With the new year coming soon, many are taking stock of their finances and looking for ways to improve them in 2022. If you’re wondering whether your budget needs to be reworked in the upcoming year, here are five questions you should ask yourself.
1. How much debt do you have?
If you’re carrying debt over to 2022, then it’s time to update your budget so that you become debt-free by the year’s end. Having outstanding debt affects more than your budget; the stress also causes damage to your physical and mental health, so it’s critical you make paying off debt the highest priority of the new year. Try using this payoff calculator to help adjust your budget and kiss your debt goodbye.
2. How much savings do you have?
What would you do if the pipe to your kitchen sink broke or you were in a car accident? Could you pay for those things while staying up-to-date with the rest of your bills? Experts recommend having six months’ worth of bills set aside should something happen, but even $500 or $1,000 saved for a rainy day can prevent you from getting into financial trouble. If you don’t have at least $1,000 set aside in an emergency savings account, your 2022 budget needs a tweak.
3. Have you started to save for retirement?
Not only will saving for retirement now earn you more money with compound interest but it will also help reduce your total taxable income. If you’re nearing the cut-off for one tax bracket and about to move into another, consider adjusting your budget to put more money into your retirement accounts in 2022. That way, you’ll stay in a lower tax bracket and have more money available when it’s time to leave the workforce.
4. Do you have any major purchases coming up?
Any big purchases, such as a new car or major appliance, should be accounted for in your yearly budget. You can either plan it for a specific month or break up the payments into smaller increments for the months before you plan to make the purchase.
5. Do you expect to take any time off?
If you plan to take any time off in 2022, say for a medical procedure, to go on vacation, or to have a baby, consider adjusting your budget now to accommodate those days off. You might need to save a little more or focus more heavily on debt reduction while you’re still earning an income so that you can take the time necessary to recover without worrying about how the bills will get paid.
The bottom line
While it may seem daunting to ask these questions, you might be surprised at how much you can tweak your budget by thinking ahead. If you’re not sure where to start, try tackling one question at a time. Even taking one small step can have a ripple effect that improves your finances in 2022 and for years to come.