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Jump-Start Your Wealth Building in 2022

January 20, 2022
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We all start the new year with big plans. For many of us, one of those plans tends to revolve around our finances. Whether it’s to build wealth, manage debt, or purchase a big-ticket item, we’re always thinking about what’s next. If your goal is to jump-start your wealth-building strategy this year, consider these options.

Three Steps to Position Yourself for Wealth Building

Create an Emergency Fund:

The goal should be to build a cushion of three to six months’ worth of expenses in cash that is reserved for emergencies, but some situations warrant more. Even a modest amount of savings can mean the difference between going into debt or taking an early withdrawal from your retirement savings. A recent survey showed that 51% of Americans with a retirement savings account have taken an early withdrawal, and 20% have done so to stay afloat since the pandemic began.

Managing Debt:

Freeing up the amount you pay in interest can be significant. The average credit card balance is currently $5,525.00 with an average interest rate of 23%. In this example, you’re paying $106.00 a month in interest alone. Hypothetically speaking, if someone were to save and invest that amount a month for 45 years and earned an annual return of 5%, putting compounded interest to work for them, they could have well over $200,000.00 when they retire[i]. To put together a debt payment strategy, you’ll want to understand your cash flow; budgeting can help you do just that. Every goal should start with a plan, and planning equals budgeting in this case.

Increase Your Cash Flow:

Look for ways to increase your current income. Whether that’s by starting a side gig, asking for an overdue raise, or looking for ways to advance within the company, increasing your income can help you reach your financial goals. As you increase your income, be cognizant of the desire to increase your lifestyle. Always remember that you have goals you’d like to meet and stick with them. It’s not what you earn, but what you keep.

Ways To Jump-Start Your Wealth Building this Year

Tax Refund:

Tax season can be a great time to jumpstart your savings. If you’re among the individuals who receive a refund every year, this can mean an opportunity to get a head start on saving toward your emergency fund or your retirement if the funds aren’t already earmarked for debt repayment. If you are carrying debt throughout the year, you may want to consider making adjustments to your W-4 so you get more of your money throughout the year to keep those debts paid down. The average refund in 2020 was $2,800.00[1] and that amount invested over 35 years at an annual return of 5% could yield over $200,000.00 for retirement or it can simply mean about an extra $200.00 a month to meet emergencies.

Debt Payoff or Refinance:

If you’ve recently paid off some debt or took advantage of the current interest rate environment to refinance your mortgage or vehicle, the extra cash you freed up can be used toward saving or investing as well.

Job Change or Year-End Bonus:

A record number of Americans left their jobs last year and many for a better opportunity. With most companies offering sign-on bonuses and, assuming you left your job for a better one, this creates an opportunity for you to begin the habit of saving. Use that lump-sum to kickstart your wealth-building strategy.

Improving your current financial situation isn’t a one-time event but rather a lifelong pursuit. Every single change can pay huge dividends over time. A commitment to change is the first step, but discipline is required.

[i] This information is for educational purposes only and is not a solicitation to invest or trade in any security or instrument. Investing involves risk and you should consult with your financial professional for individual advice. The examples given is hypothetical and does not represent an actual investment. This uses a nominal 5% rate of return, compounded monthly. It uses a constant rate of return, unlike actual investments, which will fluctuate in value. It does not include fees, inflation and taxes, which could lower results.