Take small steps keep financial resolutions
We enter 2022 in a much different financial environment than we had been experiencing.
Inflation is at a 40-year high of about 6%. The FED has announced the end of quantitative easing and rising interest rates, which will reduce large amounts of liquidity in the economy.
Inflation is often considered a silent tax increase because it reduces buying power. We will probably not receive all the tax-free money we got from three rounds of stimulus checks. The stock market has come through another record setting year, but how long can this continue?
Our financial plans must adjust for all of these changes to produce optimal results.
At the beginning of a new year, many people make resolutions about changes they hope to make to improve areas of their lives. Most of these grand ideas are abandoned before the end of January. Good intentions without following through have no value.
New Year’s resolutions are usually not successful because they are too big, and staying motivated for 12 months is a long time. There may be a way you can make changes to your financial life if that is your goal.
First, you have to decide what is your “why?”
Why do you want to make financial changes? Will it make retirement more enjoyable? Life less stressful?? Whatever it is, if you can mentally picture the benefits of accomplishing this, you are more likely to make the change. This helps you see the value of any sacrifices you must make.
Next, pick one area to concentrate on instead of making many changes at once.
Once you have determined your starting point, commit to a 30-day challenge to that goal. You can often accomplish this in 15 minutes per day. For instance, if your goal is to save more emergency money, what could you do? Keep a journal of all the money you spend each day. Many people do not understand where all of their money goes each month. Carrying a small notebook makes it easy to record your expenditures.
After a couple of weeks, decide where unnecessary money is being spent. These funds can be redirected to a savings account. If you save $20 per week, you will have a thousand dollars saved at the end of a year. Emergency money has to be kept in something such as bank accounts where it is available at a moment’s notice when needed. It will not earn much interest, but that is okay for some of your money.
While having an emergency account at the bank is important, having too much money sitting in the bank, with our record low interest rates, could be a poor financial decision.
CDs are paying very little interest rates at many financial institutions. Ten-year government bonds are paying about 1.6%. Why would you want to earn this small amount when inflation is 6%? There may be other safe options to earn more. Liquidity is important, but having too much can be expensive.
Improving your finances will take a little work. Albert Einstein once said, “Only a fool would think you can keep doing the same thing and get different results.”
You can do this. Next week we will discuss some other little things you can do to improve your financial life.
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.