Along with the New Year bringing a new calendar, now is the time to set some important goals for the next 12 months. It could mean finally paying off 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 another date that’s important to you, it may be easier to make that behavior change because it feels like we’re making a fresh start,” said Jeremy Burke, a senior executive based in the United States. economist.
Here are five steps financial experts recommend to help you reach your financial goals in 2022:
1. Get a clear view of your finances
“The first step for everyone is to get organized,” said Phuong Luong, a certified financial planner based in the United States. It means making a list of your savings, debts, and assets. Having a complete picture of your finances can help you decide what to focus on in the New Year, she added, and provide an easy-to-update document each year.
Luong also suggested tracking your monthly cash flow with a spreadsheet or app to help answer questions about what mortgage payment you could afford or what expenses you might be able to cut. “If you’ve organized these numbers, it’s easier to have these conversations, with a professional or with yourself, about what you can actually afford,” she added.
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 that much on clothes, or you would like to help more charities. Maybe instead of a car you want a nice desk and chair. It’s easier to follow your budget when it’s aligned with your values, ”said Shari Greco Reiches, US-based wealth manager and author of the book“ Maximize Your Return on Life ”.
2. Take baby steps with your emergency fund
Emergency funds provide flexibility and convenience if you face unexpected expenses, but creating one can be tricky. Behavioral economics suggests starting small, Burke said.
“Instead of setting a goal of saving $ 400 (around 1,500 Dh) per month, it might be better to save $ 100 (around 400 Dh) per week or an even smaller amount per day. There seems to be less friction to start when the period is shorter, ”suggests Burke.
This means that if your goal is to save $ 1000 (around 4000 Dh) by the end of the year, increase your chances of success by thinking of saving $ 2.75 (10 Dh) per day.
3. Automate longer term savings
Another lesson in behavioral economics, said Burke, is to set up automatic transfers in your savings every month. “In terms of improving long-term results, it really helps to automate things as much as possible,” he added.
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 deducted. You can also sign up to automatically increase the percentage you save each year or each time you get a raise, Burke added. You can set up similar automatic transfers to a savings account or high yield savings account for other purposes, such as saving for a down payment.
4. Pay off debt with the lowest balances
For those hoping to pay off high-interest debt this year, David Gal, a US-based marketing professor, said his research shows consumers do better if they start by focusing on smaller balances, this is called the debt snowball method. “It gives the impression of success and progress, and increases the motivation to pay the bigger accounts,” he added.
Daphne Jordan, a certified financial planner and wealth advisor based in the United States, stressed the importance of staying positive. “Think about where you want to go in this new chapter of life,” she suggested. “Don’t see your financial past as a mistake. It’s all a learning experience.
Having an accountability partner to educate yourself with can also help keep you on track, added Rianka Dorsainvil, another U.S.-based certified financial planner and co-CEO of a financial planning firm. “As with fitness, if we can have someone watching us, we are more likely to be successful. “
5. Plan for fun too
Budgeting for 2022 doesn’t have to be depressing – 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 the plane ticket, the hotel and the food,” Dorsainvil said. If it totals $ 3,000 (Dh 11,000), try to start saving $ 375 (Dh 1,377) per month through August.
That way, she said, “you are realistic and set measurable goals” – two approaches that increase your chances of success.