No, it’s not too late. It’s actually time to forgive yourself and move on. With these moves, you can do this in 2022. We promise.
If you feel that you blinked and the “pandemic years” passed you by – along with, ahem, your savings account – you are not alone. With rising inflation, supply chain problems that have made things more expensive, job losses and many other negative economic factors, many Americans have felt for the past two years that they are constantly catching up. And when it’s been a while since you could save money, you can start to feel insecure about your habits and decisions and question what to do next, says Jessica Weaver, CFP, CDFA, CFS and the author of ‘Confessions of a Money Queen. ‘ “At this moment in your life, every dollar counts, and building an effective savings plan is the key,” she says. “To be effective with your money, you need to be strategic with your taxes, how you invest and optimize your current money, and create new, consistent habits with your cash flow.”
But never be afraid – we’re here to help you find out where you went astray and how to get back on track. Remember that this happens to almost everyone, so try not to be too hard on yourself. You can make improvements in your savings ambitions, even after a tough year. Here’s how:
Review your budget again
We’ve said it before (and we’ll say it again) but the first step in a financial plan is to create a budget. It is one of the basics of money management that can not be ignored. After a year without saving any money, whether it is due to a job loss or some other personal reason, it is important to take a look at what you earn, what you spend and build in some room for savings, says Danielle Holden, Family Office Adviser for Accounting and consulting. When charting how much you will allocate to different buckets, be honest about where you tend to spend. If Netflix gives you joy, do not automatically assume that you need to remove it to save money. Instead, think of these as actions that you must take on a regular basis.
Speaking of these expenses …
It’s time to track them down. If you look at each month’s bank statement and wonder how you spent so much so fast, you probably do not have a clear picture of your expenses. Even if you are not someone who likes to go line by line on bank statements, try to use this practice to improve your financial knowledge. Holden suggests that you print out your bank and credit card statements and go through each cost and price as a “need”, “want” or “wish”.
Then you can tackle each of these lists to find cost savings. With “needs”, can you find a cheaper alternative such as cable and internet, shop around, negotiate with your current business? “To give yourself a kick start on saving money after a year or a few years of not saving anything or saving very little, every dollar counts,” Holden says. “You also need to track your time to set aside some time each week to move money to your savings, investment or retirement account.”
In part, this is a big step to be aware of money. It is important to take a close look at what you are spending and how it is linked to emotions. Another way to practice this is to delay the satisfaction with fast, quick and easy online shopping. “Give yourself a few days to think about making a major unnecessary purchase, and after those few days you can be glad you did not impulsively buy it,” she adds.
Automate your savings
Holden says that the easiest and most practical way to get your savings back on track is to automate bank transfers to a savings account. “Most banks offer this service, and you can choose when, how much and where you want to transfer that money to help you with your short-term and long-term goals,” she says. “This ‘out of sight out of mind’ method can work well for people who are struggling with willpower when it comes to saving versus spending.”
There is no “golden percent” you should set aside, as it depends entirely on your current situation and level of comfort – and your future goals. If you feel that your budget is tight, try to start with 1% of your monthly income and increase when you feel more confident in your budget.
Climb the mountain of debt
Everyone goes through a year without saving for various reasons. Maybe you were fired from your job and you have struggled to find a new one. Or you bought a house, so your savings got a thorn in the side. Maybe you have leftover credit card or student loan debt that does not give you any room for maneuver. As best you can, Weaver says you should come up with a strategy to deal with these mountains. An alternative is to move credit card balances to 0% cards. But Weaver says there is often a transfer fee, so you can pay interest on the transaction balance. “Make the money and see if the current interest rate you pay is more than the one-time transaction rate,” she says.
You can also refinance your mortgage at a lower interest rate, or extend your mortgage if needed. And with student loans, see if you can consolidate at a lower interest rate or refinance them.
Be tax efficient
What does this mean, exactly? This can mean many things, such as using deductions, financing retirement plans, which can save money in advance, or even meeting an advisor or accountant who can talk to you about all the different tax strategies that may be available to you. “When you prioritize saving money again, work with a financial advisor to open the right retirement account to maximize your current savings, lower your total taxes and start setting aside for your future,” she says.
SUBSCRIBE: We change our relationships with money, one woman at a time. Subscribe to HerMoney today.