It’s a new year, and with it comes many hopeful resolutions.
We’re used to seeing several common new year ambitions like adopting a healthy lifestyle, spending more time with family and friends, and learning a new skill. Increased financial wellness is also at the top of many people’s lofty beginning-of-the-year plans.
But don’t worry; this isn’t a blog about creating a financial New Year’s resolution (we don’t want to set you up to fail).
More excitingly, it’s about learning to say “yes” to the things that will enhance your life and your wallet this year.
Here are three financial moves you’ll be excited to embrace in 2022.
1. Streamline Investments, Expenses, and Debt Repayment with Automation.
Automation is a simple action that transforms the way you approach money and helps you build your Gen Y financial must-haves:
- Create an emergency fund
- Pay off high-interest debt
- Save and invest for the future
The more you automate, the less you have to sweat the small stuff like paying bills, investing in your 401(k), making a dent in your credit card debt, preparing for emergencies, etc. those small shifts make a huge difference in the long run!
Start by automating drafts from your checking account to an emergency fund. Don’t stress if you can’t stash away 3-6 months’ worth of savings overnight. It takes time to save the amount you need to feel secure—even $100-$200 a month will add up.
In addition, automation accelerates your progress toward eliminating debt. For example, if you’re stuck with high-interest credit card debt, you don’t want to run the risk of missing or making a late payment.
When you pay your credit card bill late, you’re face to face with costly fees and increased interest rates. Putting those expenses on auto-pay eliminates that monthly task and keeps your debt repayment consistent. You can also automate monthly bills for a personal loan, auto loan, mortgage, etc.
Do you ever wish that your bills could pay themselves? With automation, they can! Set up recurring payments for your mortgage/rent, insurance, utilities, etc., so you don’t have to keep track of them manually.
Depending on the bill, you might decide to set up automatic drafts from your bank account or a credit card. Paying for certain things like utilities and your phone plan with a credit card could positively impact your credit score if you consistently make on-time payments. But not all utility bills are reported to credit bureaus, so using a card may not dramatically boost your score.
Whether you realize it or not, you’re likely already using automation to help you invest. If you have a 401(k), you direct a certain percentage of your paycheck to your investments—that’s automation at work!
Even though it’s great to automate your retirement savings, it’s often a good idea to review the amount you contribute each month. If you got a substantial raise or you’re looking to save more, consider increasing your contributions. In 2022, you can put up to $20,500 in your 401(k).
It’s also beneficial to automate deposits from your checking account to other accounts like an IRA, brokerage account, or 529 Plan.
2. Lean Into Your Organizational Side
You know that fantastic feeling when you organize your pantry, clean out your closet, or purge some unnecessary home items? Afterward, you feel lighter, happier, and more motivated.
Organizing your finances can have the same effect.
But where should you start?
Create a Credit Card Strategy
Credit is a fantastic financial tool.
Having a strong credit score helps you qualify for a home, auto, personal, and business loans to further your life and career—and secure prime interest rates along the way. Credit cards also offer great perks and rewards for many things like cashback, travel, miles, hotels, and more.
But credit is also risky. Without a strategy in place, it’s easy to overspend, miss a payment or two, and rack up debt.
This year, aim to be more intentional about your credit. Here are some things that could help.
- Pay your credit card bills in full every month—lingering balances are subject to high-interest rates and can quickly spiral into more significant debt.
- If you have credit card debt, get serious about paying it off. Create a debt-repayment plan that works for you! Consider redirecting other non-essential spending to chip away at the balance.
- Look at your credit report. Start by requesting your credit report from the three national reporting agencies—Equifax, Experian, and TransUnion—at AnnualCreditReport.com. You don’t have to worry about a “hard” credit inquiry; looking at your report is considered a “soft” check and doesn’t affect your score a bit. Plus, knowing your score may help you make more informed financial decisions and detect any signs of identity theft.
Take Stock of Your Utilities
Believe it or not, your cell phone bill, cable and internet package, insurance premiums, and even your utility bills aren’t set in stone. Try to negotiate with your provider for a better rate, and if that doesn’t work, you’re always free to switch servicers.
It’s often beneficial to keep your options open for things like auto insurance, cable, and internet services. Switching providers every few years could end up saving you a lot of money over time. Keep an eye out for those recurring costs and know that you have some control over how much you pay.
As a bonus, any extra money you save could go into your emergency fund, debt repayment, and/or investments.
Review Your Insurance Coverage
The new year is an excellent time to take a look at your insurance coverage. Ask yourself,
- Do you have a life insurance policy that properly protects your family? Are the beneficiaries up-to-date?
- Does your employer offer short or long-term disability insurance, and are you signed up?
- Do you need additional liability insurance like an umbrella policy?
Everyone’s insurance needs are different, so be sure to talk with an advisor about your unique situation.
Stop Overpaying the Government
Remember that W-4 tax form you filled out when you started your job?
It’s okay if you forgot, but now’s the time to bring it back into focus.
A W-4 indicates how much money your employer should withhold from your paycheck for tax purposes. The exact amount depends on your household situation—marital status and withholding allowances such as your dependents, tax credits, and deductions.
If you don’t withhold enough, you could end up underpaying your taxes and owing the government money. But if you elect to withhold too much, you essentially give the government an interest-free loan that they pay back after you file your return, aka your refund.
The ultimate goal is to “break-even” each year—where you don’t owe anything, but you also don’t receive a big refund check. It’s important to update your W-4 after significant life transitions like marriage, divorce, having a child, etc.
If you’re a dual-income household, it’s especially important to check your withholdings each year since both of your incomes could vary from year to year. If you have a CPA or work with a tax accountant, reach out to them to help you update your withholdings. If not, here’s a calculator to help you estimate what you should withhold.
3. Outsource with Purpose
So much talk about financial wellness centers on paying off debt, investing for the future, and finding financial stability and protection.
And while those are worthwhile and important conversations, another equally essential component to financial wellness is spending money on the things that make your life better. The immediate things that may come to mind are family vacations, outings with friends, or buying a house in the most ideal school district.
But have you thought about spending money to free up your time?
Understanding the value of your time and what you want to do with it brings more purpose to your spending. Think about the things in your daily life that don’t add value or take you away from things that do add value, like cleaning your house, meal prepping, doing laundry, shopping, etc.
How would your life be different if you didn’t have to do those things? Instead of spending 5+ hours each week cleaning your house, perhaps you could make it to your child’s sporting event, work on a passion project, or simply have more time to yourself.
The same idea applies to your money. While you could spend several hours a week/month managing your money, is that the most effective use of your time?
To figure out your hourly rate, divide your salary by the number of hours you work per year. If you could outsource tasks for significantly less than your hourly rate, do it! You might be spending time on a lot of household chores or home maintenance (that you hate), which someone else would happily do for a fraction of what you make at your job.
Remember, your time is so valuable, and how you spend it matters. Intentionally outsourcing tasks that take you away from the things that bring you joy, like your family, friends, work, etc., can have a dramatic impact on your life.
Make 2022 the year you say “yes” to the things that enhance your life today and set your future self up for success.