Five Steps to Take Now for Greater Personal Financial Health

With continued uncertainty around the course of the pandemic, a year that saw many folks spend big on durable goods, including outfitting home offices, and rising prices on the horizon, it may be time to get your personal finances back on track for 2022.
 
Certified Financial Planner, Founder of WealthWise Financial Solutions and former Director of Corporate Finance for a Fortune 50 company, Allison Mitchamore, CFA, CPA, MBA, offers these strategies to safeguard and build your financial well being in the year ahead.
 
  1. Start with short term goals. The bedrock of your immediate financial health is a sound budget. “Given the current inflationary environment, your existing budget may need to be tweaked so that you are not surprised by higher costs in the new year,” Mitchamore advises. Groceries, durable goods and even entertainment may all cost more in 2022 due to inflationary pressures, continued labor shortages and supply chain challenges.
 
If you tend to carry credit card balances, start by paying them off (their sky-high interest rates make them a terrible financial drain) or at least greatly increase what you pay against them. When you only pay the minimum amount required each month, the interest costs will keep the balance growing despite your payments.
 
  1. Set it to automatic. While you want to be actively engaged in setting financial goals and understand the investments you make, there are many aspects of your finances best handled by taking daily decision making out of the equation. “When you can make sound choices about saving and investing just once or twice a year and then use automated systems to implement them, you gain fiscal discipline and reduce the effort involved as well as distractions and temptations that can get you off track,” Mitchamore says. That includes automatic paycheck withdrawals toward your company’s retirement vehicles, as well as automating all of your required monthly bills such as mortgage or rent, credit card payments and utilities.
 
There are numerous apps that can help you track income, expenses, assets, liabilities and even create and monitor a monthly budget. There is some set-up time involved and you may have to categorize some expenses, but once done, apps can pull transactions from bank accounts, credit cards and investments so you can monitor all of them on a regular basis without having to enter monthly activity. In 2021, Forbes ranked the best budgeting apps as Mint, YNAB (You Need A Budget), PocketGuard, GoodBudget, Stash, HoneyDue and Digit.
 
  1. Think long term too. We often think of spending when we’re young and saving when we’re older. Unfortunately, that’s totally backward. Due to the power of compound earnings (how, in general, diversified investments tend to grow over time), any amount you can invest earlier in your career has much more time to grow and work for you without you working more.
 
“A lot of people plan chronologically,” Mitchamore cautions. “They will fund education first because that will arrive before retirement. But education can be funded through a multitude of sources, such as scholarships, grants, loans, work-study and others, but retirement is up to you and whatever might be offered through your company. Once high-interest debt, like credit cards, are paid off, you need to invest in retirement.”
 
Long-term financial planning involves significant self-reflection and the ability to envision yourself far into the future. In addition to funding your retirement, do you want to buy a house, send children to college or even take a large trip? “Once you have goals, you can see where you are on track or where you fall short and can be more intentional about using any cash flow to achieve your plans,” Mitchamore says.
 
If you plan to buy a house, what kind of home and what are prices like in your area? How much can you put down and how much will you finance? Do you want to retire at age 55 or 65 or beyond? Do you anticipate you or a spouse taking time away from full-time work for parenting, other caregiving or a return to school? Will you strive to fund your children’s college education entirely, take out loans, or expect them to pay a percentage? Will that be for a lower-priced state school or Ivy League institution?
 
“Financial planning is all about digging into your priorities and your dreams for how you want to live now and into the future,” Mitchamore says.
 
  1. Think about taxes. Okay, this is the dry, technical stuff that is not as fun as planning to buy a house or save for a boat. Taxes are a harsh reality and getting counsel on how to only pay your fair share and not more is usually a wise investment. To make things easier, set up a simple folder where you collect tax documents as you receive them. That includes year-end investment reports, your W-2 from your employer and interest paid on a mortgage or other loans. If you have opted for electronic communications from your financial institutions, most will put these documents on their portal. Collect all of them to share with your tax preparer well ahead of the April 15 deadline. If you don’t pay taxes on time, you will be charged interest on the amount owed.
 
  1. Conduct an annual review. Long-term investments are best made and left alone. Trying to time changes in the stock market is more likely to lead to selling when the market drops and buying when prices are on the rise (the exact opposite of what you want to do). But you do need to monitor your overall financial health and the start of a new year can be a good trigger for that. Look at the goals you set last year and your progress toward them. Set new goals for the upcoming year, seeing if you can possibly increase your savings a bit and looking for any place that you can cut costs. Working with a financial advisor does not get you off the hook for being involved, but it can provide a greater sense of confidence to manage your finances in a proactive manner.
 
“Stay calm,” Mitchamore advises. “There is a lot to consider in setting and meeting financial goals and they will dramatically impact your future, but there are also some tried and true principles to follow that can get you and keep you on the right track. That includes setting a budget where expenses do not exceed income, saving early, investing for the long term, and using automation to increase your level of discipline.”

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