If New Year’s resolutions were called what they really are – self-improvement chores or promises to do something differently – no one would ever make them.
The problem is that most of these promises for personal change never get accomplished. Typically, resolutions are forgotten by the time February rolls around.
Self-improvement, however, is an ongoing, lifelong process. There’s always room for personal growth, for doing something better.
That can start by doing resolutions one better, by setting goals instead. This year – given the circumstances of the pandemic and the stock market of the last few years – some of the goals around finances are particularly important.
Before we start, however, let’s examine the fine-line distinction between resolutions and goals.
I long ago gave up on the former because they typically fail at the first misstep. You would think people would brag about achieving their resolutions, but most people fall short so fast they can’t muster the resolve to make real improvement until the same subject comes up a year later.
With goals, the idea is to make progress. While there are steps you’d like to take, a setback doesn’t rain the game or set you all the way back to zero.
If, for example, you resolve to stop using credit cards but fall short when you pick up some take-out food in mid-January, your willpower is gone.
By comparison, if your goal is to reduce your credit card debt by half over the course of a year, the take-out meal is a setback that can be overcome; and if you can trim the debt significantly by the end of the year, you are much better off than failing at an all-or-nothing proposition.
This year, however, there definitely are some financial chores that most investors and savers should be considering, fallout from a stock market that has been better than anyone imagined coming out of the pandemic, but also dealing with the realities of rising inflation, the continuing pandemic and more.
Thankfully, most of these challenges are reasonable. As life chores, they’re not particularly fun – and resolutions typically have a light air to them – but they’re important and they are achievable in 2022. Even if you don’t hit these targets, you will be better off making progress toward them in the year ahead.
Here are some financial issues most people should be resolving to do in the year ahead:
Rebalance your investment portfolio.
Rebalancing resets portfolios back to planned allocations by culling successes and reinvesting the proceeds in your laggards. That makes it gut-wrenching because, intuitively, most people want to let their winners ride.
Consider a portfolio that was split 50-50 between stocks and bonds just three years ago. The stock portion – judging from the Standard & Poor’s 500 – has gained roughly 25 percent annualized over the last three years. The bond holdings – based on the Vanguard Total Bond Market ETF – are up about 5 percent annually over that same time.
Thus, stocks now represent about 80 percent of the portfolio; bonds comprise the rest.
If 2022 is a more volatile, less-rewarding year – as many observers expect – that favors diversification and alleviating some of the nervousness that comes with market whipsaws.
These are times when it pays to rely on your financial plans, rather than to ignore them.
Reduce your debts.
Interest rates are on their way up in 2022. Sadly, that’s not much help for savers, as financial institutions will pocket most of any increase themselves. Borrowers, however, can expect those same lenders to extract every extra penny possible.
Rates on credit cards are trending slightly higher already, but the big push is coming.
For years, investors and savers were paying so little on their borrowings that using debt as a tool made sense because it could goose returns. That falls apart when rates rise and market returns fall, exactly the conditions expected for 2022.
Update your health-care directives, wills and estate planning.
If the pandemic has taught us anything, it’s that our health can change on a moment’s notice, based on little more than the direction of the wind.
Do not leave your family in the lurch, do not create problems that will only come up when your loved ones are going through tough times. Make sure your papers are current, up-to-date and appropriate for your current and future situation; what worked when you put it in place a decade or more ago isn’t such a great fit any more.
Rebuild/replenish/enlarge your emergency fund.
There is never a bad time to build emergency savings, only bad times to suffer a crisis. One lesson to take from the pandemic is how much money you need set aside in cash in order to feel “comfortable” during tough times; if you have been lucky enough to avoid Covid fallout, count your blessings but don’t count on the same good fortune lasting forever.
Whatever that amount is in your life, make it your goal to have that set aside in three years or less.
Reduce financial stress.
This is too vague to be your actual goal, but your experience – and the stresses you’re facing – will guide you to the specifics.
Financial pressures have intensified during the pandemic, even for people who have benefitted from the strong markets and economy.
Identify what stresses you out; if you need to save more, reduce bills, eliminate debts, replenish emergency monies, improve your credit score, insure your health or your valuables – or any combination thereof — set targets that make progress in the year ahead, and that set you up for better security in the next three to five years.
Take care of yourself first.
The better your health, state of mind and finances, the healthier you will be for yourself and your family. The pandemic made it easy to neglect ourselves in many ways; find ways to reverse the trend, to indulge/invest/celebrate yourself and your efforts.
Being good to yourself may seem selfish, but it typically has the spillover effect of making you better to those around you. That makes it a win for everyone.
Chuck Jaffe is a nationally syndicated financial columnist and the host of “Money Life with Chuck Jaffe.” You can reach him at firstname.lastname@example.org and tune in at moneylifeshow.com.
Copyright, 2021, J Features