With 2022 just around the corner, thoughts of New Year’s resolutions begin to swirl across the country. Among the expected career and health goals, many individuals will resolve to improve their money management skills in the upcoming year.
As the importance of financial education steadily grows, there’s no better time to start making deliberate and informed decisions about your finances than right now.
But what decisions should you take into account? How will the current state of the world influence them? What can you do to keep up with any new economic projections and trends?
The following are a few of our best tips on how to stride into the new year with purpose in your financial life and beyond.
Take a Look Back at 2021
You want to start the new year off with confidence. The first step? Doing a thorough review of the past year’s financial actions and decisions. An annual analysis can help you understand your spending, build better habits, and stay on track for your goals.
Important-Numbers-2022 and questions as you parse out your records:
- Conduct a spending evaluation. Where is your money going? Are there areas where you’re spending too much? Can you redirect your funds to better align with your goals?
- Assess your debt. Did you take on any new debt this past year, like a mortgage, car payment, personal loan, etc.? Are you consistently paying off any current debt? As a general rule of thumb, try to pay off high-interest debt first—the higher the interest rate, the more you pay over the life of the loan.
- Manage your savings. Do you find tension between competing financial priorities, such as saving for college, retirement, and other ventures? If so, how can you adjust and connect those priorities in the new year?
- Analyze your investments. Is your portfolio still aligned with your risk tolerance, time horizon, goals, etc.? Do you need to rebalance any sections of your portfolio that aren’t linked with that vision? We believe in a personalized investment plan tailored to your needs. Learn more about how we approach investing by checking out our blog.
- Examine your taxes. What can you do to strengthen your year-end tax situation? Perhaps you can contribute to your retirement accounts (pre-tax contributions to your 401(k) reduce your annual taxable income), consider tax-loss harvesting (selling investments at a loss to offset gains), organize your tax documents and receipts, and more. We’d be happy to help you get your taxes prepped for the new year—get in touch!
- Check-in on your benefits. Benefits comprise a significant portion of your total compensation, so you must use them. Have you used all of your paid time off? Some companies have a use it or lose it policy, so maybe you’ll take a couple of extra days to relax and rejuvenate this season. Do you have credit card points you could use for holiday travel? Anything you can save around the holidays is positive! Are there funds still leftover in your flexible spending account (FSA)? While some companies may allow you to roll up to $550 over to the next year or offer a grace period, not all do. So, now’s the time to book your outstanding doctor’s appointments.
Reviewing your entire financial picture with your financial advisor is an excellent way to get well-rounded input on what went well in the last year and where you can improve, allowing you to walk into the new year with both eyes wide open.
Set Goals for the Year Ahead
Next, brainstorm any goals you have for the upcoming year— financial or otherwise. Here, the magic happens! Maxing out your retirement savings, starting a 529 plan for your newborn, or simply creating a more fulfilling work-life balance are all great examples of goals you can include.
As you move through your list, ask yourself:
- What financial habits do I have (or could develop) to support the goals on the list?
- Where do I want to be financially at this time next year?
- How can I better my community or a cause I value?
Looking at your master list, try organizing each goal by importance to identify which matters the most to you and why. You may not be able to cross everything off the list in one year, so start with the goals that make the most impact on your current and future life.
Read Up on News, Projections, and Trends
Change in the financial world is as inevitable as the changing of the year. As the economic landscape continues to transition, learning about any new developments will help you to maintain control over your goals at any given time.
Here’s what we know will change in 2022:
- Contribution and Income Limits: The IRS has announced a slight increase in the contribution limits to 401(k)s and HSAs. In 2022, you can contribute up to $20,500 in a 401(k). Catch-up contributions will remain the same at $6,500. You can stash away $3,650 for self-coverage and $7,300 for family coverage in an HSA. Although traditional and Roth IRA contributions will not increase ($6,000 with $1,000 in catch-ups), the IRS did increase the income limits for Roth contributions—you can no longer contribute if you make $144,000 filing single and $214,000 married filing jointly. The annual gift tax exclusion will also be increasing to $16,000.
- Tax Bracket Info: The income ammounts within the tax brackets for 2022 will see an increase while the brackets themselves will remain the same. Check out the inflation-adjusted amounts on the IRS website.
- Inflation: Nearly every financial headline you see has something to do with inflation, and it’s not too hard to see why. The U.S is experiencing the highest inflation levels in over a decade, and people are worried about the future. But, the bulk of inflation’s spike is pandemic-related supply and demand issues, and experts predict that the price hikes will even themselves out.
- Build Back Better Plan: President Joe Biden’s bill passed in the House and is currently on the Senate’s docket. There’s no telling exactly what provisions will come to pass. Still, the bill aims to accomplish some of the following: lessen the cost for preschool, increase lucrative tax credits (earned income and child tax credits), expand health care, invest in climate change initiatives, and more. The nearly 2 trillion dollar price tag may lead to higher taxes on corporations and wealthy Americans. As soon as the changes become law, we’ll let you know what you can do!
Apart from news searches, blogs (ours being one of them!), podcasts, and newsletters can also help keep your finger on the pulse of what’s happening in the world of finances throughout the year.
Don’t Forget to Take Action & Celebrate Before the End of the Year.
Ring in the New Year with the tradition of establishing a goal-oriented financial plan to help set yourself up for success. Organizing a plan before the year’s end is a critical step to hit the ground running come 2022.
Connect with Chladek Wealth and schedule an appointment to map out your game plan for a bright and joyful upcoming year.
The contents of this article are for general information and educational purposes and should not be construed as specific investment, financial planning, tax, accounting, or legal advice. Please consult with a professional advisor before taking any action based on the contents of this article. All investment and financial planning strategies involve risk of loss that you should be prepared to bear. We cannot guarantee any investment performance whatsoever, and past performance is not indicative of potential future returns.