With the increase in adverse financial events such as job loss or medical expenses, it can be tough to think about what the future may hold financially. Unfortunately, financial events can often happen in a blink of an eye and leave many wonderings how they will manage finances when they are down to their last few dollars.

It is vital to get ahead of the curve and prepare for these potentially devastating moments in life before they happen. The following tips will help you prepare for unforeseen situations in 2022 so that you have your ducks lined up and ready to go.

1. Investments

No one wants to pick investments with poor risk/reward profiles, meaning many needlessly choose safe and boring investments with low returns. However, for your investments to grow over time, they must be allocated towards higher-risk or higher-return opportunities.

Suppose you allocate 60% of your portfolio towards a junk bond investment versus the 30% invested in the S&P 500 index. How might that affect the overall financial picture compared to an allocation of 100% junk bonds and 0% stocks? Hopefully, you can see why losing 50% of your portfolio is not as risky as risking 100%. With a lower risk exposure, it’s possible to earn higher returns while maintaining a low overall portfolio risk.

2. Spend Less, Save More:

When transforming your finances in 2022, learning how to spend less and save more is critical. It will not matter if you have a fantastic investment strategy if you can’t maintain long-term wealth accumulation.

1)   Build a budget and stick with it: A budget is crucial for saving money. Try tracking every expense for one week without fail (it may be difficult but doable). You’ll soon see how your budget plays out and notice areas where you’re exceeding your budgets and where you’re not. 

2)   Create an emergency fund: An emergency fund is where money is put aside for unexpected events (such as health issues, car breakdowns, etc.). With most experts suggesting a 6-6-month emergency fund, I suggest setting aside 10% of your gross income every month. It’s super easy to pull from this account as it’s just sitting there!

3)   Your net worth should be the primary metric: Your net worth is the total of your assets minus your debts. Can you guess which metric is more important to your financial future? Of course, it’s your net worth. That’s why experts suggest tracking your investment portfolio monthly and treating it as a non-negotiable priority over debt payments and savings accounts.

4)   Track expenses per category: Tracking expenses by category is essential because it allows you to make more informed decisions about where there is more room for improvement. For example, it’s helpful to know whether you’re overspending on entertainment (which is a non-negotiable expense). It’s also helpful to track general expenses such as grocery and pet purchases.

5)   Remove emotional spending habits: Changing your emotional spending habits will allow you to increase your savings without sacrificing the importance of other expenses. For example, automate savings with automatic deposit methods, monitor spending using different money management platforms, and filter out non-negotiable expenses with a budget.

3. Consider Life Insurance:

Life insurance is a form of insurance purchased by the policyholder (e.g., yourself) to protect the policyholder’s dependents in the event of death or permanent disability. This type of insurance is usually purchased after an assessment by a life insurance agent who will determine your risk factors for this type of policy.

 Once you’re deemed eligible, you can purchase a policy that will protect someone you love from financial ruin if something unfortunate happens to you. For example, find yourself nearing retirement and have children or other loved ones that depend on your income. Life insurance may be essential to consider as part of your financial future in 2022.

4. Build a Work Ethic:

Purchasing suitable investments, saving money, and building an emergency fund are common financial tips financial advisors provide to help build wealth. Click here to explore three unique ways to transform your finances in 2022. While taking these essential steps is necessary, they are not the most effective method of building long-term wealth without a solid work ethic. Therefore, your work ethic is just as important as your chosen strategies.

Incorporate these principles into your investment strategy, and you’re well on your way to transforming your finances in 2022.

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