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Preparing for a new year can be an exciting time of goal-setting and planning. Another COVID winter may leave some feeling uncertain, but with hopes for a better year ahead, it may be a good time to make money resolutions that put into action some financial lessons from the past couple years. Or maybe you'll think of 2022 as an opportunity to make a completely fresh start.
Either way, there's little we can control as we all navigate the pandemic and a complex economic recovery. Making a plan for your money in 2022 is one way you can take the reins and feel excited about the future. Here are five money resolutions to consider as the new year approaches.
1. Give Yourself a Raise
In many industries, it's a job seeker's market. The U.S. unemployment rate dropped to 4.2% in December, the lowest in 21 months, according to the Bureau of Labor Statistics (BLS). Worker shortages across the country are putting pressure on companies to hire fast, and competition for available workers is high. As a result, wages increased across nearly all industries between November 2020 and November 2021, the BLS reports.
If you're currently employed, 2022 could be a good time to apply for a better-paying job in your industry. If you're unemployed, you have a strong chance of earning more in your next role than you did before. Ready for a change in industry? Find inspiration in the BLS' list of the top 10 fastest-growing occupations between 2020 and 2030, which includes nurse practitioners, solar photovoltaic installers and group fitness instructors.
2. Revamp Your Budget
Many consumers have experienced a loss in income, an influx of income or both since the pandemic began. While some workers lost jobs, others kept them and benefited from stimulus payments; even those who were laid off had access to expanded unemployment benefits for a period of time. If you haven't kept up with your budget due to a change in income, savings or expenses, take time in 2022 to reset so you can stay on track to meet your goals.
Start by listing all your current monthly expenses, both fixed and variable. Then take a look at after-tax income you receive, including government benefits. A useful budgeting method to use if you're new to—or getting back into—budgeting is the 50/30/20 plan. You'll allocate half your after-tax income to necessities such as housing and groceries, a maximum of 30% to nonessential expenses like takeout and entertainment and at least 20% to debt payoff and savings.
This 50/30/20 breakdown may be hard to achieve at first, but noticing how close you can get is useful information. The practice will help you identify where your money is going, any expenses you can cut back on and how you might be able to increase your savings rate.
3. Make a Long-Term Plan for Student Loan Repayment
Another pandemic-era budgeting change for many was the federal government's decision to pause collection of student loan payments between March 2020 and February 2022. Federal student loan borrowers have not had to make payments at all during this time, and their interest rates have been set at 0%.
It's been possible to put money toward your loans anyway, and make a bigger impact on the principal balance since interest isn't accruing. But if you've taken advantage of the pause and haven't paid loan bills in almost two years, 2022 will be the year that it's important to reintegrate that payment back into your budget. The pause will officially end on January 31, 2022.
First, contact your student loan servicer to find out what your next payment will be. Then look at that budget you've created and identify whether you can afford the bill on your current income. If not, ask your servicer to change repayment plans. As a federal loan borrower, you have access to generous repayment programs like income-driven repayment, which lowers bills to a portion of your income and may even provide forgiveness after 20 to 25 years of payments.
4. Give Your Insurance Coverage a Checkup
It's an understatement to say the stress of the past few years has strained our ability to focus on even the most immediate daily tasks. That means items that we put on the back burner in a typical year probably need some extra attention. One such item is insurance coverage. Look into these types of insurance in 2022:
- Life insurance: If you have dependents or substantial assets in your name, life insurance is essential. The amount of coverage you need depends on your income, assets, debts and your family's specific circumstances.
- Car insurance: If you've put off buying auto insurance, don't delay in getting a policy. Even if you already have one, comparing insurance quotes once or twice a year is a smart way to ensure you have the cheapest policy you qualify for. And don't forget to look for other ways to reduce your car insurance costs.
- Homeowners insurance: The same goes for homeowners insurance. Whether you bought a new home in 2021, you refinanced or you've had the same policy for a while, compare options across several insurers to find the best price and coverage out there.
- Travel insurance: Planning to travel in 2022 is a great way to make sure you have a restful and restorative experience to look forward to. But with so much uncertainty swirling about new COVID-19 variants and potential travel restrictions, taking out a robust travel insurance policy whenever you vacation is a wise investment.
When buying new insurance, it's often smart to first consider a policy through a company where you're already a customer in case any discounts are available. Then compare your quote with multiple other insurers to ensure you're not missing out on a better deal.
5. Find Ways to Boost Retirement Savings
If you lost your job, took a break from the workforce or withdrew from your retirement account in the past few years, your savings may have suffered. In 2022, commit to bolstering your retirement plan so you're not at risk of having to make up for a shortfall.
Fast ways to ramp up retirement savings include depositing one-time windfalls—like a tax refund, tax credit or signing bonus at a new job—directly into your 401(k) or individual retirement account (IRA). If you're not already taking advantage of an employer match on your workplace retirement plan, save at least as much to capture that match. And if you're looking for a new job, prioritize offers from employers that offer strong retirement savings options, including matching dollars.
You can still set aside money for retirement as a self-employed individual or when you're between jobs and aren't sure when you'll be employed full-time again. Options include a solo 401(k) or a traditional or Roth IRA. Take a look back at your budget to double-check how much you can afford to save for retirement, but the gold standard is setting aside 15% of your pretax income each month. It may not be feasible to save that much right away, but make 2022 the year that you get as close as possible.