After nearly two years of restrictions and unexpected hardships, the concept of setting new intentions from a place of austerity and rigid discipline isn’t likely to be enticing right now. On the other hand, if we shift the approach to finding motivation in small changes and new habits from a sense of freedom and purpose, our financial resolutions become akin to planting and cultivating those seeds that lead to greater prosperity and opportunities in 2022 and beyond. For inspiration, consider starting with one or more of these suggestions, depending on how they apply to your personal financial situation:
Set yourself up for success by making shorter-term savings goals
Whether you’re saving for a down payment on a home, funding an emergency savings account, or tackling another financial priority, thinking about what you need to do to accomplish this over the course of six months or a year can seem like a major reach. But if you make smaller, shorter-term goals by setting monthly targets, saving becomes more rewarding and manageable, and you often set yourself up for better results. The end goal is still the same — to grow your savings — but getting there is more satisfying if you start with an objective to save a realistic amount one month, then increase this amount incrementally in the following months. For instance, you might start by saving $150 in January, then raise the goal to $200 in February, and so forth. The point is to build momentum.
Or implement automatic savings
Another strategy that works well for saving: pay yourself first by setting up automatic transfers into a savings account or another secure financial product. Financial institutions have made it easier and more convenient than ever to schedule regular deductions from your checking to your savings account, and/or to divide your paycheck so that a portion of it goes into an investment account. With this method, you’ll have a built-in system for accumulating healthy savings without having to make painstaking and tedious efforts each month.
Start a spending plan
If the idea of a budget brings to mind unappealing brown bag lunches or forsaking bi-weekly evenings out with friends or date nights, it may be time to reframe your daily money management strategy with a more flexible mindset. An effective approach which you can do in about an hour: create a spending plan rather than a budget. Miranda Marquit explains her approach in “Why I Like “Spending Plan” Better than “Budget,” but there are slightly different methods for doing this. As Marquit explains, you first determine your monthly income and then decide which spending categories are most important to you, such as mortgage or rent, insurance premiums, utilities, groceries, emergency savings, a retirement plan, and longer-term savings (for goals such as vacations, a down payment on a home, car, etc.).
Once these funding priorities are met, you decide how you’ll spend the rest of your income. You won’t need to determine ahead of time how much you can spend in whatever areas you consider to be discretionary, such as going to movies, eating out, clothing and recreation/hobbies. And these days, free and secure tools like The Police Credit Union’s MoneyTrac make it simple to track where your money is going across all of your accounts. For a concise overview of how you can create a spending plan, check out Lifehacker.
Refinance your mortgage if it’s on your to-do checklist
Interest rates are still at historic lows, so if you’re considering refinancing your home loan to lower your monthly payment, this would be a good year to make your move. According to U.S. News & World Reports, it’s best to refinance before 2023, given indicators like increasing inflation, which can be a harbinger of rising interest rates.
Increase contributions to tax-advantaged retirement funds
If you have an employer-sponsored retirement plan like a 401 (k) in which your employer offers to match a percentage of your contributions, there are virtually no compelling reasons not to invest enough to claim the full match. If you were to forego this benefit, you’re essentially giving up free money. But if you’ve already established emergency savings for three to six months of expenses and have paid down all of your non-mortgage debt, there are a number of important reasons it can be well worthwhile, and in some cases perhaps even critical, to start contributing more to your retirement account than the amount your employer matches. In addition to reducing your tax liability, you’ll optimize opportunities for compounded growth in your portfolio — enabling you to build wealth and protect your buying power from the erosive effect of inflation when you leave the workforce. But of course, before making changes to your retirement planning, it’s advisable to consult a qualified professional who can provide guidance based on your overall financial picture and tax-planning needs.
Tackle credit card debt one card at a time with the debt avalanche or debt snowball method
You’re likely aware of the many ways high consumer debt can impact your financial health —draining you of funds to create a safety net, preventing you from reaching important savings and investing goals, and even hurting your credit score if your utilization rate is high (the percentage of revolving credit you’re using as compared to your credit limits). For these reasons, reducing this debt, and eventually paying it down entirely, is a highly worthwhile goal on the road to financial well-being. For an effective way to pay it down faster, get the ball rolling by targeting one card at a time.
One popular approach to credit card debt elimination is the debt avalanche strategy. Start by paying down your card with the highest interest rate first. Put any extra money toward this account each month, while making sure to make the minimum payments on your other cards. Once you’ve cleared the balance on your card with the highest interest rate, start applying any additional money to the account with the second-highest rate, and then continue this process. Prefer a method with a quicker psychological payoff? You might want to use the debt snowball method by picking off your credit card with the lowest balance first, then focusing on the one with the one next smallest balance, and so forth.
Also keep in mind that if you multiple high-interest credit cards, you can often save substantial money by transferring this debt to one credit card with a more favorable annual percentage rate (APR), or to a fixed-rate personal loan, such as the one offered by this credit union. These solutions can reduce your monthly expenses right away, and enable you to pay less in interest over the long-haul.