Need a boost with your New Year’s financial resolutions? There’s no need to complicate things, says Ashley Feinstein Gerstley, author of The Next Guide to Personal Finance book “Financial Adulting: Everything You Need to Be a Financially Confident, Aware Adult.” A solid checklist can help you move forward on important things that you may have been putting off. “When we make New Year’s resolutions, we may tend to set big goals that require monumental changes in our behavior,” she says. “Don’t get me wrong, I’m a fan of big goals – but for greater success, we want to break those goals down into small, realistic and manageable steps.” Here’s how to start getting your finances in order in 2022.
1. Start with a budget
Yes, that might sound snoozy, but Feinstein Gerstley says it’s a must-have tool for tracking your paycheck and making sure it’s going to the places it needs it. “Budgets get a bad rap, but they’re just a blueprint for where our money will go once it arrives,” she said. “Think of your budget as a way to decide how to allocate your money in the way that will make you happiest in the short and long term.” In other words, think of your budget as a way to support every penny of your hard-earned money and make sure it contributes to what keeps you safe (your big bills), debt-free (read our guide to way to get out of debt here) and happy (your goals and dreams). Some budgeting apps to consider:
1. Personal capital: Forbes gives this free money tracking and budgeting app its highest score among “best budgeting apps,” at 4.5 stars out of 5, noting that it’s especially good for investors.
2. You need a budget (YNAB): This app is more expensive at $14.99/month, but offers deep insight into your spending and savings. CNBC notes that this app is best for those who want to take budgeting seriously.
2. Build your emergency savings fund
The pandemic has shown us the importance of having easily accessible savings in the form of a rainy day or emergency fund. How much should you have stored? Pam Capalad, financial planner and founder of Brunch and budgets, advises taking a look at your minimum bills (like food, housing, basic utilities, and transportation) and keeping 3-6 months of that number in your savings. You should keep this money in an account that has cash, such as a high-yield savings account, so you can access it quickly when needed.
You don’t have to wait for your emergency fund to fill up before saving for other goals. What’s important is that the money is there when you need it.
3. Save more for retirement
Many of us may struggle to invest for retirement when we have bills to pay now. Feinstein Gerstley recommends starting small and saving more as your salary increases. For example, if your company offers a 401(k) matching program, put at least until they match or you leave money on the table. “The sooner we start, the more we give our money to grow,” she says. “Just because you contribute a certain amount now doesn’t mean you can’t accumulate more later.”
If you don’t have a job that offers you a 401(k), you can still open up and contribute to an IRA or a Roth IRA. While that might sound daunting, there are new low-cost apps and services that make it pretty simple for beginners. These include:
1. Improvement, which Nerdwallet gives 5 stars noting that “Betterment is an undisputed leader among robo-advisors.” It’s “basic service has no account minimum and charges 0.25% of assets under management per year. Betterment Premium offers unlimited phone access to certified financial planners for a 0.40% fee and a minimum account of $100,000,” the site notes.
2. Avant-garde is known for its low-cost index funds. Vanguard Digital Advisor offers low fees (0.15% management fee and $0 minimum) to get started.
4. Review your insurance
Once a year it’s important to get an insurance check-in, says Feinstein Gerstley, and January is a good time to do so. First, check if you have enough auto insurance (this guide can help you figure out how much you need) and if you might be able to get a better rate. A study found that switching car insurance can save you $471 per year. You can shop for custom auto insurance rates here.
Next, dig into your home insurance, making sure you have sufficient coverage and compare rates to see if you could pay less.
Don’t own a house? Depending on your policy and the state you live in, a relatively inexpensive renter’s insurance policy, some starting at $12 a month, can protect you against smoke, fire, explosions, theft, vandalism, and Other problems.
Next, take a look at your benefits and make sure you’re happy with your disability coverage and if not, check to see if it makes sense to take out an individual policy.
And finally, consider life insurance if you have loved ones who depend on you financially. Not sure how much insurance you need? Consider the DIME method, which stands for Debt, Income, Mortgage, and Education. Add these costs together for the future (for your annual income, you multiply it by the number of years your dependents will need it), and that’s roughly the amount of life insurance you’ll have. need. “We tend to neglect all areas of our money. We neglect equal opportunities! said Feinstein Gerstley. “But I would say the most common are those that require consistency.”