Financial resolutions for 2022 January 6, 2022

The New Year is a perfect time to change old habits for the better. Eating healthier food, making more friends and getting fit are popular on the New Year resolutions’ list. Adopting some of these new resolutions will ensure that you are healthy in mind and body in 2022, but it is good to make some New Year financial resolutions too.

Here are five ideas for New Year resolutions that could help you meet your financial goals and some advice on how to achieve them.

1. Save more

Your top financial resolution should be to save more. In 2021, many people were forced to use up their savings to cover daily expenses or deal with income loss during the COVID-19 pandemic. So, more savings can help deal with future crises in a better way.

There are many ways to go about boosting your savings. For instance, you can look for a side income besides your main job, set up an automatic transfer to your savings account and cut back on the amount of money you spend on non-essentials.

According to the 50/30/20 general rule of thumb for savings by American politician Elizabeth Warren, the way to allocate your income is to split it into three categories: needs, wants, and financial goals¹.

And she suggests that you save 20% of your monthly income for financial goals, which comprises all savings including retirement contributions, saving for a house, debt payments and investments.

Do remember, that if you delay starting saving, then the amount you may need to save later will go up as well.

2. Create a budget and stick to it

For some, a “budget” can feel complicated. However, tracking your spending is very useful to help you understand where your money goes every month. Thus, a clear budget provides direction on what you can afford to spend and what expenses you should cut back on.

According to a study from National University of Singapore Lee Kuan Yew School of Public Policy (LKYSPP) and Nanyang Technological University (NTU), a family of four needs at least S$6,426 a month to afford a basic standard of living².

So, start by listing all your fixed expenses, such as housing, food, medical and savings. After deducting these expenses from your monthly income, you can see how much money you have left for discretionary expenses, such as eating out, clothing and entertainment. Then, rank them in order of importance, and cut the expenses that have the lowest importance until your income exceeds your expenditure.

Also, determine your financial priorities for 2022. For example, maybe you are looking forward to a vacation after the pandemic (but you should aim to spend no more than 4 percent of your after-tax income on vacations every year³), or refurbishing your house for a new look (total renovations should not exceed six times of your monthly household income⁴). You may put aside the money for these items, or increase your savings and treat the expenditure as money spent.

3. Start investing

Investing is a choice that you must make at the right time and the time is always right. It is definitely good to start investing at an early age, but it is equally important to sustain the investment for long-term wealth creation.

If you want to start investing, make sure you have a clear picture of your financial situation first, which includes spending, saving and taxes.
Once you know how much money you can invest, start researching.

As legendary investor Peter Lynch once said: “Know what you own and know why you own it.”

So, do your research for reading material online, read investment books, attend classes, or seek help from a financial advisor.

You can start with as little as S$100 in our Regular Savings Plan.

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4. Create an emergency fund

The pandemic has taught us that life can change in an instant, and that it is important to be prepared for the unexpected. If you have not created an emergency fund, now may be a good time to start.

Ideally, you should have three to six months’ worth of living expenses, with the money kept in a low-risk, high liquidity account⁵.

An emergency fund will not only help you cover unexpected but necessary expenses without having to sell volatile assets at depressed prices, but it can also keep you afloat if you lose your job.

Also, having an emergency fund can provide a comfortable cushion and allow you to have greater focus while you pursue new opportunities.

5. Look at your insurance coverage

Risk is a part of life, and your life can be upended by all kinds of surprises – an illness, job loss, disability, death or natural disasters.

If you do not have enough assets to insure against major risks, you should get insurance coverage to protect yourself against unexpected events.

If you have insurance coverage, make sure you find a licensed agent to review all your policies – life, disability, health or auto insurance. Check if the coverage is adequate, and also look around and see if there is a less expensive policy with similar coverage.

As a general rule of thumb, you are advised to spend 3% to 10% of your salary on protection-only insurance policies.

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In conclusion, 2021 was a tough year on many fronts, but with the New Year comes the chance to chart a path forward and get financially fit. The five financial resolutions we have offered you are just a start. The list is not exhaustive, but offers you a few ideas you could consider in 2022.

So, start saving, budgeting and investing and embark on a journey to a financially independent and secure future.

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