In a time when inflation is at a 40-year high and prices are surging on everything from gasoline and food to furniture and cars, many consumers are focused on how to better handle their money. Developing practical strategies for saving, spending, and investing can help you build an emergency fund, lower debt, and gain peace of mind.
Managing Your Finances After COVID-19Many U.S. consumers put more money into savings during the COVID-19 pandemic, driven by government stimulus payments and a decrease in spending on things like travel, transportation, and eating out. Many used the extra cash to also pay down debt.
The U.S. personal saving rate, the percentage of consumer income that’s put into savings after taxes and living expenses, more than doubled in 2020, according to the U.S. Bureau of Economic Analysis. The personal saving rate decreased somewhat in 2021, to 12.2 percent, and in the first two months of 2022 rejoined pre-pandemic levels at an average of 6.2 percent.
5 Money Moves to Take in 2022
1. Create a BudgetThough some aspects of your personal finances might change—such as where you bank or what stocks you invest in—there is one piece of a personal finance strategy that remains constant: You need a budget.
A budget can involve mapping out your spending each month, including line items earmarked for things like savings and debt repayment. A budget should be flexible, as expenses change over time. A common budgeting approach is the 50/30/20 rule, which devotes 50 percent of your income to needs, 30 percent to wants, and 20 percent to savings.
“It’s so easy to fly blind when it comes to your income and expenses, but it’s so important to keep close track of your finances with a budget,” says David Sterman, CFP, president and CEO of New Paltz, New York-based Huguenot Financial Planning. “For people who are comfortable using spreadsheets, that is often the best approach, though there are also many useful budgeting apps you can download.”
Many consumers worry that a budget will uncover reasons to feel bad about their money management, but ultimately the process can help you make sound financial decisions and have more money in savings.
2. Be Mindful of ExpensesLook through your expenses and determine which ones can be reduced or eliminated. Some areas where consumers tend to spend more than necessary include:
If a busy work schedule keeps you from cooking during the week, prepare some meals in advance over the weekend. Not only can cooking at home save you money, but it can also contribute to a healthier diet, research suggests.
3. Start Investing With a Small AmountIf you already have emergency savings, consider investing in the financial markets. While it can be risky, it’s possible for this type of investing to outpace inflation, build wealth and save for goals like retirement.
Ways people get started with investing commonly include:
4. Take a Second Look at CryptocurrenciesA cryptocurrency is a form of currency that exists solely in digital form and is managed without a central bank. Today, thousands of types of cryptocurrency exist, some of the most popular ones being Bitcoin, Ethereum, and Dogecoin.
Cryptocurrencies appeal to some investors for their potential for large returns, as well as their decentralized nature—which some investors believe can help protect them from inflation.
The downsides of cryptocurrency include extreme volatility, and unlike many other investments, it’s backed by neither assets nor cash flow. As such, it’s important that cryptocurrency be added to a portfolio that’s diversified.
“If you’re investing in cryptocurrency, keep the allocation to a small part of your portfolio, because it is very risky,” says James Royal, a principal reporter on investing and wealth management, Bankrate. “If cryptocurrency is the next big thing, you won’t need a lot to enjoy attractive returns, and if it isn’t, then your overall portfolio isn’t hurt too much.”
5. Think Beyond Next YearBuilding a financial plan can help you reach your money goals for 2022 and beyond. Creating a financial plan involves calculating your net worth, income and expenses, and mapping out a savings strategy to reach your goals.
Rather than just planning to save money, set financial goals such as buying a house, taking a dream vacation, funding your children’s education or having a set amount of funds saved by retirement. Setting goals such as these can help motivate you to save and keep you on track.
When it comes to financial life planning, Sheila Padden, CFP, founder of Chicago-based Padden Financial Planning, asks her clients a few key questions.
“If you have enough money, how would you live your life?” Padden says. “Would you change anything? If you only have five to 10 years left to live, what would you do in your time remaining? Would you change anything?
“If you suddenly find out that you have one day to live, what did you miss? What did you not get to do? Who did you not get to be?”
Padden says that the questions are often the catalyst for “clarity and purposeful action.”
If you need to find your purpose, you might first need to find a way to overcome feeling overwhelmed. Check out Bankrate’s guide on how to deal with financial stress.