The year 2022 may be the first where the world seems to be regaining some sense of normalcy after the last few years, but that does not mean that things are easy. In fact, with an uncertain economy ahead, many people are reevaluating their current financial situation to ensure that they are properly prepared for what may come. Taking a comprehensive look at how your money is being used can feel overwhelming and confusing, so here is a financial planning checklist to help you prepare for 2022 and beyond.
Evaluate Your Debts and Assets
Your financial wellness is made up of many moving parts. One of the most significant factors involved in determining financial wellness is your debt position. It is difficult to get ahead when you have certain debt obligations weighing you down, so spend some time in 2022 evaluating your current debts and obligations, as well as how they compare to your assets.
Not all debt is “bad,” and it can be useful for building a good credit score. However, debt also contributes to a less than favorable DTI (debt to income) ratio, eats into your monthly savings ability and grows if left unattended. As you consider paying off debts, prioritize those with the highest interest rates or greatest burden on your life.
Forecast Important Changes
No one can predict everything that will change for them in the next week, let alone the next year or more. However, some changes are predictable, and you should view your finances with those changes in mind. Do you plan to get married? Buy a house? Move to a new location? Open a savings account for your baby? Each of these changes, and more, can spell a new direction for your finances. Preparing early will keep the financial implications of these new events to a minimum.
Revise (or Create) a Budget
Budgeting is a powerful way to take control of where your money goes. If you do not have a budget, the best time to make one is now. If you already have one, consider areas that may need some adjusting. Did you budget in entertainment spending but regularly failed to use it all? If so, you could dial down the entertainment budget and allocate some of that extra to savings or other goals.
Alternatively, were some areas of the budget consistently stretched tight? Where can you shave spending to help make those categories more comfortable?
A budget is also a great way to outline your goals, both in the short and long term, and develop strategies to meet them. What do you need money to accomplish in the next year? What about in the next five years? These goals can range from important home repairs or debt payoff to something personally rewarding like a vacation or entertainment purchase.
If you have dedicated some of your money toward investments via options like mutual funds, stocks or even target retirement funds, consider how the changing market may inform your choices. Would you like to shift some money toward buying while the market is low? Are you nearing retirement and need to transition from high-risk to moderate or low-risk vehicles?
Build in Security
The economy in 2022 is gearing up to be less than ideal and the future is less certain, which means that you should shore up your financial security. If you do not have an emergency fund that covers at least three months of expenses, now is a good time to start working toward that goal. Those who have extra money to save could benefit from increasing that emergency fund to cover six months.
Update Important Documentation
No matter what stage of life you are currently in, some documents like wills and estate plans are valuable for the other people who rely on you. If you have experienced any significant changes, or if your financial situation has changed dramatically, it may be time to update these documents to reflect your new reality. Most commonly, things like wills and estate plans need to be updated after important purchases – like the acquisition of a home, or a buy-in to an investment – that pays dividends.
Speak with a Financial Advisor to Explore Your Ideas
Whether you are taking a close look at your finances for the first time or are conducting your regular review, it can be helpful to speak with a professional. The experts at Inflection Advisors can offer guidance and serve as a sounding board to share your ideas and goals. Together, we can develop a strategy that helps you succeed and secure your financial future. Reach out to learn more or to schedule an appointment to get started.