As we move into Year 3 of the Pandemic, America’s personal finances seem to have improved. With that in mind, we offer some Money and Credit Resolutions for 2022. Sign up for Ilyce Glink’s Love, Money + Real Estate newsletter for access to more stories like these.
Here’s a guess: there aren’t many of us who’d care to relive the past two years. Even if your stock portfolio is worth more today than it was 20 months ago. Even if you have a new job that pays you more than you were making.
Covid has some people facing financial headwinds
As of early January, 2022, according to the CDC Covid Tracker database, Covid-19 has killed more than 840,000 Americans, and infected more than 62 million. That’s about one in six Americans who have been officially infected by Covid, plus perhaps millions more who were sick but asymptomatic.
Those are hard numbers to get around. As we move into year three, Omicron is causing more hurt, with schools, colleges and universities moving online, tens of thousands of flights canceled, and business conferences going virtual.
Millions of people aren’t working who could be
The latest unemployment figures showed an overall unemployment rate of 3.9 percent, while the total nonfarm payroll rose by a far smaller than expected 199,000, with most of those jobs coming in leisure and hospitality, professional and business services, manufacturing, construction and in transportation and warehousing. Still, millions of people stayed on the sidelines or are otherwise not being counted in the labor force participation rate of just under 62%.
Still, initial claims for unemployment have fallen back into the more normal range. In the week ending Jan 1, 2022, some 207,000 people filed for unemployment insurance for the first time. A year ago, 898,610 people filed for unemployment insurance.
But Americans banked Pandemic cash or paid down debt
Looking back over the year, Federal, state and local governments provided a significant amount of help to businesses and individuals in the way of PPP loans, Economic Impact Payments, Child Tax Credit Payments, rent payments, and federal student loan deferments (which continue through May 1, 2022), among other assistance.
In 2020, Americans banked the cash they received, or used it to pay down debt (known as deleveraging). In 2021, more of this extra cash got spent, causing shortages and inflation.
What will 2022 bring? It’s hard to know. Certainly, we’re going to have to find a way to live with Covid for a while longer.
Need Money? Ask for a raise
Employers are paying more for talent (and providing other benefits as well) in order to keep turnover as low as possible and the remaining workforce engaged. And the stock market started the year hitting new record highs, even as the Federal Reserve forecast at least three rate hikes for the year.
As statisticians might say, there’s a lot of noise out there. But on a personal level, there are several personal finance resolutions you can make for 2022 that might provide clarity around your money and help you retool as we make our way forward:
Money + Credit Resolution #1: Spend less
We’re always in favor of spending less than you make, but the pandemic has taught us that we can all get by just fine without spending as much as we were: a few fewer restaurant meals won’t matter in the long run if you can salt that cash away for the tougher times to come. This year, everyone seems to be spending more, which is fine. Just don’t overdo it.
Money + Credit Resolution #2: Save more
Once the pandemic hit, the personal savings rate jumped to 33 percent according to the Bureau of Economic Analysis data. But, that number has fallen dramatically. In November, 2021, the personal savings rate was 6.9 percent, down from 7.1 percent in October 2021. While that’s still good, it may not get you across whatever finish line you’ve set for yourself (see Resolution #3, below).
Every year, you should aim to save a bigger chunk of your income than the prior year. Admittedly, over your lifetime, you’ll have years that are more and less challenging financially. If you have a tougher year, you might save less even as you spend more. But on balance, aim to put away 10 to 15 percent of your gross annual income. If you have a good year, aim for 15 to 20 percent of your gross income. The worst thing that will happen is you’ll be able to do things sooner: buy a house or a vacation home; take a fabulous trip; retire. The wealthier you are, the more options you have. Not a bad thing.
Money + Credit Resolution #3: Craft challenging financial goals
Research published on the American Psychological Association PsycNet website years ago shows that if you set specific and challenging goals, you’ll achieve higher performance than if you set easy goals, “do your best” goals, or no goals at all. If you apply Goal Setting Theory to your finances, you’ll save more money if you target a specific number that feels just out of reach.
- So, if you’re not currently saving in your 401(k) and your company offers a match, push yourself to meet the match.
- Saving 3 percent of your salary? Challenge yourself to save 6 percent.
- If you’re saving 10 percent of your net income, push yourself to save on your total gross income.
- On track for a 10 percent down payment? Push yourself to get to 20 percent (and you’ll save on private mortgage insurance).
Researchers say our intuitive need for achievement and self-esteem could be the reason setting specific, challenging financial goals helps us get over the finish line.
Money + Credit Resolution #4: Pay down your debt
Whether you’ve got an auto loan, school loans, credit card debt or a mortgage, make a determined effort to get as much of those non-deductible debts paid off as quickly as possible.
Start with either the highest interest debt first or the smallest debt (which you can pay off quickly and then apply that amount toward the next smallest debt). Every dollar you prepay will effectively earn you that amount of interest, so consider each debt paid off a big win.
Money + Credit Resolution #5: Build up your credit history
Credit is the driver behind life’s financial milestones. If you have good credit, you’ll pay less to get what you want.
Buying a house? Having a high credit score will save you thousands of dollars over the life of your loan. Buying a car? If you have good credit, you may be offered a zero interest loan. Here are some ways to improve your credit history and raise your credit score:
- Pull a copy of your credit history and credit score from each of the three credit reporting agencies, Equifax, Transunion and Experian.
- Look for any mistakes in your credit file.
- File a dispute to correct any mistakes you see in your credit history.
- Make sure to pay your bills on time and, if possible, in full.
- If you can’t pay a bill in full, be sure to pay at least the minimum amount due.
- Don’t use more than 30% of your available credit limit. So, if a credit card has a $1,000 available line of credit, don’t charge more than $300.
If you work hard at it, you should be able to raise your credit score over a year or two. And, that will make a huge difference to you financially.
Money + Credit Resolution #6: Learn something new about investing this year
If you’re managing your financial life well, you may think carrying on in the same way is a good thing. It might be – or might not.
Consider learning something new, whether it’s dipping your toe into NFTs or crypto, opening up a separate brokerage account, or doing a Roth conversion. Staying current as the digital revolution of money continues to develop will stand you in good stead now and in the future.
Bonus: You’ll be fluent in the financial future your children and grandchildren will inherit.
If you’re making a new money move in 2022, tell us about it.
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