New Year, New Plan: 7 Financial Resolutions for 2022
From making a budget to focusing on cash flow with your investments, financial expert Gordon Pape suggests some financial resolutions for the new year. Photo: Boy_Anupong/Getty Images
It’s a brand-new year and, hopefully, a better one. If you haven’t made some resolutions, it’s not too late.
I can’t help you with anything relating to your diet, love life, or health (although if you haven’t been vaccinated, now is the time). But I do have some money-related recommendations that you might consider acting on in 2022. Here they are.
1. Pay Down Debt
This was my top recommendation for 2021. This year, I’m doubling down. Interest rates are going to rise next year. Originally, it was projected that the central banks would maintain a rock-bottom rate policy until 2023 to stimulate the global economy. But the sudden and rapid resurgence of inflation has changed the outlook. November’s jump 9.6 per cent in the U.S. Producer Price Index was a real shocker.
On Dec. 15, the U.S. Federal Reserve Board indicated it expects to raise its key rate three times in 2022, and the Bank of Canada will likely adopt a similar policy. Financial institutions will follow closely by moving their prime rates higher. That, in turn, will increase the cost of carrying debt, leaving you with less to spend on groceries, utilities, transportation, etc. Debt and inflation combined are a match made in Hell. The less debt you’re carrying, the less the pain.
2. Make a Budget
You may not have felt you needed one in the past. But with costs escalating everywhere, from the gas pump to the supermarket, you need to get a handle on your spending. Failing to do so may force you to run up the tab on expensive credit cards or borrow money.
3. Lock in Your Mortgage
Back in the early 1980s, mortgage rates in Canada soared to the 20 per cent range. Homeowners were caught in a vicious crunch, and some lost their houses. I don’t expect to see anything like that in 2022, but even a small upward push can add hundreds of dollars to the annual cost of carrying a variable rate mortgage.
4. Keep a Close Eye on GIC Rates
They’ve been so low for so long that many people have lost interest. But they should start to creep higher in 2022. Don’t be too quick to lock in – this is likely just the start of an upward cycle.
5. Maximize Tax-Efficient Savings Plans
Canada offers several ways to save for the future in a tax-effective way. There are RRSPs and TFSAs, of course. Plus, your employer may offer a pension plan that you can join. If it’s available, make it your number-one option, as in most cases the company will match your personal contribution. The result is $2 in the fund for every $1 you invest. Plus, your own contribution is tax deductible.
6. Focus on Cash Flow
We’ve come through a remarkable bull market, with major indexes hitting record highs despite the brutal economic impact of the pandemic. Rising stock prices prompt many people to think only about capital gains when investing. I think that would be a big mistake in 2022. Rather, pay closer attention to cash flow. Choose securities with a long history of increasing dividends. Even if there’s a temporary pullback in share prices, the cash will continue to come rolling in.
7. Be Alert and Take Nothing for Granted
We are going through an era of massive change. The once-in-a-hundred-years pandemic has altered everyone’s life and omicron has complicated it further. Climate change has taken on a new urgency as its effects spawn massive wildfires, destructive windstorms, and devastating floods. Inflation had reared its head in a serious way for the first time in four decades. All this suggests that unexpected events could alter carefully thought-out investment, and life, strategies. Be ready to change course if (when) that happens. Flexibility will be your best friend in 2022. As our kids say: “Go with the flow.”
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca/subscribe