Perhaps you’ve evaluated your financial performance in 2021, and you haven’t progressed as much as you would have liked to. First off, evaluating your financial life enables you to figure out where you need to make amends, and it’s a good first step. To help you stay ahead in 2022, we’ve listed out some major financial moves you could make. Sticking to new year’s resolutions may not be easy, a consistent push can ensure remarkable progress in the long run. Here are 4 New Year’s Financial Resolutions that you should consider in order to improve your finances in 2022.
#1. Create a Budget
Creating a budget is one of the major financial moves financial advisors recommend. Practicing effective budgeting is the fundamental step for reaching your financial goals, both short-term and long-term. A budget is simply a spending plan that helps you to track your expenses and plan for the future. However, the rule of thumb to creating an effective budget is making provision for 3 things – your tax, expenses, and savings. Before you start planning for your income, ensure your tax has been deducted. Secondly, determine how much to set aside for your monthly expenses, especially living costs. You can know this by tracking your expenses over the past 3 months. Finally, an effective budget should set aside a portion of your income to put in savings for eventualities or to invest.
#2. Keep an Emergency Fund
Life is full of uncertainties, and while you can’t control these uncertainties, you can prepare for them. Keeping an emergency fund is a vital financial management strategy to help you bear the financial responsibilities of unexpected circumstances. Such events as death, natural disasters, illness, or job loss. This allows you to avoid diverting the funds for your goals to these circumstances thereby elongating their actualization.
#3. Learn How to Deal with Debts
Probably you’ve settled with the idea that debts are bad, however, this may not be true in all cases as there are good debts. For instance, the debt you incur from a mortgage loan is good because real estate is an investment with a high potential for decent returns. Here are some tips for managing your debts:
- Borrow what you can pay. A helpful tip to ensure this is to draw up a plan before applying for a loan.
- Pay off your debts early, especially consumer debts as they attract higher interest rates.
- Avoid borrowing depreciating assets. This means, don’t borrow to fund liabilities – like borrowing to buy a car except you intend to use it for commercial purposes.
#4. Optimize Your Portfolio
Virtually every investor anticipates good returns. However, some building blocks can make your investment more efficient to produce your desired result. These include:
- A Good Investment Mix
An investment mix simply refers to a combination of different types of investments. The key purpose why financial advisors advise investors to mix investments is to mitigate risks. Investments are chosen based on the advantages and level of possible risks each investment type involves.
You may decide to own a portfolio that comprises stocks, bonds, and real estate. For stock mix, most financial advisors suggest at least 15 to 20 stocks, as more than that might end up over-diversified, diluting gains on average
- Portfolio Diversification
Diversifying your investment is another notable risk hedge practice in investment, but in addition, it can increase your chances for a higher return on investment (ROI). Portfolio diversification emphasizes investing across and within asset classes. One good way to diversify your investment is by investing in mutual funds and exchange-traded funds (ETFs).
They both pool investors’ funds and invest them in various securities to generate profit. Also, they are professionally managed, making them optimized for good performance.
- Consider Taxes.
In optimizing your portfolio for good returns, you should consider investing in tax-advantaged accounts such as the 401(k) and Roth IRAs. These retirement savings vehicles help keep your tax bills low as they offer tax-deferred and tax-free growth benefits.
These accounts are especially good for relatively tax-inefficient investments such as mutual funds and real estate investment trusts (REITs).
- Practice Portfolio Rebalancing Regularly
Rebalancing your portfolio is a key investment strategy that enables you to restore target allocations and risk levels. Hence, you bring a portfolio that has deviated from your target asset allocation back on track. It is important to evaluate your portfolio periodically using the right measures to make adjustments where necessary.
These new year’s financial resolutions are gathered from the ideas of financial experts. What this implies is that practicing them will most likely help you secure your financial life in 2022 and beyond. However, to stay through to them you may want to get the services of a financial professional for accountability.