✦ Tackling money in 2022 while inflation jumps
Now 2022 is upon us it’s time to think about resolutions for the coming year, if you haven't already. With the cost of goods and services rising, for example fuel costs jumping 36% since April 2020, financial resolutions are foremost in the minds of many consumers.
With the right plan in place, you can stick to your financial resolutions and end year in a better place than when you started it.
Tanasia Bailey of Bankrate, Inc., 100 5th Ave., 16th Floor, New York, NY 10011 has contributed this article on practical financial tips. Some tips will therefore be moreso relevant to the United States.
Here are 11 practical financial resolutions to commit to, along with expert tips on how to keep them.
1. Refinance your mortgage and/or your student loans
Mortgage rates have been at historic lows, so it may be the right time to refinance to lower your monthly payments, if you haven’t done so already.
As for student loan refinancing in the United States, federal student loans are in forbearance through January 2022, meaning you’ll need to start making payments again. Whether you have a federal student loan or a private one, consider refinancing the loan to lock in lower rates.
2. Pay down credit card debt
A recent study found 75% of adults carry a credit card balance from month to month. Among those who carry a balance, the average amount is US$5,315.
If you have credit card debt, consider making it a goal to pay it off. There are several approaches you can take, but two common strategies are paying off your highest debt first (the debt avalanche method) and paying off your smallest amount of debt first (the debt snowball method).
3. Can’t stick to a budget? Create a spending plan instead
"If you have had trouble sticking with a budget, consider ditching the traditional budgeting method and create a spending plan instead", says Loreen Gilbert, an experienced wealth manager and CEO at WealthWise Financial Services.
“The concept of living on a spending plan instead of a budget can give you freedom and peace of mind,” Gilbert says. What a great idea!
A spending plan allows you to choose what you spend your money on instead of restricting yourself on what you can’t spend. Start by determining your monthly income and then decide what spending categories are most important to you.
As a rule of thumb, start with necessary expenses that include items such as housing, utilities, groceries and savings. After identifying how much you need for those categories, create others your remaining funds can go toward, such as entertainment and travel.
Money management apps are good tools for keeping track of where your money is going. Some banking apps offer similar tools.
The end result is the same as budgeting, minus the restrictive rules — making it a good strategy for those who don’t like being told what they cannot do.
4. Automate your savings
One of the easiest ways to build savings is by automating contributions, which alleviates having to think about how much money to set aside each month.
Many employers allow employees to divide their pay checks so that different amounts go into different accounts. Another option is to set up automatic transfers between bank accounts. Regardless of which option you choose, make it a priority to have your savings automated.
5. Start an emergency fund
A recent Bankrate survey found that more than half of Americans have less than three months’ of expenses saved in an emergency fund. But an emergency fund is an important financial tool that can help deal with unexpected expenses, such as home or car repairs.
The new year is as good a time as any to start (or grow) your emergency fund. In general, experts recommend saving three to six months of living expenses. Start by opening a separate and dedicated high-yield savings account. After that, consider these four tips:
Evaluate your spending and look for areas where you can save.
Set a savings goal.
Set up automatic contributions.
Try to increase your contributions over time.
6. Boost your retirement savings
Saving for retirement is one of the most important aspects of a sound financial plan.
“Use [the new year] to boost or maximize contributions to 401(k)s or HSAs, plot out holistic retirement goals (e.g., Where will I live? Will I work? How much to budget for travel?).
"No matter your age or life stage, take meaningful steps to boost your financial wellness,” says Lorna Sabbia, head of retirement and personal wealth solutions at Bank of America.
There are a few ways you can boost your retirement savings. For one, if your employer offers a Super match, be sure you’re contributing enough to get the full match since it’s essentially free money. Another thing to consider is looking at where your money is being invested. Many experts recommend investing in a diverse portfolio of assets to reduce your risk but still achieve attractive returns.
Finally, it’s important to remember that the only way you get the market’s long-term average return of 10% is by holding through all the tough times.
“Your retirement savings will grow quicker if you pick a solid long-term plan and then stick with it through the good and bad times, but especially the bad times,” says James Royal, Bankrate investment and wealth management reporter.
Royal says that investors should continue adding to the account and keep from selling, no matter how tempting it may be.
7. Invest more
Don’t limit your investing to only making tax-advantaged retirement contributions.
If you already have an emergency savings account, consider setting up an investment account for goals with specific time horizons, like early retirement or saving for a house.
“While it’s great to max out your tax-advantaged retirement accounts — $6,000 in an IRA and up to $20,500 in a 401(k) — you’re going to have even more opportunities if you save in a taxable account as well,” Royal says.
Royal adds that some of the biggest perks of investing outside of your retirement account include:
No limit to what you can save.
Tax deferral benefits on unrealized gains (stocks you don’t sell).
Immediate access to the cash without penalties or other restrictions.
If you’re just getting started, consider looking into a robo-advisor, which will do the investing for you after taking your risk tolerance and ideal earnings into consideration.
8. Improve your credit score
A good credit score varies depending on the scoring system. For example, FICO considers a good score to be 670 to 739, while the VantageScore scale considers 661 through 781 to be good.
Either way, your credit score plays a critical role in determining whether you get access to financing and other financial services you need. Your credit score can determine how much interest is paid on a loan, for example, and in some states credit scores are a factor in setting car insurance rates.
Consumers can get a free credit report every year from each of the three major credit reporting companies, as guaranteed by the Fair Credit Reporting Act. Some credit card issuers and other lenders also let their customers know their credit scores for free. Alternately, you can choose to purchase your score from one of the three credit bureaus.
To increase your credit score, consider these four tips:
Pay all bills on time and in full.
Lower your credit utilization ratio.
Take advantage of score-boosting programs, like Experian Boost.
Don’t apply for new accounts too often.
9. Cook more meals at home
Put more money back into your wallet by cutting back on restaurant food. Eating at home can be fun (and easy) with meal subscription services, which give you the option of picking new recipes each week and deliver the ingredients straight to your door.
You can save even more money by cooking from scratch. Find recipes online or ask friends and relatives for their tried-and-true ones. After a tryout, calculate your savings and consider putting the extra money toward paying down debt or building up your emergency fund.
10. Update your beneficiaries
It’s a good idea to revisit your beneficiary designations soon after you’ve experienced any life-changing situation.
“If you haven’t looked at it in a while or especially if there has been a change in family dynamics such as a marriage or divorce, review the beneficiary designation on your life insurance and retirement accounts to make sure it reflects your current intentions,” says Bankrate Chief Financial Analyst, Greg McBride, CFA.
Also, check your retirement and bank accounts, insurance policies and other financial accounts to make sure your beneficiary designations are up to date.
Adding a beneficiary to your accounts is critical to ensure your assets go to the person you want to have them. Beneficiary designations trump wills, so be sure your will and any account or policy, such as life insurance, are aligned in their directives.
11. Look for ways to boost your income
Sometimes, it’s less about savings and cutting back and more about increasing your income.
If the pandemic has taught consumers anything, “it’s that life is uncertain and having multiple income streams is more important than ever,” says Laura Gariepy, business coach and founder of Before You Go Freelance, a blog that offers advice for aspiring freelancers. “People are realizing that self-employment is not inherently more risky than traditional employment because there’s built-in income diversification when you have multiple clients or customers.”
There are many ways to increase your revenue streams. Freelance work, for example, is optimal for those who have a specific skill to offer. But there are also less technical side hustles, like dog walking, to consider. Additionally, if you have some savings in hand, consider investing in dividend stocks or real estate investment trusts.
By finding different ways to increase your revenue streams, you aren’t entirely dependent on one income source. Not only can that strategy help you make more money, increase your savings and reach your goals, it can also provide some protection if you lose your primary job.
Tanasia Bailey of Bankrate, Inc., 100 5th Ave., 16th Floor, New York, NY 10011
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