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Jump-Start Your Financial Plan for 2022!

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By Eric Chetwood, CFP®

Hands up if you’re ready for a new year. The past two years have put us through the wringer, so it’s understandable if you don’t have high hopes for 2022 like you did for 2021. A new year can be overwhelming to think about, especially after the intensity of the last couple years and the pandemic, economic uncertainty, and slow road back to “normal.” But the good news is that there are actionable steps you can implement to take back control of your finances and truly make 2022 a fresh start. Here are five ways you can get started today.

1. Track Your Spending

There’s a business axiom that says, “You can’t manage what you don’t measure.” This rings true when it comes to your savings. No matter how many millions of dollars you have in your nest egg, wise money management says you should tell your money where to go rather than getting to the end of the month (not to mention years later) and wondering where it went.

Tracking spending habits can be difficult, especially in trying times, but thankfully there are several apps and tools that do it for you, such as You Need a Budget, Quicken, Mvelopes, or Dave Ramsey’s EveryDollar system. Once you have a good idea of where you currently spend money, you can begin to build a budget around where you want your money to go. This can be modified as needed as time goes by and life changes so that you are better prepared to withstand potential fluctuations in income. There is no one perfect solution for everyone, but the best solution is the one you will actually use. You’ll be glad you did. 

2. Reevaluate Financial Goals

The second way to jump-start your financial plan is to reexamine your financial goals.

As a reminder, specific goals with defined timelines will help determine the best course of action, including how much risk you can and should take with your money. Buckets used to fund longer-term goals should be positioned for the long term. Buckets used to fund shorter-term goals should be positioned very conservatively. Every dollar in your portfolio should be working toward a specific goal.

Remember that the best goals will be SMART: 

  • Specific: The more you can identify exactly what you’re saving for, the easier it will be to work toward it. 
  • Measurable: As much as possible, try to identify how much your financial goal will cost. Do the research to figure out what you need to save so that you’re able to see tangible progress along the way. 
  • Attainable: Make sure your goal is realistic and achievable. This might require some self-reflection or reevaluation of your priorities.
  • Relevant: Ask yourself which goals align with your core values. Remember that your finite assets will be split amongst your seemingly infinite list of wants. The more you can scale back your list to what is truly relevant, the quicker you’ll be able to achieve each goal.
  • Timely: Identify the timeline for each goal so that you can prioritize which ones need to be addressed first and how much risk you can afford to take.

3. Check in on the Risk in Your Portfolio

In the financial world, risk tolerance is defined as a measure of one’s financial ability to withstand losses. While you can’t completely eliminate risk in your portfolio, you can ensure that the amount of risk you take correlates with the level of potential reward for you to gain. It is more than possible to match your investments to your goals while still being able to sleep at night during market downturns.

Your personal risk tolerance will be dependent on these four factors: 

  • Time horizon: How long do you have until you plan to retire? The further you are from retiring, the more risk you may be able to take in order to gain more rewards.
  • Investment objectives: How much wealth are you hoping to build? The loftier the goal, the more risk you might have to take.
  • Risk capital: What is your net worth? If you have plenty of money available to invest and losing it won’t negatively impact your lifestyle, you can be more aggressive. 
  • Your emotions: Even if the spreadsheets tell you that your financial situation can handle plenty of risk, how do you feel about that personally? Are you a more conservative person, favoring security and slow progress over exhilarating wins? Or do you love the thrill of ups and downs? 

Calculate different scenarios with different risk levels to get an idea of how much loss you are comfortable with. If you start to panic and cringe, then you know you’ve hit or passed your limit. Both positive and negative emotions frequently cause investors to make unwise decisions. If you’re excited about the upward swing of the market, you might throw caution to the wind and invest more money than you normally would. On the flip side, fear might drive you to react and sell if you start losing money. The best way to determine the optimal amount of risk you’ll need to take to reach your goals is to stress test your portfolio.

4. Review Your Financial Stress Test

There is no way to predict with certainty what the stock market or economy will do in the future, but stress testing your portfolio can help you be prepared no matter what comes your way. At Adams Chetwood, we use a rigorous stress-testing simulation software to give you accurate projections of what your income and savings will look like regardless of what the markets throw at you. 

The Monte Carlo Simulation tests your nest egg against 1,000 different possible market scenarios and shows the probability that you will reach your goals and be able to live the retirement you dream of. This helps you find incredible confidence in your future even when the world seems to be going crazy. 

Watch this short video to learn more: Risk Reduction Method #1 – Monte Carlo, a Better Way of Projecting Income.

5. Partner With a Financial Professional

Regardless of where you are in the planning process or what goals you have set for your financial life, we are here to support you, guide you, and navigate any financial challenges you may face. Partnering with a financial professional is a great way to take control of your finances and get a jump-start on the future. 

At Adams Chetwood Wealth Management, we have the tools and expertise to help you set financial goals, build up your emergency fund, and reevaluate your risk level. If you’re ready to start planning for the new year, schedule a complimentary introductory meeting online or reach out to us at audra.grice@adamschetwood.com or (919) 287-5660.

About Eric

Eric Chetwood is managing partner and CERTIFIED FINANCIAL PLANNER® professional at Adams Chetwood Wealth Management Group, a faith-based Registered Investment Advisory (RIA) firm located in Durham, North Carolina. Eric graduated from the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill in 2003 with a bachelor’s degree in business administration and has been on the Adams Chetwood team for over 15 years. Eric spends his days helping clients with comprehensive financial planning and portfolio construction and helping them navigate the opportunities and challenges of each stage of life. Away from the office, Eric enjoys effecting change in the local community. He was chosen to participate in the 2007 Leadership Durham program and the 2009 Leadership Triangle program. Currently, Eric serves as a directional Elder at the Summit Church. He also serves on the board of directors for the NC Study Center at UNC-CH and previously served on the board of Samaritan Health Center, an organization that provides medical care to uninsured and low-income families in Durham. He and his wife, Allison, have two sons, and are passionate about adoption advocacy as well as leveraging their gifts and resources to alleviate physical and spiritual poverty through microfinance and social businesses. To learn more about Eric, connect with him on LinkedIn.