It’s a brand new year, and with it comes the opportunity to start fresh and become just a little bit better than we were in 2021. And a top resolution that people often make come January 1 is to make more money. Indeed, according to research from Statista, 44% of respondents said they aimed to save more money in 2021. Only losing weight (48%) and exercising more (50%) ranked higher.
But to be even more successful and outpace their gains in the year that was, it won’t be easy — at least not from a financial perspective. In short, achieving your financial goals will require more targeted financial planning. That’s because so many people were successful in their 2021 wealth creation efforts.
While the economy was rather unstable in 2021 in light of the pandemic, more people became millionaires. In 2020, for instance, approximately 5.2 million people worldwide were earning seven-figure salaries, The Guardian reported from Credit Suisse’s annual Global Wealth Report. This means that, in the United States alone, there are now approximately 22 million individuals whose overall assets are valued at $1 million or more after roughly 1.73 million people became millionaires – the largest year-over-year increase in the world. That’s more than the next four countries combined, including Germany (633,000), Australia (392,000), Japan (390,000) and France (309,000).
There may be some overnight millionaires who reach their wealth status as a product of luck (like winning the lottery) or through an inheritance. But more often than not, wealth is a result of hard work and smart financial planning.
In light of the ongoing ramifications of COVID-19 and its impact on the economy, here are a few things to reflect on and consider for an even better financial you in 2022:
1. To retire earlier, consider working a side job
It was only a few years ago that more people were delaying retirement. These days, evidenced by the Great Resignation affecting numerous industries, it’s the opposite: They’re thinking about moving it up. If you’ve already done the math regarding the age at which retiring would be feasible, go over it again with your financial advisor to see how much you’d have to save now to retire earlier. Speaking to CNBC, wealth advisor Winnie Sun noted that a longer retirement life on easy street requires putting in the hard work while you’re still working.
“I tell my clients, if you want to shave off 10 years pre-retirement, that means we really need to hustle now and find other ways to bring in income,” Sun explained.
She further stated she’s instructed her clients to consider picking up a job that they can do in their spare time, like driving for a ridesharing service provider, editing or freelance writing. Side hustles are increasingly common, given how many options that are available, as the worker shortage affects multiple industries. It’s estimated that more than a third of Americans have a side hustle, according to a survey done by Harris Poll on behalf of Zapier.
A successful year in terms of earnings may make you question whether a second job is necessary. But retirement is frequently more expensive than it’s originally perceived to be. And that’s especially the case when your dollar buys less — like in high inflation environments.
2. Consider automating what you contribute to savings
2020 was a banner year for deposits at banks — and 2021 will likely not be far behind once the data is made public. Two years ago, however, the personal savings rate was 33% in April, CNBC reported from a report done by the Bureau of Economic Analysis. That’s the highest the rate has been since 1960 and was up from 12.7% compared to the previous month.
The lockdowns clearly contributed to this, but with most of the world now back open — and with more opportunities to spend money — you may want to consider automating how much and when your money goes toward a savings or investment vehicle. Forbes Advisor contributor Milan Ganatra says automating your savings provides a steady cash flow to build the amount of money needed for it to grow more appreciably through interest.
3. Factor in inflation
From bacon strips to recliners, crab cakes to bassinets, just about everything is costing more today than it did even a few months ago. Indeed, accounting to figures released by the Department of Labor, consumer prices climbed 7% in 2021 compared to 2020. The last time the Consumer Price Index rose so substantially was back in the 1980s.
It’s all a product of inflation. While opinions are all over the map on why prices are as high as they are — and the primary factors contributing to rising costs — everyone recognizes that inflation has arrived. Government officials first stated they believed inflation would be “transitory,” but now, economists forecast the environment to last for the duration of 2022 and potentially into 2023 as well.
The Federal Reserve will likely raise interest rates to tamp down demand and encourage more people to save. Yet regardless of what actions are taken to prevent the economy from burning too hot, a dollar buys less than it used to.
If you’ve long been a high-net-worth individual or someone who has recently attained this status, spending a few or even hundreds of dollars more may not break the bank. But if you’re interested in stretching your dollar further and leaving as much of your wealth to your loved ones as possible, you may want to reevaluate your financial plan, especially if some of your future buying intentions assumed prices would remain fairly static. In other words, it may make sense to buy now rather than later on, when inflation will inevitably push prices up again.
Wealth planning and the cost of living is a moving target, which may require you to leverage borrowed funds so you have more flexibility with where your money is now. That’s where premium financing may be a worthwhile consideration. For more information on premium financing, contact us at Global Financial Distributors today.
