A new year is a great time to make financial changes that can improve your life for the long run. As 2022 begins, why not consider taking three simple steps that could leave you a lot richer by the time the year comes to an end?
Give each of them a try and you'll be surprised how much you can improve your financial situation in just one year's time.
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1. Set a budget that prioritizes investing
Investing is one of the best ways to build wealth. Even with safe investments such as an S&P 500 index fund, you can expect to earn average annual returns of around 10% over the long term.
This means the money you've invested will grow and help you build wealth. The more you invest, the sooner you put your money to work, and the higher the returns you earn, the more your efforts will help you build wealth over the course of 2022 and beyond.
Of course, you need to make investing a priority to harness the power of compound growth. And you can do that by setting a budget that treats it as a must-pay bill along with your mortgage or rent and other necessities. Then fit in your other expenses around investing, rather than saving what's left over.
There are lots of different budgeting methods to try out, so almost anyone can find one they can live on. If you do that ASAP in 2022 and make investing a crucial line item in your budget, you're all but guaranteed to end the year with more money than you started it with.
2. Take full advantage of tax breaks for investing
Uncle Sam wants to help you invest, and you should take advantage of the assistance being offered.
This starts with contributing to a tax-advantaged retirement plan such as a 401(k) or IRA. If you invest in one of these accounts, the contributions you make won't reduce your taxable income by the same amount you've put into your nest egg since the government subsidizes some of your savings.
Say, for example, that you contribute $10,000 to a 401(k) and are in the 22% tax bracket. You could save as much as $2,200 on your taxes, so your investment would actually end up costing you as little as $7,800. If you qualify for the Saver's Credit, you could also get even more assistance from the government, potentially earning a tax break for investing that's worth as much as $2,000 for married couples or $1,000 for singles.
If you invest in a 401(k), an employer match may also be a possibility depending on your company's rules. That's free money your company gives you after you make contributions to your own retirement investment account.
3. Automate your investments
If you want a sure-fire way to end 2022 richer, set up automatic deposits of the amount you budget to invest each month. This way, you won't have to expend any effort to get your money into the account where it needs to go to help you build your future. The money can come out of your paycheck before you receive it if you invest in a 401(k), or on payday if you set up automatic transfers into an IRA; this way, you won't get the chance to spend it on anything else.
Most people who set up automatic investments stick with the status quo since it's easier than making a change. You can harness this power of inertia to set yourself up to save more in 2022 and beyond.
Taking these steps as early as possible in 2022 can pay off for you in the long run, so make it the year in which you start to build a more secure future.
