In addition to the new year bringing confetti and a fresh calendar, it’s a time to set big money goals for the next 12 months. That might mean finally paying off debt, buying a house or taking a long-delayed vacation.
With inflation and economic uncertainty clouding 2022, shoring up your finances this month can feel even more urgent.
“When you plan to start in the new year or some other important date for you, it can be easier to make that behavioral change, because we feel like we’re making a fresh start,” says Jeremy Burke, a senior economist at the University of Southern California’s Center for Economic and Social Research.
Here are five steps money experts recommend to help you reach your money goals in 2022:
1. Get a clear view of your finances
“The first step for everybody is to get organized,” says Phuong Luong, a certified financial planner at Saltbox Financial in Massachusetts. That means making a list of your savings, debt and assets. A complete picture of your finances can help you decide what to focus on for the new year, she says, and provide a document that’s easy to update annually.
Luong also suggests tracking your monthly cash flow with a spreadsheet or app to help you answer questions about what mortgage payment you could afford or which expenses you might be able to cut. “If you have those numbers organized, it’s easier to have those conversations, with a professional or with yourself, about what you can actually afford,” she says.
A complete self-assessment includes reflecting on your values, which may have shifted during the pandemic. “Figure out what is really important to you. Maybe you don’t want to spend as much on clothes, or you’d like to help more charities. Maybe instead of a car, you’d like a nice desk and chair. It’s easier to follow your budget when it’s aligned with your values,” says Shari Greco Reiches, a wealth manager in Illinois and author of the book “Maximize Your Return on Life.”
2. Take baby steps with your emergency fund
Emergency funds offer flexibility and comfort should you face unexpected expenses, but building one can be tricky. Behavioral economics suggests starting small, Burke says.
“Instead of setting a goal of saving $400 a month, it could be better to save $100 a week or an even smaller amount daily. There seems to be less friction to getting started when the time period is smaller so it’s pennies per day instead of dollars per month,” Burke suggests.
That means if you have a goal to save $1,000 by the end of the year, increase your chances of success by thinking of it as saving $2.75 a day.
3. Automate longer-term savings
Another lesson from behavioral economics, Burke says, is to set up automatic transfers into your savings each month. “In terms of improving long-term outcomes, it’s really helpful to have things automated as much as possible,” he says.
For example, if you contribute to a retirement account directly from your paycheck, you have to set it up only once, and your savings will continue to be deducted. You can also sign up to automatically increase the percentage you are saving each year or each time you get a salary increase, Burke adds. You could set up similar automatic transfers into a college savings account or a high-yield savings account for other goals like saving for a down payment.
4. Pay off the debt with the lowest balances
For Americans hoping to pay off high-interest debt this year, David Gal, professor of marketing at the University of Illinois Chicago, says his research shows that consumers are more successful if they start by focusing on the smallest balances first, called the debt snowball method. “That gives the perception of success and progress, and increases the motivation to pay off the bigger accounts,” he says.
Daphne Jordan, a CFP and wealth adviser in Texas, emphasizes the importance of staying positive. “Think about where you want to go in this new chapter of life,” she suggests. “Don’t see your financial past as a mistake. Everything is a learning experience.”
Having an accountability partner to check in with can also help keep you on track, says Rianka Dorsainvil, a CFP in Maryland and co-CEO of 2050 Wealth Partners, a financial planning firm. “Like with fitness, if we can count on one person checking in on us, we’re more likely to be successful.”
5. Plan for some fun, too
Budgeting for 2022 doesn’t have to be a downer: You can also fit in some fun spending plans, which might include reconnecting with friends and family. “If you want to take a trip in August, think about the cost of the plane ticket, hotel and food,” Dorsainvil says. If it totals $3,000, then aim to start saving $375 a month through August.
That way, she says, “You’re being realistic and setting measurable goals” — two approaches that increase your chances of success.
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