Have you set your financial goals for 2022? Almost everybody lists “˜save more money’ as one of their New Year’s resolutions, along with “˜living a healthier lifestyle’. However, we don’t really delve deeper into how we are going to achieve these goals. Most people baulk at the thought of making concrete goals with specific action steps. The problem is setting very broad goals with vague actions almost never work. You’re more likely to start off half-heartedly and forget all about it by the time February rolls around.

Taking the time to set detailed financial goals will help get a jump start on a financially healthy New Year. Consider setting these financial goals for 2022:

Step 1: Create an Emergency Fund

If you haven’t created an emergency fund yet, consider this your top priority for 2022. It’s that one thing that will bail you out when you have to cover unplanned medical or repair bills or if your income takes a hit. With an emergency fund in place, you won’t have to borrow money in an emergency or worse still, do without.

The specific amount in an emergency fund will vary from one person to another. At the very least, an emergency fund should cover at least three months of your bills and basic expenses. Using an online emergency fund calculator is a handy way to calculate how much money you should aim to put away for an emergency.

If you already have 3 months’ savings, consider adding more funds and boosting it to 6 months’ savings. You can never have too much in your emergency fund. It can be comforting to know you have enough savings stashed away if and when those unplanned expenses strike.

Step 2: Improve Your Credit Score

Don’t underestimate the importance of improving your credit score. A strong credit score indicates that you’re a responsible borrower and will make it easier for you to get approved for loans in the future. Not just that. With a good score, you’ll also qualify for lower interest rates on any money you borrow, whether it is in the form of a mortgage or vehicle loan.

Before diving into how to boost your credit score, it helps to understand how this score is calculated. First of all, credit score does not reflect your assets or savings so putting money in the bank will not improve your score. Instead, credit score reflects how well you manage your debts such as your loan payments and credit cards.

Here’s what you should focus on to boost your credit score in 2022:

• Make all loan and credit card payments on time – Payment history has the single biggest impact on your credit score, accounting for 35% of the total. Consistent timely payments add a few points to your score, boosting the total over time. On the other hand, a single late payment can damage your score. Commit to making on-time loan and credit card payments if you want to boost your score.
• Keep your credit utilization ratio low – Credit utilization ratio looks at the amount of credit you use on your credit cards as compared to your credit limit. This has the second biggest impact on your credit score. A low ratio means you have sufficient personal funds and are only using a small portion of the total amount extended to you. This is a positive sign and will add a few points to your score every month. When you’re looking to boost your credit score, aim for credit utilization of less than 30%. The lower, the better.
• Leave old credit cards open – This helps to increase the length of your credit history. If you haven’t heard the term before you’re not alone. It’s hardly something anyone even thinks about. But it does matter when it comes to building credit, with the third highest impact on the total. Length of credit history factors in how long you’ve been managing credit and how well you’ve managed it. A longer credit history with consistent on-time payments will add points to your score.
• Don’t open new credit accounts unless absolutely necessary – When you apply for a loan or credit card, lenders will review your credit history before approving your application. This is known as a hard credit inquiry. Every hard credit inquiry takes a few points off your score. Applying for multiple loans and credit cards will trigger multiple inquiries, causing your score to plummet. If your goal is to build your credit score in 2022, try not to apply for any new lines of credit.
• Request a free credit report from all three major credit bureaus – You’re entitled to receive one free report from all bureaus every year. This is the perfect time to put in that request. Go through the credit report carefully and look for any incomplete or inaccurate entries. If you spot any mistakes, file a dispute and get them corrected. Your credit score is based on the details entered in the report. Major inaccuracies could hurt your score. It’s worth checking your report at least once a year and getting those errors rectified so your credit score is reflected correctly.

Step 3: Pay Off High Interest Debt

Every line of credit has its own interest rate that’s set by the lender. If you have multiple student loans, every one of them will have a different interest rate. A mortgage will have yet another rate and so will your credit card. Ideally, you should pay off all debts every month by the due date. Missing a deadline can have serious repercussions. You’ll pay hefty late payment fees plus interest on the outstanding amount. This will make it even more difficult to pay off your dues the following month, pushing you even further into debt.

Credit cards are notorious for carrying the highest interest rate on late payments. The longer you carry your balance forward, the more you’ll pay. To make things worse, it will also damage your credit score. It can be very difficult to get out of credit card debt. If you have to make a choice, prioritize your credit card payments. Then pay off the loan with the second-highest interest rate and so on.

If you owe money on multiple credit cards, consider refinancing credit card debt. This will help you enter 2022 with a clean slate.

Step 4: Explore Refinancing Options

Refinancing involves exchanging your current loans or mortgage for a new loan or mortgage with different terms. If you want to change the terms of your original loan, the only way to do this is by refinancing. This may or may not be a good move for you but is definitely worth looking into.

Refinancing may be a good financial goal for you in 2022 if any of these scenarios apply to you:

• Your credit score has improved since you first took the loan or mortgage. Your new score qualifies you for a lower rate of interest, which can save you a significant sum in interest over the loan term. Besides, interest rates are at near-record lows. If you refinance now, you’ll be able to lock in your loan at rock-bottom rates, adding a nice chunk to your savings.
• You’re earning a good income and can afford to increase your monthly payments. Refinancing to increase monthly payments will reduce the term of the loan. Not only will you be debt-free faster but you’ll also save a lot in accrued interest over the shorter term.
• You’re struggling with the monthly payments and are at risk of defaulting. Defaulting on your debt payments can cost you in terms of late fees and steep interests. To make things worse, it will also damage your credit score. Refinancing to lower the monthly payments will increase your loan term as well as the amount of interest that accrues. However, it beats the harsher consequences of defaulting on your loan.

Step 5: Save For Retirement

It’s never too early to start saving for retirements. The sooner you get started, the more time your money will have to grow. Waiting till you’re nearing retirement age may be too late. You may be entitled to some money from Social Security but this is often not enough.

If your employer offers a 401(k), definitely sign up for the plan and have money deducted from your paycheck every month. Consider maxing out your contributions or at least contribute enough to get the full company match. That’s free money right there that you don’t want to leave on the table.

Step 6: Explore Ways to Boost Your Monthly Income

This may not apply to you if you are already working overtime more days than not or are juggling professional and personal obligations. However, if you’re constantly stressed over finances and your over-stretched budget, it’s time to stop worrying and do something about it. In addition to cutting back on expenses and savings, why not explore ways to boost your monthly income?

An income boost can be the best thing that can happen to someone who is struggling financially. It can be a liberating feeling. Saving money is great but earning more means you can do more with it. In today’s gig economy, it’s easier than ever to find a side hustle that works for you. Consider your skills and experience and use them to explore a part-time job or better still, freelancing job opportunities. Whether your skills lie in technology, app creation, graphic design, or content creation, you’ll find plenty of freelancing opportunities that pay surprisingly well.

Step 7: Open A Higher Interest Savings Account

Do you have cash left over every month after paying off your debts and other essential expenses? If you do, it’s a good idea to open a savings account and put your money to work for you. Any money you deposit into a savings account earns interest over time. Do your homework and check out the interest rates being offered by different banks. Choose a bank offering the highest rates and best terms and open your savings account in 2022.

Step 8: Review Your Investment Portfolio & Explore New Ways to Invest Your Money

Reviewing your investment portfolio at the end of the year is always a good idea. What was a good investment last year may not be such a good investment next year. A review will give you a clearer picture of which investments are doing well, which are stagnant, which are performing poorly.

Consider selling off those assets that are not doing so well and invest the money into some other asset. There are several investment opportunities out there from dabbling in the stock market to buying real estate and more. Research trends to determine which investment will work best for you in 2022. If you’re not sure, talk to a financial planner.

Setting financial goals for 2022 is not as overwhelming or complicated as you may have first thought. As you can see from the tips above, it’s the little actions you take through the year that will make a huge improvement in your finances at the end of the year.