It’s that time of year again: Time to set goals for the new year. In addition to setting goals related to your personal habits and health — like reading more books, maintaining a healthy weight and exercising regularly — this is also a good time to set some financial and investing goals.
Here are 5 goals that could help you achieve success in your personal finances and investments in 2022:
1. Manage Debt Wisely
Not all debt is bad, so your goal shouldn’t necessarily be to eliminate debt. In fact, leverage can sometimes be an effective financial strategy — for example, borrowing money at a lower interest rate than what you can potentially earn by investing it elsewhere, or using debt to buy assets that appreciate in value, like real estate.
A home mortgage is one example of what might be considered good debt since homes usually appreciate in value over the long term and the interest may be tax-deductible. Borrowing money for a business is another possible example of good debt. With interest rates at or near historic lows, now may be a good time to take on a business loan.
2. Spend Money Carefully
It can be easy for many people to fall into the trap of trying to “keep up with the Joneses” — especially affluent families and individuals. If this is a struggle for you, make a resolution to be content with what you have and not compare your possessions with others. Being content with material possessions will help you spend your money more carefully.
Also, think carefully before making large purchases. Ask yourself whether you really need to buy a brand new luxury car, recreational vehicle or yacht? If the temptation is strong, wait a few days before making the purchase. During this time you might decide that you don’t need the item after all, possibly saving yourself tens of thousands of dollars.
3. Boost Your Savings
Managing debt wisely and spending money more carefully will likely increase the amount of money available for savings. Decide whether to devote this money to short-, medium- or long-term savings goals — or to spread it out among these different types of savings.
Money in your short-term savings bucket can go toward things like vacations, home renovations or your emergency savings fund. You could devote medium-term savings to paying cash for your next vehicle instead of financing it. Common long-term savings goals include college education for the kids and comfortable retirement. 529 plans are popular savings vehicles for college while SEPs, 401(k)s and IRAs are commonly used for retirement savings.
In 2022 you can contribute up to $6,000 to an IRA, or $7,000 if you’re 50 years old or over. So you can max out your IRA for the year by contributing $500 per month, or $583 per month if you’re 50 years of age or over. And you can contribute up to $20,500 to a 401(k), or $27,000 if you’re 50 years old or over. So you can max out your 401(k) for the year by contributing $1,708 per month, or $2,250 per month if you’re 50 years old or over.
4. Give Money Strategically
If you’re charitably inclined, it’s smart to devise a strategic plan for philanthropy to ensure that your money does the most good and you reap all the tax benefits to which you’re entitled. This can be especially beneficial for the affluent.
Components of a philanthropy strategic plan might include a donor advised fund (DAF), charitable trusts — e.g., charitable lead trust (CLT) and charitable remainder trust (CRT) — and a family foundation. A DAF is a pool of money managed by a charitable organization on behalf of multiple contributors, while family foundations make private grants to charitable organizations. CLTs and CRTs are useful tools for leaving assets to your favorite charities after you die.
5. Monitor Your Portfolio Closely
The sharp rise in the stock market in 2021 could have pushed your portfolio out of alignment with your time horizon and risk tolerance. In this case, you may need to rebalance your portfolio to bring your asset allocation back into alignment with your goals. This is accomplished by selling some asset classes — like stocks, for example — and buying others, like bonds, to achieve the proper balance.
For example, let’s say you want to maintain a 60%-40% ratio of stocks to bonds in your portfolio. But the rise in equity prices over the past year has shifted your asset allocation to 70% stocks-30% bonds. To bring your portfolio back into balance, you could sell some stocks and use the money to buy enough bonds to achieve your desired asset allocation.
How We Can Help You
We would be happy to talk to you about your financial goals for the new year and help you devise strategies to achieve them. Give us a call to schedule a meeting at your convenience.