If we have learned anything during the last two years, it is to know that the unexpected can happen and that keeping a close eye on our financial situation is ever important. So, as we look forward to entering 2022, we are offering some tips below to help you review and prepare for the new year.
Review Expenses
Take time to go over your prior year’s expenditures. Categorize and tally essential spending— mortgage or rent, utilities, taxes, insurance, etc. Then, set up a separate category for non-essential spending and review those costs to see if there was a tendency to overspend unnecessarily. Many of us wanted to feel better in 2021 than 2020, and so we finally got out of our houses. We dined, we entertained, and we bought feel-good items. While there is nothing wrong with that, it is important to evaluate your expenditures so you can ensure you are staying on track to meet your financial goals. Consider if big ticket items were worth it and if any subscriptions or memberships you signed up for are really being used and offering value. Now could be an opportunity to investigate more cost-effective options.
Reassess Financial Goals
Review your financial goals from last year – are they the same today? With the changes in the way we live and our environments, it can be very likely that your financial goals have shifted. Perhaps a year or two ago, you were working towards a vacation beach house for retirement, but now you are considering relocating somewhere in a beach town due to being able to work remotely. Or, maybe you were considering working until a certain age, but due to personal changes, such as knowing about grandchildren on the way, you may be considering part time work or retiring early. While your goals may still be the same as last year, it does not hurt to evaluate them to ensure you are doing the right things to meet those goals.
Create a New Budget
Once you have reviewed your expenses and reassessed your goals, it is an ideal time to create a new budget or update your current budget accordingly. It is important to note that inflation is here, and we don’t know for how long. Because of this, your cost of living will be higher when calculating expenses for 2022. Estimating which expenses will go up and by how much may be difficult, but this guide offered by the U.S. Bureau of Labor Statistics can provide some assistance. As of right now, it reports the following: “In November, the Consumer Price Index for All Urban Consumers rose 0.8 percent on a seasonally adjusted basis; rising 6.8 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.5 percent in November (SA); up 4.9 percent over the year (NSA).”
Another item that can help to prepare a budget is to forecast for any potential and necessary expenses: home repairs, car repairs, and dental as well as medical costs not covered by insurance are some areas to review. If possible, consider getting quotes or estimates for these items.
Additionally, income budgeting should be considered. Are there possibilities for an income change? Are you in line for a promotion or raise? The business sector is hiring, so it may be a good time to reflect on your career and job change or side business opportunities.
Budgeting can be difficult and complicated, but it is important to know that you do not have to go through this process alone. With the help of a professional financial advisor, the process can go smoothly and you can be on your way to meeting or exceeding your goals.
RELATED: Read tips on how to choose the right financial advisor.
Consider Creating or Reviewing Your Will
Many people procrastinate the will and estate planning portion of financial preparedness, as it is not an uplifting topic to address, yet it is an important and easy way to be sure that your assets are protected for loved ones and heirs. In addition, ask yourself if the early gifting of money or assets to beneficiaries, instead of bequeathing an inheritance, is appropriate for you and your family. Perhaps children starting a family may benefit from early gifting in the present more so than in the future.
Prepare for Taxes
Review or seek professional counsel regarding 2021 and future tax laws. There are different tax rates for 2021 so it is important to know how to prepare for 2021 and looking forward to 2022. If you have or are working remotely, be sure to ask your tax professional how that may or may not impact your tax liability.
Taking the steps to prepare for your financial success takes time, determination, and deliberation—including reviewing expenses, reassessing your financial goals, and creating a new budget. One of the best ways to properly plan is to seek a professional financial advisor who has the experience and knowledge to understand your life and goals so you can be on your way to having a solid plan in place for 2022 and beyond.
If you have questions about this information or your overall financial plan, call us today at 412-630-6000. Our experienced financial advisors are here to help.
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