We are approaching a very uncertain new year. Each year we try to provide you with a list of the most important money actions you can take as you bring in a new year. This year we offer 22 ideas for 2022 in a two-part post. Carefully consider what we are suggesting and see if it fits into your money management habits. Hopefully these ideas can help start off the year on a positive note and let you prepare for your financial future.
Idea 1 – Create or Update a Cash Budget
You must have a cash budget or ongoing record of cash coming in and going out. I learned early in my career that what is not measured is not managed. You can’t navigate your journey if you don’t know how you are doing and where you are going. In the real-life world of the FinancialVerse, this is done by understanding and managing your inflow and outflow of cash. Think of yourself as a plumber. You are trying to make sure your water pipe flowing cash is used as needed and does not have holes in it, leaking without your knowledge.
Idea 2 – Open A High Yield Internet Savings Account
With interest rates likely to increase, signing up for a high yield savings account online can take as little as five minutes at most popular online banks. Even with rates at historical lows, it can result in you earning substantially more interest on your savings. All you will need to do is verify your identity, provide some information, and connect to one of your other bank accounts. These accounts can pay up to 8 times more than accounts offered by brick-and-mortar banks.
Idea 3 – Get a Life Insurance Checkup
Consumers now better understand how important life insurance can be to their households as a result of the pandemic. Just as you have routine health, dental and even car checkups, your life insurance could use an annual checkup too. By taking time to review your current policies, personal circumstances, and changing needs, you may be able to:
Save money on your life insurance premiums
Potentially reduce your income tax liabilities with certain types of life insurance
Add to or reduce the amount of life insurance you have
Make sure that your policy is performing up to your expectations
Earmark policy proceeds for your favorite charities
Before you meet with the qualified financial professional who services your life insurance coverage, it would be helpful to tell them about any changes with yourself and your family, the financial changes you’ve encountered over the past twelve months, and what you hope to accomplish during your checkup.
Idea 4 – Shop Your Car Insurance
With many of us now working from home we are driving less. It is a great time to shop your coverage because of your new driving habits. You can do this and possibly generate substantial savings. You can accomplish this in four easy steps:
Decide what coverage you must have, the deductible you can work into your budget, and how you need to pay – monthly, quarterly or annually
Look into three or four or four new companies in addition to your existing carrier
Get quotes from each for the same coverage and payment terms
Don’t be afraid to ask about available discounts.
The market for car insurance is very competitive and has seen much innovation in the past several years. Shopping your coverage could save you money and improve your protection.
Idea 5 – Inventory Your Debts and Look to Reduce the Outstanding Amount
The pandemic has focused people to save more and carefully review the outstanding debts they have. I believe you should carefully look at all your debts at least annually and become fully aware of what you owe. Create a list that includes lender contact information, account numbers, and a rough estimate of amount owed for each loan in your name. This listing should include:
Credit cards: card issuer, number, and contact information.
Mortgage: lender information, escrow company contact info, purchase price, recent valuation estimate.
Personal loans: auto loan, student loans, other loans.
One of your key financial priorities should be to get out of debt as quickly as possible. The first step in this journey is a full assessment of what obligations you have accumulated. One last idea is to refinance what you owe if you have not already. Rates will likely increase in the new year, and you should look to take advantage of lower rates while you can.
Idea 6 – Review and Update all of Your Beneficiary Designations
Each year, it is a good money practice to make sure your beneficiary designations are up to date for your life insurance coverage, all your retirement related accounts such as 401(k)s and your general insurance coverage. Many of these elections allow you to have primary and contingent beneficiaries if the primary has passed away, which you should do.
Remember, financial services companies can only pay benefits to the beneficiaries you name, if you die unexpectedly. They cannot pay who you intended but only who you have legally named. Normally, you can designate a number of people or entities such as a family member, a friend, a business partner, a charitable organization, or a legal entity such as a bank, trust or your estate. While the beneficiary is your choice, some states have laws that regulate who you can name as a beneficiary.
These states are the community property states and usually include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. If you live in one of the above states or reside in another community property state, you should discuss the beneficiary designation with your tax advisor or accountant if you are designating a person other than your spouse as your beneficiary.
Idea 7 – Manage Your 401(k)
Today, most companies use 401(k) plans for creating retirement accounts for their employees. A portion of your paycheck, often along with a matching incentive from your company, goes into an account and you are charged with managing the allocation of those funds into an offering of investment products.
Gaining a grasp of some of the 401(k) plan foundations will help you manage your fund with greater authority and ease. With the right basic principles in place, you'll be in a better position to make the decisions that relate to your individual financial situation.
Each year you should look at the investment diversification, investment performance and expense charges, including all fees you are paying for your plan. This should result in you re-balancing the investments in your account at least annually, reassessing how much you are contributing to the plan including making sure you are contributing enough to get your company’s matching contribution and taking advantage of any related benefits offered by your employer.
Idea 8 – Take Care of Your Body and Property
One of the biggest life lessons is to prepare in advance by keeping things in good working order and preserving them for the long haul. This includes all that you own including your personal physical, mental and dental health. Personal self-care is truly important. For all the physical assets you own, a little maintenance can save you big repairs to your car, home or computer equipment. Get annual health checkups, the 10,000-mile car service, and annual heating and cooling maintenance services.
Idea 9 – Review and Adjust Your Income Tax Withholdings for 2022
The federal income tax you pay each year is a pay-as-you-go tax. Amounts are taken from your paychecks each time you get paid. You can avoid surprises, such as owing a large amount to the government at tax filing time, by checking the withholding amounts. The IRS recommends that everyone do a periodic Paycheck Checkup. You can do this by using the Tax Withholding Estimator on IRS.gov. To learn more about how to manage your withholding, use the instructions in IRS Publication 505, Tax Withholding and Estimated Tax.
Remember, in the FinancialVerse, after-tax cash income is most important. Taking the appropriate actions to save tax dollars and to pay the correct amounts are essential.
Idea 10 – Look into Long-term Care Insurance
As a country, we have not fully planned for the costs of providing care to an ever-aging population. As we age, we have a 70% of needed long-term care coverage for periods as long as four years. Most people believe, incorrectly, that Medicare will fully provide for the costs of caring for their aging and sick family members. In reality, Medicare does not pay for the costs of long-term care. The upcoming wave of aging people needing assistance for medical and cognitive problems is just starting.
Neither our government nor our households have budgeted for the cost and lifestyle impacts of this growing wave of people. You should look into getting some form of long-term care insurance coverage in place for yourself and your aging parents if they have not secured coverage themselves.
Idea 11 – Take an Inventory of Your Employable Skills
In the economy today, employers are paying employees for the skills they bring to the job. How good are your skills in your field of endeavor? If you don’t know it might be a good idea to take an objective look at how employable you are and what, if any, skills are you missing that could increase your income. Take a cold hard look, it may pay dividends.
Summary
Above are the first eleven ideas for 2022 that can save you money and improve your financial world. Consider which of them can help you reach your goals. Remember each week the FinancialVerse publishes two Moneysavers blog posts and two FinancialVerse Podcast episodes with ideas you can use to improve your financial health and well-being. If you are not a subscriber, just go to the website and enroll. You can also follow us on Facebook, Twitter and LinkedIn.
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