Financial Resolutions for a Better 2022
The beginning of a new year brings hope, optimism and a list of new year resolutions, many of which fizzle out after several weeks. Improving areas of our personal finances often falls at the top of the list of new year resolutions. Let's make 2022 the year that you stick to those goals and set yourself on the path toward a stronger financial future.
Set Goals & Create a Plan
Roughly 70% of people start the year with a financial resolution. But how many stick to those resolutions? My guess…not many.
Does this sound like you? Then make your first goal of 2022 to stick to working toward your financial goals!
Great. Now that you are committed to sticking with your goals, take the time to write down what you want to achieve financially this year and create a plan to do so.
Writing out your goals and a plan will increase the likelihood of you achieving them.
Make the process fun and reward yourself for hitting certain milestones. Building wealth and making smart financial decisions does not have to be a bore. Figure out ways to make yourself more likely to stick to your goals.
Create a Budget
You have heard it before and you will hear it again. Whether you make $50,000 or $500,000, you need a budget. Because if you spend it all then you end up in the same place…broke.
Your budget does not need to account for what every penny is spent on (more power to you if yours does). You simply need to identify where you have been spending your money, how that needs to change and stick to making the adjustments.
If you want, keep it simple. Try the 20/30/50 principal.
- 20% to savings
- 30% to wants
- 50% to needs
You don’t need to get more detailed than that if you don’t want to. By at least setting those high-level targets, you are making sure that you are saving and controlling your discretionary spending.
We can all have the tendency of setting an intention to do something and then not doing so when the time comes.
Remove the barrier of having to take action to save and setup automatic savings.
If you are actively saving in your 401(k) then you are currently automating a portion of your savings. Don’t stop there! You can create automatic savings into your emergency fund, IRA or taxable investment account.
Setup the amount that you want to go into every account on each pay period and avoid having manually make that transaction every time because trust me, you won’t.
No matter how big or small these savings are, they will compound over time.
And while you are at it, automate as many other areas of your financial management as possible. Mortgage payment, rent, credit card payments, bill pay, you name it.
Avoid Bad Debt
This one is simple…avoid high interest consumer debt. No matter how you have to do it, do not let your credit card balances build over time. The interest cost can ruin you financially.
Review Your Investments
Stock markets around the world had a strong 2021. The S&P 500 was up roughly 27% alone!
But if you hold a diversified portfolio of investments – which you should – then your allocation has likely drifted from its intended targets, leaving you taking more risk than you intended.
Take time to review your investment allocation and make adjustments as needed. This doesn’t just apply to the percentage that you have in stocks and bonds, but also to the different types of stocks that you own such as growth versus value or large caps versus small caps.
You might be asking “shouldn’t I let my winners continue to rise”. That is a valid question, however past performance is no indicator of future results. Rebalancing your investments is a forced process of selling high and buying low.
Don't Just Save...Invest
Saving is the first step to reaching financial freedom, but that money isn’t going to do you much good sitting in the bank. Especially with the high rates of inflation we are currently experiencing.
Yes, you should keep an emergency fund. But any amount above what feels comfortable to keep in savings in case of emergency should be working for you through investments.
Investing can come in many forms: stocks, bonds, real estate, starting a business. Figure out the appropriate investment strategy for you and then put your money to work.
Adjust Your Tax Withholding
Tax season is quickly approaching and you may be excited about a refund that you are expecting.
However, you shouldn’t be.
If you are receiving a large refund then you are likely withholding too much from your paycheck and reducing the amount of cash flow that you could have on a monthly basis. Keep as much of your money as possible, don’t lend it to the government.
You want your tax return to be as near even as possible. That means you are maximizing the amount of money going into your pocket, while avoiding having to pay additional taxes come tax time.
Lower Your Tax Bill
While we are on the subject of taxes, why not try to lower them as much as possible!
Easy ways to save on taxes include:
- Max out employer retirement accounts
- Health Savings Account
- Flexible Savings Account
- 529 college savings accounts
- Tax-efficient investing
Not only will these strategies help to lower your taxes, but they will also work toward achieving other financial goals such as saving for retirement or paying for health related expenses.
If you are a business owner or have a side hustle then there are significantly more tax saving opportunities available to you.
Be Consistent & Disciplined in Your Actions
Remember that building wealth and creating financial freedom takes time.
Don’t lose sight of the progress that you are making, regardless of how big or small the steps are. Progress compounds over time. One day you will look back at all of the small actions that you were taking and realize how significant they add up to be.
Be patient and remain consistent in your efforts.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jason Dall’Acqua, and all rights are reserved.