progresses. If you need any assistance in developing these financial resolutions, you can contact a financial advisor in your area.
If you are looking for guidance on which financial tips you can incorporate in the New Year and whether you are on the right track when it comes to your investment portfolio and retirement plan, use WiserAdvisor’s free advisor match service to find highly qualified and vetted fiduciary advisors. Answer a few questions about yourself and get matched with 1-3 fiduciary advisors that are suited to meet your financial requirements.