I’m sure most of us hate the idea of New Year’s resolutions. We have trouble keeping with them, and when we lapse, we feel like we’re failures. The most popular resolutions are weight loss, sobriety, going to the gym consistently, or maybe getting a new job. While any resolution can be good for you when taken with the right attitude, there’s one resolution I can definitely get behind that we should all consider trying regardless of the time of year: financial resolutions.
Here are some common financial resolutions we can make for 2022:
- Make a budget and stick to it
- Pay off a credit card—or two!
- Pay off debt
- Pay bills quickly, and have enough left over for saving
- Diversify your portfolio of investments
- If applicable, get a new job
- If uncomfortable with financial information or you don’t consider yourself financially literate, learn!
Many of those go together. Financial literacy, for example, is widely applicable to any field or goal. We can never have enough education in a topic as complicated as financials. While that can be rather dry and boring to many people, the rewards for learning and understanding your financial situation and the future of your budgetary measures are manifold. No matter what your financial resolutions are, commit to learning more about finances and how investments work, not only for you, but for the larger industry. You’ll find demystifying the system will make you all the more comfortable with it.
As for the distinct resolutions, let’s start with the first (and most important): budgeting.
Budgets are far easier to make than they are to keep to. Free and cheap software like Excel can track purchases and your books as well as a pro, but it doesn’t mean much if you take the time to create a budget and a balance and then throw it out the window by February. It can be hard, but budgets and saving are much more effective over longer periods than shorter ones. When it comes to saving for retirement, for example, budgets stretch into decades rather than just weeks or years. If your plan is to one day retire, no time like the present to take charge of your financial life and learn budgeting now. It’ll only get easier the more you do it.
It often helps to have a built-in reward system for your budget to keep you on track. For example, if you allocate money using the 50/30/20 rule, the 30% in the middle can be used for fun things every now and then to keep you excited and interested in your money. Maybe you can buy a new car, or take a trip, or go out to eat at a nicer restaurant once in a while to encourage yourself to not make massive, unneeded expenditures that delay your plans and your spreadsheets. Figure it quarterly: kept with your new budget through March? Great! Celebrate by going to dinner. Kept a budget for a year? Maybe start thinking about a trip in the future to keep you earning and focused.
Let’s say your financial resolution budgeting for 2022 involves paying off a credit card or, if you’re lucky and dedicated, all of them. While it can take a reasonable amount of time to become debt-free, I always encourage people to try as hard as they can to alleviate their debt sooner rather than later. Interest rates can stack up on credit cards or loans, making it that much harder to pay off as time goes on. A dedicated effort to paying down debt is always worth it. Again, this isn’t as fun as other expenditures, but you’ll thank yourself down the road when you have that much less weight.
If you have loans and are trying to pay those off, great! No time like the present. If you have student loans or possibly business or other loans, one of the best ways to pay them down is to budget for which has the highest interest rate—target that one first. So if your student loan has an interest rate of 6% but your business loan has an interest rate of 4%, allocate more money toward the student loan than the business loan. Split payments if you have to so you can remember, but keep with this and you’ll be in terrific shape.
If you’re buying more stock or investments, consider diversifying. While you might have variable levels of risk tolerance (or outright risk avoidance), looking at investment opportunities in a new light is a good idea that can help you branch out your thinking from simply hoarding wealth to actively creating it for yourself. Consider how your approach to saving and financing has been so far, and examine if there are ways to make larger moves pay off that you might otherwise not have thought of. Keep your financial advisor in close contact when you do this, however, and don’t let a resolution be an excuse to make risky or even foolish investments. Generate wealth and a portfolio, not gambling losses.
If you’re constantly behind on your bills, something to consider is your payment schedule and how you allocate money. Ask yourself: are you late in payment because you’re forgetting, or because you don’t have the money? If it’s the former, can you create a payment calendar to remind yourself to pay on time? If it’s the latter, can you evaluate how you spend your income to see if you would have the money to pay on time if you didn’t spend on something else, like a non-necessity? Late charges on bills can rack up, costing you money you shouldn’t have to spend. While it can be hard to pay all bills at once, it also makes financial sense to stay out of added fee territory.
Similarly, if your credit score isn’t what you want it to be, consider making more money moves to improve it. Raising a credit score can take months or even years, but it’s a great call if you one day want a loan of some kind, or are considering buying a home or a car. Many factors go into hurting or helping a credit score, but one of the best things you can do right now is to pay off loans, debts, or any other outstanding financial obligations. Avoid credit killers like defaulting, repossession, or bankruptcy, if at all possible.
The best way to maintain good credit is to pay off your bills on time. And not just your credit card bills—utilities, phone bills, and the like are also important considerations. A credit score tends to reflect credit payments over time, on time. Whether it’s student loans or home loans, loans for cars or simply a small credit card used for groceries or gas, paying on time and paying consistently can boost your score and keep you from being frozen out of important life events.
Credit utilization ratios are also hugely important for figuring a critical credit score model. A credit utilization ratio is calculated by adding all your credit card balances at any given time and dividing that amount by your total credit limit. This is a helpful step to take when budgeting for 2022. Make a credit utilization ratio part of your financial resolutions, and figure it into your overall expenditure picture so you can tie it all together.
Last but not least, future expenses.
While it can be one thing to pay off debts or budget for what you have, many people find it very hard to budget for where they want to be or to protect their future earnings. We see money come in and we just want to spend it fast, and on fun. One of the best resolutions you can make for 2022 is evaluating your purchases more closely, and hewing to that 50/30/20 rule if you’ve always had trouble with it. Had problems with impulse purchases in the past? Work on curbing those tendencies. Take too many unneeded trips that cut into your earnings? Evaluate if those are needed or if they can be cut back.
Not earning what you feel you should be earning? Maybe make job hunting one of your resolutions in 2022. We’ve heard a lot about the Great Resignation these days; there are a lot of jobs out there, and if you don’t feel you’re earning enough commensurate with your skills, don’t be afraid to start looking for something that better suits your needs. You know your talents and abilities more than anyone—make them see it, and pay you accordingly. Better income is a huge help for every resolution listed here.
You’ll need a healthy amount in your savings to support yourself during lean periods that might occur during the job hunt, be it in 2022 or into 2023. Bills add up, and that final paycheck is a steep cliff that comes up quicker than you might expect. Budget and plan accordingly for a few weeks (to possibly months) without an alternate income source. Make sure you can pay for necessities and your quality of life comfortably. Make sure you have financial affairs in order and don’t get saddled with debts or payments that derail budgetary plans. Remain vigilant about your finances.
If you’re thinking about pivoting jobs next year, you’re far from alone. Many people don’t take all the factors into account before changing jobs. Often, it’s a quick turn or a decision made on the fly. It’s always best to think ahead, plan, prepare, and budget for whatever you want to do. You may only think you’ll be on the job market for a week or two, but landing the right job or career can take weeks, even months. You need to be able to, at minimum, cover your living expenses during this time. This will require savings, budgeting, and plenty of attention to financial detail. Often, a career pivot can take years to achieve. Be prepared, if you’re serious about a career change, for this resolution to go past 2022 and possibly later.
If you’re unsure of what your financial resolutions should be, or if you need them, you can always ask your financial advisor. If you don’t have one, talk to friends and family. Ask around. I think you’ll be surprised how many people are in a similar boat as you and are looking to make financial resolutions a big part of their new year. If you track and commit better as a group, join with some friends or find a support network to help keep you on your financial goals. Encourage each other, and remember to take stock of the progress you make throughout the year. Set yourself up for success by following the steps outlined in this article.
No matter what you choose to focus on or your timeline, financial resolutions are worth keeping to, for 2022 and beyond.
