Entering the new year means setting an annual resolution. Whether you’re looking to better your wellness, career, or relationships – there’s one resolution that’s crucial to all aspects of your life: improving your financial fitness. Rather than investing in a pricey gym membership or a resolution that’s difficult to stick to, take the opportunity to set financial goals that are easier to achieve than you think. Here’s our guide to getting a fresh start to your finances in 2022.
Create a Budget
Creating a budget may sound scary, but it can actually be very empowering once you’ve finished. Having a full understanding of your income and expenses can help you be more aware of your financial state and help you save more money down the line. There are steps you can take to make the process easier.
- Review your expenses from 2021 to see where you spend your money and how you can better save.
- Create a list of essential spending categories such as rent, food, transportation, clothing, internet, cell phone, insurance, etc. – and write down how much you spend on each.
- Add up your monthly income and deduct your expenses. The amount left can be used toward building savings or on entertainment.
When building a budget, it’s recommended to use the 50/30/20 concept when planning out your expenses. Meaning, 50% of your income should go toward necessities, 30% on wants, and 20% on savings and debt repayment.
Reduce Debt and Improve Your Credit
Speaking of debt repayment, another goal to make for yourself in 2022 is to work toward reducing any debt that may be lingering. To start, make a chart of everything you owe and organize it by the size of the debt and interest rates. Check your credit score to better understand your financial fitness and where there’s room for improvement. Then, calculate what you owe and use the monthly budget you created to build a realistic repayment plan.
To prioritize debt repayment, you’ll need to trim your budget and eliminate any unnecessary expenses that are not essential. We also recommend refraining from using credit cards and allocating cash for your needs instead. While this is not ideal, a tight budget will only be temporary until you’re in better financial standing and your credit score improves. Plus, you can always treat yourself once you’ve achieved your repayment milestone (within reason, of course)!
Build Your Savings
Having a savings account is essential whether you need an emergency fund, money for retirement, or to buy a home. While it may sound daunting to build and maintain a savings account, the key is to start small. You’ll want to first evaluate what you’d like the savings to be for and how much you’ll need. Then, dedicate a certain amount of your paycheck to go toward your savings and make the transfer automatic. While it’s recommended to keep 20% of your income for savings and debt repayment, you’ll need to evaluate what works within your budget and when you’ll need the funds. Even if you’re starting with $25 per paycheck, you’ll be surprised how quickly the account will grow without you even thinking about it.
If you need help with creating a budget, managing debt repayment, or building savings, the team at First Financial is here to help! Visit one of our branch locations or contact us to speak with a representative today.