What's New in 2022

It may have taken a brutal twenty-two months of a global pandemic to do it, but when it comes to personal finances, there is one silver lining: 84 percent of Americans say that they have learned to stop worrying about what they can’t control. That tidbit was just one data point that jumped out from the Fidelity Investments?Annual Financial Resolutions Study for 2022.

Before we get too jazzed about the results, the survey was conducted October 18-24, 2021, before we had to learn how to pronounce “Omicron”. That said, one positive outcome of enduring?the near two-year COVID era?is that when faced with a financial crisis, we now understand that the old saying, “KISS” – or “Keep It Simple Stupid”, really works. When encountering a difficult financial crunch, the Fidelity respondents said that the best solution is to reduce expenses (54 percent) – and then to dip into those precious and vital emergency savings (39 percent). Notably, the survey also found that compared to last year, “stress levels, those things keeping people up at night, have significantly decreased.”

We don’t know why financial stressors are down, but the government’s massive stimulus efforts have helped smooth out the turbulent period. The extra money, along with surging economic growth and job opportunities aplenty, has helped many to let go of money-related anxieties. The combination has also boosted our general moods, with 72 percent of respondents confident that they’ll be in a better financial position in 2022 and 62 percent optimistic about the future.

Despite the more upbeat outlook, Americans are concerned about rising prices, with respondents citing inflation as the top concern for 2022.?For workers that means that it’s time to ask the boss for raise. This is a tight labor market and the power has shifted from employers to employees. To use the new-found leverage, conduct research for your industry and your specific job to find out the range of what people like you earn. Respectfully ask your boss if she can do better for you and if not, it may be time to seek another position.

For retirees, inflation is more difficult. Your boss, aka Uncle Sam, did deliver a 5.9 percent cost of living increase in Social Security benefits. However, premiums for Medicare Part B, which covers doctors and outpatient care, will jump by a whopping 14.55 percent. As a result, 2022 may not be a great year to assist those adult children!

Perhaps one aspect of what’s new in 2022 is what is not new. Grant Thornton Chief Economist Diane Swonk noted “Living through the pandemic has been a bit like being Bill Murray’s character in the 1993 film?Groundhog Day. We emerged from the first wave of infections and lockdowns hoping to return to the world we left behind only to realize we were entering a loop of recurring infections and disruptions that proved hard to escape.”

As we adjust to another variant, we need to address financial resolutions in a more informed way. The COVID period has provided a crash course in how to identify financial priorities, and it has also shown us which expenses are critical and which are not.

When I talk about New Year’s resolutions, I usually trot out my “Big Three” (1) Fund an emergency reserve that can cover 6-12 months of your living expenses (2) Reduce credit card or other high interest debt, and (3) Fund retirement plans to the best of your ability, especially if you have a company match. Until the pandemic, I advocated an equal weight for each of the three, but what's new in 2022 is that funding the emergency reserve should take precedence over the other two.