Need a kick-start to your New Year’s financial resolutions? There’s no need to overcomplicate things, says Ashley Feinstein Gerstley, author of the upcoming personal finance guide, “Financial Adulting: Everything You Need to be a Financially Conscious and Conscious Adult.” A solid checklist can help you move on the important things you may have been putting off. Here’s how to start getting your finances in order in 2022.
1. Build your emergency savings fund
The pandemic has shown us all the importance of having easily accessible savings in the form of a rainy day or emergency fund. How much should you have accumulated? Pam Capalad, a financial planner and founder of Brunch and Budget, recommends taking a look at your essential bills (like food, housing, basic utilities, and transportation) and keeping 3 to 6 months of that number in your savings. You need to keep this money in an account that has liquidity, such as a high-yield savings account, so you can access it quickly when needed. See some of the highest paying high yield savings accounts here.
2. Establish a budget
Yes, it may sound snobbish, but Feinstein Gerstley says it’s an indispensable tool for tracking your paycheck and making sure it goes where it’s needed. “Budgets get a bad rap, but they’re just a plan for where our money is going to go once we get in,” he says. “Think of your budget as a way to decide how to allocate your money in ways that will make you the happiest in the short and long term.”
In other words, think of your budget as a way to take charge of every penny of your hard-earned money and make sure it works for the things that keep you safe (your important bills), debt-free (read our guide on how to get out of debt here) and happy (your goals and dreams). Some budget apps to consider:
1. personal capital: Forbes gives this free budgeting and tracking app the highest rating among “Best Budgeting Apps,” with 4.5 out of 5 stars, noting that it’s especially good for investors.
2. You need a budget (YNAB): This app is more expensive at $8.25 to $14.99 a month, but it offers an in-depth look at your spending and savings. CNBC notes that this app is best for those who want to take budgeting seriously.
3. Save more for retirement
Many of us may find it difficult to invest for retirement when we have bills to pay now. Feinstein Gerstley recommends starting small and saving more as your paycheck increases. For example, if your company offers a 401(k) matching program, enter at least as much as you match or leave money on the table. “The sooner we start, the longer we give our money to grow,” he says. “Just because you’re contributing a certain amount now, doesn’t mean you won’t be able to accrue more later.”
If you don’t have a job that offers you a 401(k), you can always open up and contribute to an IRA or Roth IRA. While that might sound intimidating, there are new low-cost apps and services that make it pretty simple for beginners. These include:
1. Improvement, which Nerdwallet rates 5 stars and notes that “Betterment is a clear leader among robo-advisors.” It has an annual fee of 0.25% and no minimum.
2. Vanguard is known for its low cost index funds. The Vanguard Digital Advisor offers a 90-day no advisory fee and no more than $2 annually for every $1,000 invested thereafter.
4. Check your insurance
Once a year it’s important to get an insurance check, says Feinstein Gerstley, and January is a good time to do it. First, check if you have enough auto insurance (this guide can help you determine how much you need) and if you might be able to get a better rate. One study found that switching auto insurance can save you $471 a year. You can purchase customized car insurance rates here.
Next, look into homeowners insurance, making sure you have enough coverage and comparing rates to see if you might be able to pay less.
Don’t own a house? Depending on your policy and the state you live in, a relatively inexpensive renter’s insurance policy—some starting as low as $12 a month—can protect you from smoke, fire, explosions, theft, vandalism, and other problems.
So take a look at your employee benefits and make sure you’re happy with your disability cover, and if not, see if it makes sense to take out an individual policy.
And finally, look into life insurance if you have loved ones who depend on you financially. Not sure how much insurance you need? Consider the DIME method, which stands for Debt, Income, Mortgage, and Education. Add up those costs going forward (by your annual income you multiply it by how many years your employees will need it), and that’s roughly the amount of life insurance you’ll need. “We have a tendency to neglect all areas of our money. We are equal opportunity deniers! says Feinstein Gerstley. “But I would say the most common are those that require consistency.”
This story was originally published in January 2022.
The advice, recommendations or rankings expressed in this article are those of MarketWatch Picks and have not been reviewed or approved by our trading partners.