Nearly three-quarters of Americans say that they’re determined to make a positive change in 2022, with over 30% focusing their attention on their money and finances. So, if you pledged to improve your financial health in 2022, the following steps should help you stay on course with the pledges you made to yourself to maintain a healthy financial life.

1. Create a Budget

Knowing exactly how much money you have coming in each month, where it’s going, and what you have leftover is the first step in building a healthy financial life.  It may sound obvious, but you’d be surprised at how many people don’t have a budget or stick with their budget.

If you’ve never made a budget before, now is a great time to start. It’s an intentional step towards achieving your financial goals. Are you dreaming of buying a home, taking a big vacation, or simply saving for the future? A budget can give you a better picture of your finances and whether you are on track to reach your financial targets.

Putting money aside for retirement can transform long-term financial health - image of a person holding a laptop that says Retirement Savings

But how do you actually create a budget? Start with looking at how much income you bring home each month and list out all of your non-negotiable spending. Non-negotiable spending consists of things like your fixed bills, groceries, and transportation. From there, you should have an idea of what’s left over for discretionary spending.

A commonly used model is the 60/20/20 guide where 60% of your income is allocated to your needs (the non-negotiables), 20% to your wants like dining out or shopping, and 20% to building your savings or paying off debt. This doesn’t always work for everyone as you may want to be more aggressive about saving or paying off debt by spending less on your wants, but this is a good guideline to follow initially.

2. Build a Plan to Lower Your Debt

Speaking of paying down debt, this is one area that you should definitely focus on to improve your financial health in 2022. Nearly 80% of Americans have some form of debt, with the average consumer loan debt hitting a new record in 2020 at $92,727.

Remember though, there are different kinds of debt that you can hold and not all of them are bad. Student loans, mortgages, or small business loans can all be excellent investments in your future and help you to achieve your personal and professional goals. Debts like credit card balances, payday loans, or car loans should all be considered “bad debt”, so prioritize paying these off first.

Use a financial calculator to help you decide on an effective strategy for paying off your individual debts and refer back to your new budget to see where you might be able to pull some extra funds. You may find that you’re able to afford more than the required monthly repayment. This can significantly reduce the time it takes to pay off your loan and you’ll end up paying less interest over time.

There are plenty of ways that you can approach which of your “bad debt” loans to pay off first. One popular approach is the Snowball Method, where you tackle the smallest balance first while making minimum payments on everything else. Once that loan is paid off, you apply the funds that you were using for that to go to the next smallest balance and so on.

You may also consider looking into debt consolidation, where you can roll all of those loan balances into one easy payment at a fixed rate. No matter which strategy you choose, lowering your overall debt is a great goal to have.

3. Create an Emergency Fund

If the last two years have taught us anything, it’s that we should always be prepared for the unexpected. Even without the threat of global pandemics, everyday life can certainly throw a wrench in your plans.

 Unanticipated medical expenses, home or car repairs, or even losing your job can all put our financial lives in jeopardy. Having cash on hand can make a significant difference should the worst happen.

An emergency fund should only be used for unplanned expenses or emergencies. Think back to when you created your budget and the 20% you allocated for savings. A portion of this should be going into funding your emergency fund.

A good starting point is usually $1,000, but if you’re able to work towards three to six months of living expenses, that’s an excellent goal to aim for. Automating your savings and storing them in a secure savings account is the best way to avoid touching those funds and spending that cash on something else.

7 Pledges for a Healthy Financial Live 1. Create A Budget  2. Build A Plan To Lower Your Debt  3. Create An Emergency Fund  4. Start Planning For Retirement  5. Find Ways To Improve Your Credit Score  6. Switch To Online Banking  7. Think About Your Estate Planning

4. Start Planning for Retirement

Along with savings for emergencies, putting aside some money each month for your retirement is also an area that can transform your long-term financial health. If you work for an employer that will match a portion of your 401(k) contribution, you should be taking advantage of this free money. Most employers are able to automatically deduct this from your paycheck, which can help you stick to regularly contributing to this financial goal.

If you’re self-employed or working in a non-traditional business that doesn’t offer a 401(k), there are still plenty of possibilities out there.  Saving for your future has never been easier.

Not sure how much you should be contributing? Use a financial calculator to give you a rough idea of how much you’ll likely need in your retirement years based on the age you’d like to retire and the lifestyle you’re hoping to have.

5. Find Ways to Improve Your Credit Score

Understanding your credit score and taking steps to improve it is a vital part of maintaining a healthy financial life. That three-digit number can seriously impact your eligibility for a mortgage or other types of loans.

Higher credit scores can mean lower interest rates and the choice of different loans from different providers. Ultimately, having a better credit score can save you money over the next few years or decades as you pay off whichever loan you decide to take.

You should be checking your credit score at least once a year, which can be done for free using an annual credit report. Many credit card companies also now offer this service within your account. Fair to good credit is typically considered in the 650-750 range, with excellent being 750-850.

Paying all of your bills on time, disputing any errors that you notice on your report, and keeping your credit utilization ratio (the percentage of your available credit that you’re actually using) below 30% can all help to improve your credit score over time.

6. Switch Over to Online Banking

If you haven’t already done so, consider moving your money management to online banking as one of your financial pledges.  Being able to check your balances, deposit checks from your mobile phone, pay and schedule bills, and transfer funds between different accounts, all from the comfort of your own home, can make your financial life much easier.

Online banking is more convenient than in-person, as you’re able to check in at any time of the day. You’ll save time thanks to easy access to all of your accounts, and you’ll never have to worry about missing a bill again with the automated payment systems (one of the best ways to keep that credit score high too!).

Whether you’re using a desktop or mobile device, digital banking has never been more secure than it is today. You can rest assured that your accounts and funds are protected.

Checking your account, scheduling bills, transferring funds and depositing checks form home can make life much easier - image of a woman and man pointing to something on a computer screen

7. Think About Your Estate Planning

While none of us want to think about what will happen when we’re no longer here, making a plan for your assets is one of the best ways to secure the financial future of your loved ones.

Creating a Will or estate plan is the easiest way to make sure that your personal assets are distributed according to your wishes when you die. Trusts can also be established to help support partners, children, and other beneficiaries.

Guardianship agreements are also important if you have young children that will need caring for should you pass away before they become adults. You may also consider creating a living will that outlines any of your preferences for medical treatment should you be unable to make decisions for yourself.

Working with a wealth management professional gives you the opportunity to clearly lay out exactly what you would like to happen to your personal property and funds, alleviating stress for both yourself and your loved ones.

Transform Your Finances in 2022

There’s plenty of work to do when you make a pledge to have a healthy financial life.  Do you need to rework your budget to get some loans paid off, or would opening a new saving account help you to reach that big financial goal you’re striving for? No matter what your plans are for 2022, contact the team at Muncy Bank to start improving your financial health this year.