This is first, because it’s straightforward. But being such a common, general goal—what’s a simple way to save? Force-feed your savings account by setting up recurring (e.g., monthly) automatic transfers from your checking to your savings.
Pay Down Debt
According to credit rating company Experian, consumer debt ballooned to a new high of $14.88 trillion in 2020. So paying down bills should be an urgent priority. How you repay debt may depend on the type of debt you have. For example, your range of debt may include credit card debt, your mortgage, car loan debt, student loan debt, etc. Figure out how much and what kind of debt you have.
Then, you’ll need a plan to repay. Experts suggest high-interest debt like credit card balances should be your priority, as this sort of debt is the most expensive and can snowball quickly. Also, it’s wise to pay off secured loans first so you don’t run the risk of losing your collateral.
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Because every borrower is different, there is no “right” way to pay off debt. If you’ve got more debt than you know how to handle, check out these loan repayment programs.
Prep Taxes Early
Now’s the time to get your documents in order. Review your W-4 withholding and adjust as needed. Consult your tax professional for guidance. As you get your W-2 or 1099 forms from anyone who paid you this year, organize them now, not April. Include any stimulus payment you received this year.
Stick to a Budget
Your budget can basically be constructed in five steps:
- Figure out your after-tax income. Include side jobs, alimony and other sources of income.
- Choose a budgeting plan. The best way to see where your money goes is to put it down on paper in columns. You can make your own spreadsheet in Excel, or download this handy budget worksheet (PDF).
- Track your monthly expenses. Here’s a great way to see exactly where your money goes every time you swipe your debit card, hit up the ATM, or make a retail purchase. Don’t forget to include utility bills, insurance payments, car payments, daycare expenses, food, dining out, and fun stuff, like new clothes or hobby items.
- Automate your savings. Pay yourself first. Make sure you put a percentage away into savings or your 401(k), and then pledge to live on what’s left.
- Revise your budget as needed. Things happen. Emergencies arise. Car repairs are inevitable. So your budget needs to be a little flexible, leaving some room for the unexpected.
Build an Emergency Fund
One important budget item that is often overlooked is an emergency fund. If your car conked out tomorrow, would you be able to pay for thousands of dollars in repairs or to replace it altogether? Or, if your spouse suddenly came down with a long-term illness and couldn’t work for several months, would you still be able to keep up with your bills?
If you have not made an emergency fund a priority, you’re not alone. According to a 2019 study by the U.S. Federal Reserve, about 37 percent of Americans said they would not have enough money to cover a $400 emergency expense. Instead, they would have to put it on a credit card and pay it off over time, borrow from friends or family, or simply not cover it at all.
While saving in an emergency fund may seem like a daunting task, if you set aside a little bit regularly, your money will build over time. For example, if you set aside $100 every paycheck in an emergency savings account—assuming you get paid bi-weekly— in just six months you would have $1,300.
Invest to Build Wealth
There’s no magic formula to accumulating wealth, but one tried and true strategy is to invest your money and stay invested.
Virtually every investment has some type of risk associated with it. The stock market rises and falls. An increase in interest rates can cause a decline in the bond market. No matter what you decide to invest in, risk is something you must consider.
One key to successful investing is managing risk while maintaining the potential for adequate returns on your investments. One of the most effective ways to help manage your investment risk is to diversify. Diversification is an investment strategy aimed at managing risk by spreading your money across a variety of investments such as stocks, bonds, real estate, and cash alternatives; but diversification does not guarantee a profit or protect against loss.
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Save for Retirement
If you’re not saving for the future, resolve to open up a retirement savings account in 2022. Once you do, take efforts to get on course so you can retire on time. Let the magic of compound interest to do its thing over the years. Behind on retirement savings? Here are some steps you could take in an effort to improve your prospects.
Consult a Financial Professional
If you’re not sure exactly what to do with your money in 2022 and beyond, a financial professional can help you review your financial situation and determine a strategy for your situation for the upcoming year.
Choose an independent, non-commissioned wealth advisor to help you consider the investment strategies, insurance options, cash management vehicles and other tools specific to your circumstances and goals. Select someone that operates with your best interests in mind, ensuring that the advice, recommendations and strategies are fully aligned with your objectives.
Resources: U.S. News & World Report L.P, Money Talks News