Along with the New Year bringing confetti and a new calendar, it’s time to set some big financial goals for the next 12 months. It could mean finally paying off a debt, buying a house, or taking a long-delayed vacation.
With inflation and economic uncertainty clouding 2022, consolidating your finances this month may seem even more urgent.
“When you’re planning to start the new year or some other date that’s important to you, it may be easier to make that change in behavior, because we feel like we’re getting a fresh start,” says Jeremy Burke, senior economist at the University of Southern California Center for Economic and Social Research.
Here are five steps money experts recommend to help you achieve your money goals in 2022:
1. Get a clear view of your finances
“The first step for everyone is to get organized,” says Phuong Luong, certified financial planner at Saltbox Financial in Massachusetts. This means making a list of your savings, debts and assets. A complete picture of your finances can help you decide what to focus on in the new year, she says, and provide an easy-to-update document each year.
Luong also suggests tracking your monthly cash flow with a spreadsheet or app to help answer questions about how much mortgage payment you might be able to afford or what expenses you might be able to cut. “If you organize those numbers, it’s easier to have those conversations, with a professional or with yourself, about what you can actually afford,” she says.
A comprehensive self-assessment includes reflecting on your values, which may have changed during the pandemic. “Find out what is really important to you. Maybe you don’t want to spend so 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 provide flexibility and comfort if you face unexpected expenses, but creating one can be tricky. Behavioral economics suggests starting small, Burke says.
“Instead of setting a goal to save $400 a month, it might be better to save $100 a week or an even smaller amount a day. There seems to be less friction to start when the time frame is shorter, so it’s pennies a day instead of dollars a month,” Burke suggests.
This means that if your goal is to save $1,000 by the end of the year, increase your chances of success by thinking of 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 results, it’s really helpful to have things automated as much as possible,” he says.
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For example, if you contribute to a retirement account directly from your salary, you only need to create it once and your savings will continue to be drawn down. You can also sign up to automatically increase the percentage you save each year or whenever you get a raise, Burke adds. You can set up similar automatic transfers to a college savings account or a high-yield savings account for other purposes, like saving for a down payment.
4. Pay off debt with the lowest balances
For Americans hoping to pay off high-interest debt this year, David Gal, a professor of marketing at the University of Illinois at Chicago, says his research shows that consumers do better if they start by Focus first on the smaller balances, called the debt snowball. method. “It gives the perception of success and progress, and increases the motivation to pay off the biggest accounts,” he says.
Daphne Jordan, CFP and wealth advisor 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 view your financial past as a mistake. Everything is a learning experience.
Having a responsible partner to check in with can also help you stay on track, says Rianka Dorsainvil, CFP in Maryland and co-CEO of 2050 Wealth Partners, a financial planning firm. “As with fitness, if we have someone watching over us, we’re more likely to be successful.”
5. Plan some fun too
Budgeting for 2022 doesn’t have to be a downside: you can also incorporate fun spending plans, which can include reconnecting with friends and family. “If you want to take a trip in August, think about the cost of airfare, hotel and food,” says Dorsainvil. If it totals $3,000, try to start saving $375 per month through August.
That way, she says, “you’re realistic and set measurable goals,” two approaches that increase your chances of success.
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About the Author: Kimberly Palmer is a personal finance expert at NerdWallet. She has been featured on “Today” and The New York Times.