3 financial resolutions for 2022
An expert shares strategies to help keep you financially on track in the year ahead
If you are like me, turning the page on the old calendar feels good and provides the opportunity to make some resolutions for the year ahead. While exercising more or spending more time with family and friends often rank high on the list of new habits to adopt, making financial resolutions might also be worth your time.
Higher interest rates, inflation, continuing issues with COVID-19, and the pandemic’s potential impact on the economy will make 2022 difficult from a financial perspective. However, if you have a game plan, it will seem less daunting, particularly when it comes to your financial picture.
Here are some strategies to help keep you financially on track in the year ahead.
1. Fund Your Retirement
Like starting a diet, the first month of the year is a great time to establish a regular contribution for a Roth IRA or traditional IRA. For a Roth IRA, the annual contribution limit is $6,000 if you are under age 50 and $7,000 if you are over age 50. Roth IRAs carry income restrictions, so be sure to check those limits to see if you qualify. Whatever option you choose, investing your contributions in the stock market is the best bet for long-term growth.
Also, be sure to maximize your 401k contributions at work. Contribute as much as you possibly can with each paycheck, preferably 10% or at least to the level where your employer matches. If you can do this, it will also lower the amount you are taxed on every pay period.
Additionally, it is wise to review how your funds are invested annually to see if you are comfortable with the asset allocation, i.e., the amount invested in stocks versus bonds. This would be a good time to take a hard look at how much risk you may be taking because market conditions may have changed.
2. Review Your Insurance Coverage
A new year is always a good time to look at your insurance coverage. Start with life insurance. Is your family adequately covered in case you die? Term life insurance is the most cost-effective way to buy a lot of insurance and get the biggest bang for your buck. Buy the maximum amount you can afford for the longest period available.
For example, if you can buy 30 years’ worth of coverage, do it. You want to have enough funds to pay off a mortgage, cover college expenses or live comfortably in retirement. Typically, this would be $1 million to $2 million.
With climate change leading to more natural disasters like fire, flood and tornadoes, make sure your homeowner’s insurance is enough to replace your home and personal belongings.
Work with an insurance company that won’t fight you every step of the way to get a fast appraisal to pay for repairs or a complete rebuild. Review your policy with your broker so worst-case scenarios are covered. Make sure you have enough auto and personal liability coverage as well. Nobody likes paying for insurance, but when you absolutely need it, you will be glad you did.
Medical insurance can be tricky too, particularly if you are self-employed. Most large companies have good plans, but if you are on your own–don’t skimp on coverage. It might be worth paying a higher premium to ensure that you can maintain access to your doctors or have your regular prescriptions covered.
Long-term care insurance is expensive but also important. With the cost of nursing homes running $100,000 annually, it may make sense to buy a small amount of long-term care insurance, particularly with everyone living longer. Home care can cost twice as much for full time help.
3. Make Sure Your Bank is Working in Your Best Interest
Your banking relationship is important. Fees, security, and convenience are huge differentiators in this highly competitive industry. Shop around to find the best deals and flexible options. Since interest rates are so low, keeping a lot of cash in the bank doesn’t make any sense. Savings and checking accounts pay zero interest and with inflation running at close to 7%, you are losing money on your account every month.
Look for checking accounts that carry no fees and ask for a line of credit for overdraft protection. Finally, make sure your bank has a secure, user-friendly online app you can use wherever you might be.
Remote banking is critical with COVID-19. Take the time to review your retirement options, insurance coverage and banking relationships before the year gets away from you.
If 2022 turns out to be another 2020 (incredible uncertainty, worry and stress), you will sleep better at night knowing you prepared for the worst, but hoped for the best.
Fred Taylor is a managing director and partner of Beacon Pointe Advisors’ Denver office. He helps individuals and families build wealth, live off their wealth and leave a legacy for future generations. A former economic advisor to Governor Bill Ritter, Fred has more than 35 years of financial services experience.