Small changes can make a big difference in getting your finances in shape in 2022
New Year’s resolutions are easy to break, especially those aimed at saving more money.
But 2022 is a good time to take your finances seriously as the year will present your budget with new and expensive challenges. Beginning January 1, most Versant Power and Central Maine Power customers’ utility bills will increase by 30 percent. The prices for heating oil will rise by 30-60 percent. And shopping lists will cost more to fill out as inflation comes in and supply chain delays persist.
Maine financial experts share the following tips on how to reduce debt, save, and invest by taking small steps to improve your financial fitness and stick with it into the New Year.
Create a budget. Check your checkbook or bank statement to see how you’re spending. This is an important financial exercise that many people don’t do, but it can instill financial discipline, said Peter Neelon, a financial advisor at Edward Jones in Windham.
“If you just look in your checkbook for 20-30 minutes you can find out where your money is going, then find out what your take-away salary is and what the differences are,” he said. That will show if there is additional money that can be used for savings, retirement, or other goals.
Writing down everything you spend is a more detailed step that can help figure out where there is money that could be used to pay off debt or save for a larger device, said Lucie Estabrook, CEO of Birchbank, a financial planning agency from Bangor.
You can even save a little. Many Mainers have been hit hard by the pandemic and are lagging month to month, but saving even a little is important as this will add up over time. Even a few dollars a week makes real savings possible, Estabrook said.
If you have an employer who offers a 401 (k) retirement plan, you are putting money into it. Money paid into the plan will lower your taxes. And you get free money if the employer makes the funds available.
Depositing a small amount into a savings account weekly can also go a long way. Someone who saves $ 4 a weekly paycheck would save about $ 200 a year at 1.5 percent interest rate, and that would add up to $ 5,000 over 20 years, said Susan Veligor, director at Cornerstone Financial Planning in Portland.
“It’s only $ 5,000, but it’s $ 5,000 that you didn’t have before,” she said. Once the first $ 1,000 is saved, it can be invested in the stock market, where the percentage growth can be much higher.
She recommends taking budgeting books from the library to find out about ways to save. Local community colleges and community colleges also offer courses that can help with financial literacy.
Cut off the fat. A close look at discretionary spending and deciding how much is really necessary can identify funds that could be better spent on something else.
The $ 180 cable bill can likely be cut, Neelon said. And if you’re a safe driver and haven’t had a car accident, you might want to get a cheaper insurance policy with a $ 1,000 deductible instead of $ 100, he said.
You can save a lot of money by simply ditching the $ 5 a day coffee or making repeat visits to a fast food chain that add up over a year.
It’s the small amounts of savings here and there that can add up to improve your financial fitness, he said.
Create a debt settlement strategy. Paying off credit card debt is critical to financial well-being. Some experts recommend that you choose the card with the highest interest rate first and only pay the minimum interest rate on other credit cards you may have. Once that high interest card is paid off, do the same with the next higher interest rate card. And make sure you don’t pile up credit card debt again, Estabrook said.
Also, look for cards with a lower or perhaps zero interest rate for a period of time and transfer your high interest card balance.
Another strategy would be to get a debt consolidation loan at a low interest rate. A home equity loan might be an option, but unlike credit cards, if you don’t pay the loan, you can lose your home, Neelon warned.
If you have high mortgage rates on your home, you should refinance at a lower rate soon. The Federal Reserve plans to raise interest rates up to three times in 2022, and banks are expected to raise mortgage rates at the same time.
Plan for the future. Saving six to nine months’ salary is an oft-quoted goal of financial planners, but not everyone can achieve it. Setting aside $ 1,000 yourself is a good place to start for emergencies such as B. when you need to buy a new washing machine.
“Make sure you have an emergency fund and replenish it when you need to use it so you don’t have to go to a credit card or loan,” Estabrook said. “You only have to take one step to start saving.”