About one in four Americans make New Year’s resolutions. You may have made New Year’s resolutions for 2022 as well. And perhaps you’ve already accomplished them. Or maybe you don’t believe in New Year’s resolutions at all.
Regardless of your stance on New Year’s resolutions, certain basic money lessons ring true year after year. Here are six money lessons to consider incorporating into your everyday life.
1. Set Up a Budget.
If you don’t already have a budget, now is the time to create one. And if you’ve already established a budget, remember to stick to it.
Why is budgeting so important? For one thing, it’s hard to save for the future if you don’t know what your current income and expenses are. A budget can keep you on track to achieve your short-term and long-term financial goals.
The events of 2020 and 2021 underscored just how vital it is to keep on top of your finances. Fortunately, more and more Americans have gotten that message. A 2021 survey by Debt.com found that 80% of Americans follow budgets, up from 68% in 2019.
“It can’t hurt you to budget, but it can definitely hurt you if you don’t,” says Howard Dvorkin, chairman of Debt.com.
2. Save for Emergencies.
If 2020 and 2021 demonstrated anything, it’s that we should always expect the unexpected. Millions of Americans unexpectedly lost their jobs in the early months of the COVID-19 pandemic. Those who had set up an emergency fund were in a far better position to weather the loss of a job than those who had not set up an emergency fund.
A 2021 survey by Bankrate found that 51% of Americans have an emergency fund that would cover less than three months’ worth of expenses.
And 25% acknowledge they have no emergency fund at all. Experts generally recommend that an emergency fund contain enough money to pay three to six months’ worth of household expenses.
3. Spend Less Money Than You Make.
The COVID-19 pandemic prompted millions of Americans to stash their cash. In fact, the U.S. rate for personal savings soared to 33.8% in April 2020 and spiked again at 26.6% in March 2021. However, the rate plummeted to 7.3% in October 2021. Translation: Many Americans returned to their old habits. In February 2020, right before the pandemic onset, the savings rate stood at 8.3%.
As a rule of thumb, financial experts suggest saving at least 15% of your income. To hit that mark, you must work on sticking to your budget, cutting back on your spending, and slashing debt.
“There are so many ways to live comfortably without spending every penny, but this lesson eludes so many,” Deana Arnett, senior planning consultant at Rosenthal Wealth Management Group, says in an article published by MarketWatch.
4. Recognize That the Stock Market Can Be Volatile.
Year after year, the stock market goes through ups and downs, and 2021 was no exception.
For instance, the closely watched Dow Jones Industrial Average experienced peaks and valleys throughout 2021. This notably included the frenzy over the stock of GameStop, a struggling chain of video game stores. A campaign among Reddit users artificially pumped up the stock.
“The stock market can be volatile, so returns are never guaranteed,” observes The Balance, a personal finance website.
In other words, there’s no guarantee that the stock market will be the key to bulking up your retirement portfolio.
5. Always Take “Free” Money.
Who doesn’t like free stuff? Well, you could be the recipient of some free money thanks to your employer.
The Balance points out that if your employer offers to match a percentage of your 401(k) contributions, you should maximize that benefit by contributing to the match limit.
Employers that offer to match your contribution will typically match between 3 and 6% of your annual salary, according to The Balance. So if you make $50,000 and your boss matches your 401(k) up to 5%, The Balance advises that you should chip in $2,500 over the course of the year.
The year 2022 is a good one to increase your retirement contributions, too. For people looking to max out their 401(k)s, as employees, you can contribute $20,500—an increase of $1,000 compared to 2021. For workers over 50, the catch-up 401(k) contribution limit is still $6,500 per year.
6. Pay Attention to Diversification.
Diversification of your portfolio can help shield your nest egg from volatility and risk. To borrow a common phrase, it’s best not to put all of your eggs in one basket.
Let’s say all of your portfolio is tied up in stocks. Well, what could happen to your portfolio if the stock market takes a turn for the worse? Your portfolio could suffer a serious blow.
Everyone’s goals are different, but experts recommend that a portfolio contain a variety of asset classes, including stocks and bonds, along with assets like real estate, cash, and precious metals. Suggestions for the percentage of your portfolio dedicated to precious metals—either bars and coins you hold on your own or those you put in a self-directed IRA—generally range from 5 to 25%. How you divide up the assets in your portfolio depends on your financial circumstances and financial goals.
Learning from the past and preparing for the future always comes with rewards. Request your free Gold IRA Information Kit to learn how physical gold can help protect and grow what you’ve earned.