You know the saying: “New year, new you.” Raise your hand if you’ve ever made a resolution and let it fade away within weeks? I bet a bunch of hands just went down.
For those of you that have stuck to your resolutions, congratulations. For those of you looking to crack down on your finances once and for all this year, also congratulations. It’s not easy to stick to your goals, especially when life throws challenges your way.
That’s why we assembled a short list of financial tips for 2022. Together, we’re going to get your finances in shape so you can maximize your budget all year long.
Before you know what steps you need to take, you need to know where you’re at. This is one of the toughest parts of financial fitness, because it involves a hard, honest look at your finances.
According to recent studies, more than half of U.S. adults are living paycheck-to-paycheck, leaving little money leftover for spending once bills are paid. Despite some news stories suggesting this is because people are spending too much on lattes and avocado toast, the simple fact is that prices for just about everything in life have been increasing — cost of living and rent included — while wages remain stagnant.
So let’s ask ourselves the hard questions:
- How much money do you earn, after taxes, per month?
- How much of that money goes to essential bills, like electricity or childcare?
- How much of that money goes to non-essential bills, like streaming subscriptions?
- After all of your bills, how much is left to spend?
- More importantly, how much is left to save?
- How much do you have in savings right now?
The answers to these questions may not be easy to swallow. The best medicine rarely is.
While there are a host of apps that promise to manage your budget and track your spending, a simple spreadsheet may be your best (and most cost-friendly) option because it forces you to type out everything line by line and update it regularly.
The point is that before you get in shape, you need to know where you stand. Once you’ve painted with broad strokes, you can get into the finer details, like creating a plan of action.
2. Pay Down Debt
According to debt.org, Millennials (24-39) have an average debt of $87,448. Gen X’ers (40-55) are almost $141,000 in debt on average. Considering the median age of a first-time homebuyer is 33, it’s easy to see why so many people are wary of buying a home.
Look, debt is a fact of life. And not all debt is bad debt! For many of us, we’ll be paying off student loans until the bitter end. For others, credit cards are a looming shadow. If you’re overwhelmed by your debt, add a tab to your aforementioned spreadsheet and start tracking that as well.
Balances, due dates, interest rates, minimum payments, etc. – all of it will help you regain control over your financial fitness.
3. Plan Ahead
Once you’ve got your debt under control — or once you’re comfortable with your debt — it’s time to plan ahead. That means savings.
In life, there are three main things to save for: emergencies, retirement, and buying a home.
We’re not financial advisors, so we can’t tell you how to save for retirement. What we can tell you, however, is that saving is vital to financial fitness.
Think about it: A lot of people go into debt because an emergency pops up.
A car breaks down, a pet gets hurt, a roof leaks, someone loses a job — there are a litany of emergencies that could arise at a moment’s notice, and being able to dip into cash savings is healthier than wading into a deeper pool of debt.
One of the safest assumptions for an emergency savings fund is three to four months of your monthly net income. Alternatively, enough cash to cover three to four months of your monthly expenses (cost of living, bills, etc.). That gives you the liquidity to cover yourself and your family until things get back on track.
4. Check In
Next to the self-evaluation, this is one of the most critical financial tips for 2022.
It’s one thing to make a resolution. It’s another thing to make sure you’re sticking to it. Once again, it involves answering hard questions.
- How much debt have you put on or paid off?
- How much money have you put into savings?
- What extraneous bills have you gotten rid of?
- Have you been updating your budget regularly?
Checking in doesn’t always require positive progress, either. Things happen. Life throws curveballs, and that’s okay. What matters is that you maintain a clear view of where you’re at and what steps you need to take to get to where you want to be.
5. Reward Yourself
Financial fitness is a lot like physical fitness. It’s not all about the grind — it’s about celebrating the wins, even the little ones.
Like we said earlier, too many people blame lattes or avocados for the paycheck-to-paycheck lifestyle. For many, lattes aren’t even a concern — a full tank of gas is. Don’t let other articles make you feel guilty for rewarding yourself.
Hit your savings goal for the month? Go to dinner with the family. Pay off a credit card? Go get a massage. Do something that makes you feel good, because after all’s said and done, it’s still your money.
What’s important is making sure the rewards don’t turn into a daily occurrence, and that your rewards still fit within your overall budget.
At the end of the day, small progress is progress nonetheless.
Before you get in shape, you need to know where you stand. Once you’ve painted with broad strokes, you can get into the finer details, like creating a plan of action.