5 steps to strengthen your finances in 2022

(NerdWallet) — 2021 has been a year of financial stress for many Americans: Household debt and the overall cost of living have risen, while median household income has fallen, according to the annual US Debt Study. NerdWallet households. In 2022, setting big financial goals may not be realistic for every budget, but there are still smart steps you can take to shore up your finances.

1. Review your expenses

Household finances have changed dramatically for many Americans over the past two years. Pandemic relief and recovery programs — as well as cuts to some spending due to pandemic restrictions, such as travel and travel — may have added money to some budgets. On the other hand, according to the NerdWallet study, the overall cost of living has increased by 7% over the past two years, while the median household income has decreased by 3% over the same period, which that has strained many Americans.

A new year is a great time to review your budget. Don’t have a budget? Start by pulling your bank and credit card statements for the last three months and adding up your expenses in different categories – housing, food, utilities, etc. – to see what an average month looks like for you. Knowing how much you’re spending now is key to creating a realistic budget for the future. Without this step, you might assume you should be budgeting, say, $300 a month for groceries, but if you’re currently spending $600 a month at the supermarket, it’s probably not realistic to cut back that much so quickly.

Once you’ve established a budget, compare your expenses to your income to see how far you can progress toward financial goals like saving and investing. You can then determine whether you need to increase your income, decrease your expenses, or both. Depending on your eligibility, you might also consider researching programs to help you make ends meet, such as an income-driven repayment plan for your student loans or the Supplemental Nutrition Assistance Program, or SNAP.

2. Add a little more to your consumer debt payments

Household revolving credit card debt – that is, credit card balances carried over from month to month – fell 14% in the 12 months to September . But according to the NerdWallet study, some Americans have relied on their credit cards to get through the pandemic. One in five Americans (20%) say they have increased their overall credit card debt during the pandemic. Almost the same proportion (18%) say they have relied on credit cards to pay for necessities during this time, according to the survey conducted for NerdWallet by The Harris Poll.

If you have a credit card balance and don’t feel like you can pay it off, adding a little more to the monthly payment, if possible, can make a big difference.

Let’s say you have a credit card balance of $5,000 at 17% interest and your minimum monthly payment is $75. If you only paid that amount each month, it would take over 17 years to clear the debt and you would pay over $10,400 in interest. But you could save thousands of dollars in interest charges and years of payments if you add $25, $50, or $75 to that monthly payment.

Small payout increases have a big impact

Monthly payment Interest costs years to pay
$75 $10,410 17.1
$100 $3,759 7.3
$125 $2,431 5
$150 $1,815 3.8

3. Evaluate your investments

Among Americans who have received pandemic relief since March 2020, 9% have used at least some of that money to invest in cryptocurrency, according to the NerdWallet survey. This may be entirely in line with your goals and risk tolerance, but take the time to review all of your investments. It is recommended that you diversify your investments to reduce risk and increase your potential long-term return.

If you have a workplace retirement plan — like a 401(k) or 403(b) — participating in it can save you money on taxes in the short term and grow your nest egg in the long term. Consider investing your money there first, especially if your employer offers a match on your contributions. Otherwise, you are missing out on a guaranteed return on your investment.

4. Negotiate medical bills

Medical costs have increased by 31% over the past decade, according to the NerdWallet study. This is a staggering increase, especially when coupled with a pandemic that has caused hospitals to be overwhelmed. But medical bills are negotiable and there are options to break or even reduce your costs.

Many providers offer payment plans on medical bills. Although you should find out about any associated fees or interest, this will likely be a cheaper option than using a credit card that charges interest. Additionally, low-income patients may have access to hardship plans, which will lower your costs and potentially reduce your overall bill. Ask your supplier about these options.

You can also try to negotiate your balance or have a medical expense advocate do it for you. Whichever route you choose, avoid completely ignoring your bills. If your healthcare provider sells your debt to a collection agency, you have 180 days to settle that debt before the collection account appears on your credit reports. At this point, this debt can hurt your credit ratings, making other financial moves more difficult in the future.

5. Save for something

More than 2 in 5 (43%) Americans who have received pandemic relief since March 2020 say they have saved at least some of that money — for emergencies, a house or something else — according to the NerdWallet survey . So no matter how much you can save and what your specific goals are, everyone could benefit from a savings, whether it’s $5 or $500 a month.

Your goal may be an emergency fund to help you stay afloat the next time the unexpected happens or a cash-paid post-pandemic dream vacation. But whatever your ultimate goal, putting money aside regularly gives you options, even if you choose to use the money for something other than its intended use in the future.