How to Write a Financial Plan for the New Year

There’s no better time than the new year to reset your personal finances and make a plan for the next 12 months. With the right new year’s resolutions, you can set yourself up to budget better, pay down debt, ditch bad spending habits, and improve your overall financial picture. Here’s what you need to create and stick to a financial plan in 2022.

• Create a budget: Your entire financial plan rests on having a solid budget. If you don’t already have one, follow this guide to create one. As you do, remember the 50-20-30 rule. This states that you should spend up to 50% of your income on essentials, save/invest 20%, and allocate the remaining 30% to non-essential “wants.”
• Save at least a little every month: If you’re not in a position to save 20%, it’s OK to start smaller. Your first goal might be to create an emergency fund of $500. Then, you can build up to $1,000, and so on, until you have enough savings to cover three to six months of expenses.
• Contribute to a retirement plan: Part of setting money aside means planning for retirement. The easiest way is to contribute money to an employer-sponsored 401(k). After all, if your employer matches a certain percentage of your contributions, you don’t want to miss out on this free money!
• Cut back spending: If your budget is in the red, review your spending habits and decide where you can cut back. Popular options include eating out less, making coffee at home, and canceling underused subscriptions.
• Maximize credit card rewards: Today’s best credit cards reward you with cash back, points, or airline miles. If your current credit card doesn’t do these things, consider applying for a new one in 2022.
• Compare insurance options: It may feel like a chore, but it’s wise to review your insurance coverage and shop for lower rates once a year. Take a good look at your health insurance during open enrollment, and assess your homeowner’s and auto coverage as well. This may also be the year you enroll in disability and life insurance.
• Pay down debt: The key to financial freedom in the new year is to control your debt. Tackle high-interest credit cards, payday loans, and other “toxic” debts first. Then, be smart about any loans you take out in the future. Look for low rates, flexible repayment options, and other terms to help you pay off your debt as soon as possible.

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