Four High-Impact Financial Resolutions for the New Year

How to achieve a more prosperous 2022

Reflecting on the ups and downs of the current year and setting financial resolutions for future goals is a longstanding tradition to usher in the new year. What better area for focused, deliberate improvement than your finances? If you want to turn your finances around or simply experience more prosperity in 2022, you need to keep three key factors in mind: earnings, expenses, and savings.

If you’d like to improve your finances in the new year, consider the four financial resolutions below.

Understanding the Top Three Factors of Financial Health

Before we get to suggested financial resolutions, let’s think more broadly about financial health. To build your wealth you need to earn more and spend less, thus increasing your savings. Those savings can then be used for investing to help your money grow at a faster rate. Keeping a goal in mind of how much you want to increase your earnings will help you remain focused – and setting a high goal will motivate you to make impactful changes to achieve it.

For instance, say your goal is to increase your earnings and decrease your spending by 10 percent. If your annual income is $70,000 and your spending is $65,000, then you should have $5,000 left for savings and investing. If you could increase your income to $77,000 and decrease spending to $58,500, then you would have $18,500 in savings. That’s a 3.7x increase, which could make a substantial difference in your financial health.

If you put your mind to it, however, you can achieve even more – perhaps even an increase of 10x in your savings. While it sounds simple on the surface. Of course, it will take time to reach such a lofty goal, but you can do it in phases. By developing certain financial habits, you can make strides to reach that goal, and once you reach it, you can set your sights even higher.

Goals are more achievable with actionable elements. The following financial resolutions, when combined create a wealth-building strategy that anyone can put into practice.

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Financial Resolution #1: Evaluate Your Biggest Expenses

All expenses – even small ones – can add up to significant costs over time. If you really want to make a big impact on your finances, you need to tackle your biggest expenses first. Not surprisingly, the top three expenses in most American households are housing, food, and transportation.

Americans spend an average of 37 percent of their income on housing. Cutting costs related to housing, typically everyone’s largest expense, is challenging. If practical, you could consider downsizing your home and/or business offices. You could also look at moving to a cheaper market to save on taxes and other cost of living expenses.

Living with family or friends is a great option to cut back on housing costs – and plenty of Americans are taking this approach. You can also speak with your landlord to lower your rent. Some landlords may be willing to negotiate a lower rate in order to keep a good tenant.

Transportation and food may be easier costs to tackle. For example, you can look into less expensive options for a vehicle. If you have a long commute, you could explore more fuel-efficient vehicles or even electric options.

When it comes to food, the simplest way to slash that expense is to eliminate or strictly limit the amount of dining out or take out that you purchase. Pay attention to coupons and other specials at groceries in your area, and take an intentional, budget-led approach to how you buy your food.

Financial Resolution #2: Pay-Off Your High-Interest Debts

Debt is another important element to tackle if you’re hoping to reduce your expenses. Set aside any shame you might feel about your debt. After all, it’s something most individuals have had to deal with at some point. Instead, view it as a challenge that you can overcome.

Debt can be tricky. Sometimes it’s necessary, but it can end up costing you much more in the long run without a solid plan to tackle it. The sagest financial advice regarding debt is to pay off the highest interest debts first. These are typically pay-day loans, credit cards, and personal loans.

Payday loans are the worst type of debt because of their staggering interest rates. On average, these loans have an interest rate of nearly 400 percent, according to the Consumer Financial Protection Bureau. Get rid of these loans first and do everything in your power to avoid having to resort to them again in the future. Then move on to your credit cards, paying off those with the highest interest rates first.

If your debt feels insurmountable, you can explore debt consolidation options to reduce interest rates and deal with one single payment rather than multiple loans and cards.

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Financial Resolution #3: Get a Side Hustle and Dedicate 10 Hours a Week to It

Unlike a part-time job, a side hustle allows you to utilize your talents or focus on your passions outside the typical workday while still bringing in some extra cash. The most exciting aspect? Your side hustle can flourish and transform into a full-fledged business if there is a market for it.

For your side hustle to bring in enough income to make a difference, you do need to dedicate some time to it. If you can set aside at least 10 hours each week, that will translate to more than 500 hours a year. As you can imagine, that can have a significant impact on your earnings. You will also build your skills, find what works for you and create habits related to your side hustle because of this time commitment.

What you do is less important than how often you do it. Make sure there’s a market for your side hustle and then jump in. Find something related to a passion of yours, and the money will follow if you commit.

Financial Resolution #4: Develop an Investing Habit

Investing can be intimidating, so how do you make it a habit? For beginners, dollar-cost averaging could be a viable option. This approach is when you make regular investments of equal amounts at fixed times.

While it’s not the most popular investment strategy, dollar-cost averaging allows you to make small investment commitments regularly, which is how most habits are built. Start with a passively managed, low-cost, diversified index fund. As your confidence around investing grows, you can explore other approaches and strategies.

Final Thoughts on Financial Resolutions

By committing to the resolutions above, you will be in a much better position to achieve your ultimate goal of increasing your savings in 2022. Small changes to your financial habits can make a difference, but if you’re hoping to take significant strides to build your wealth, it might be time to consult a professional.

At Paces Ferry, we can help you devise and implement a plan that leverages your earnings and investments to reach your financial goals. Reach out to us today to schedule a complimentary financial consultation.

Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”).  This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.