2022 Savings Goals - How much will you save?

Hey, what's up everyone and welcome to the School of Personal Finance. Happy New Year, happy 2022. This really is one of my most favorite times of the year. I love when I have the whole year ahead of me and I can sit down, I can reflect on the previous year, start to map out my goals, think about what I want to accomplish in the year ahead. So in this video, I'm gonna talk about savings goals. I'm gonna talk about how I try to think about it, how I go about the process of laying out what my savings goals are for the year. I'm gonna talk about the order of operations, the types of accounts that I prioritize over the other ones when it comes to saving for the new year, and we're all different. We all have different financial situations, different goals, different vehicles that we might want to invest in. So this is not, it doesn't apply to everybody. It's gonna be different depending on where you are in your personal journey. But I hope that you find this helpful. All right, let's get to it. All right, so real quick, my biggest goal of 2022 is to put out a ton more content and help as many people as I can become great with money. So if you would like to be a part of that, here are a few things that you could do. Number one, make sure you're subscribed to this channel and also hit the little notification bell so you get notified every time I upload a new video. Number two is get on my email list. Go over to schoolofpersonalfinance.com, join my email list. I have a free PDF download on there as well when you sign up for my email newsletter. Number three, connect with me on LinkedIn. I'm gonna try to be much more active on LinkedIn and interact with people more one-on-one in that community. All right, so now let's talk about savings goals for 2022 and how I like to think about it and lay it all out. So as I mentioned earlier, savings goals, they're personal. Your savings goals are gonna be different than my savings goals. But what I wanna do in this video is just show you the framework and how I go about thinking about it so that you could determine for yourself what is the best way to go about attacking 2022 to make sure that you are on great financial footing. So this first one, I've talked about it a million times, but you can't set goals and you can't decide what you wanna do with your money if you don't know where you currently are. So the first thing you need to do, and I love doing it the first day of the year, is to create your net worth statement. And I have videos on exactly how to do that so you could look at what your assets are, what your liabilities are, also looking at your cashflow, how much money you have coming in every month and how much money you spend every month so that you know exactly where you stand. That is really the first step, is to understand your current financial situation. Now, once you have that laid out, things become a little bit clearer. Like, for example, if you have credit card debt, then there is no doubt that that takes priority number one, that you have to get rid of the credit card debt before you can even really consider investing for your future. If you're paying 20% interest on credit cards, then you have to look at it like that is a guaranteed rate of return of 20% if I pay off this credit card debt. In the order of operations, getting out of crappy debt, that is definitely number one. Now, also competing for that number one spot is having some emergency savings funds, or at least access to money. If you have no money in the bank and you have credit card debt, then this is going to take priority and this is your goal for 2022, is to fix that situation. Get out of the debt, build up some cash in the bank. Ideally, if you could have three months of savings in the bank, or at least access to that money in case you have a big emergency or you lose your job, that is where you want to be before you really start piling money into investment accounts. Now, just keep in mind that in most cases, it makes sense to spread the love around, to try to attack different priorities simultaneously, like saving some money in a 401k, saving some money for down payment on a house, building up that emergency fund, paying down student loans, all those things, doing it simultaneously and not just focusing on one specific thing and ignoring everything else. All right, so you know you got to pay off your credit card debt and get rid of all that stuff. You know that you need to have an emergency fund, a number that you feel comfortable with, having enough cash in the bank to help you sleep well at night. Now that those two things are out of the way, the next thing that I like to wrap my head around is how much money can I actually save this year? Again, this goes back to your financial statements and being able to project throughout the year and having a goal of how much you could actually save every month, but I like to put it in annual terms and really focus in on that number so I know what I'm shooting for and then I can start to allocate it accordingly. So after looking at my projections, if I come to the conclusion that I should be able to save 30 grand this year, if I stick to my budget, if I stick to my spending plan, if everything works out the way that I think it's going to, I have 30 grand that I could allocate to my different savings goals. Then the next thing that I do is I think about what are my big savings goals? What are the things that I really want to prioritize? It's not always retirement accounts, right? So you might be saving for retirement and that is obvious, but what if you want to save for retirement through real estate as well? Maybe you have a goal of buying a rental property or what if you have no exposure to crypto and you want to start investing in crypto this year? These are things that are much harder to do in retirement accounts where you might look at different vehicles to invest and allocate money towards those. So I start to look at big picture items and think how much money do I want to allocate towards those compared to saving for retirement? And I just try to have a little session in my brain where I sit down, I think about all this stuff and start allocating this money to these different buckets that I have imagined in my mind. Now, let's talk about what I call the order of operations, right? What accounts does it make sense for me to invest in these so I get the biggest bang for my buck? So now, I'm sure that you know this already, but if you have a 401k where your employer offers a match, that is always priority number one for me. As long as I've paid off my credit card debt and I have nothing hanging over my head, I'm going to make sure that I'm contributing at least up to the full match. So let's say that you make 100 grand at your job and your employer match is they will match up to half of 6% of your 401k contributions. So what that means is that if you put in 6%, right, which is $6,000, could you make 100 grand, they will match half of that, so they will match $3,000. So it's $3,000 of free money. So that would be priority number one for me is to at least put $6,000 throughout the year, right? So $500 a month that I'm going to contribute into my 401k plan to at least get the full match. And now, the second account that I think you should seriously consider allocating some of your savings dollars towards is an HSA account. And now, there are definitely some rules around an HSA, like the biggest one being you have to have a qualifying high-deductible health plan in order to be able to use an HSA. Now, I have created a video of all the reasons why I love an HSA account, and you should definitely go back and check that one out. I will put a link in the description down below. But it is such a powerful retirement account. I want you to use the HSA, not for health expenses right now. I want you to use it as a retirement savings vehicle that you could use later on in your life. There are many tax advantages to an HSA account. So now, for 2022, you could contribute, if you're single, up to $3,650. And if you're married, if you have a family, you could do up to $7,300. And you have up until the tax filing deadline to still contribute for 2021. And now, the third account that I would definitely consider allocating some of your savings towards is a Roth IRA. So now, there are rules around the Roth IRA. Also, there are income limitations. So you have to make sure that you qualify for it. But in 2022, you could contribute up to $6,000 in a Roth IRA. And now, a traditional IRA would also go in number three. So the real difference here, it depends on what your income is. And if it's more beneficial for you to take a tax deduction now by using a traditional IRA. And again, there are income limitations to see if you qualify for the deduction. Or should you do a Roth IRA? Are you in a lower tax bracket now where you think you will be in a higher tax bracket later on in retirement, then it makes more sense to do a Roth IRA. I'm a big fan of Roth IRAs. There are many reasons why. I've made videos on that also comparing the two. I'll link to those down below as well. But for account type number three, I would definitely consider allocating some of your savings towards either a Roth or a traditional IRA. So now for 2022, it's looking like we've bought ourselves another year of being able to do backdoor Roth IRAs. I have a whole video on exactly how to do that. That is for people who make too much money to actually be able to do a Roth IRA. There is a process called a backdoor Roth IRA so that you could still get money into a Roth. Now again, depending on your situation and how much money you could actually save throughout the year, you might be done after those three accounts. But what if you're in a situation where you don't wanna just save for retirement, where maybe you do want to add to Bitcoin or some cryptos, or maybe you do want to be saving for that first rental property that you wanna buy in 2022 or 2023. Then your order of operations, these accounts, they might change a little bit. You might instead say, you know what, first I'm gonna get $15,000 in a savings account that I'm gonna be using that money to put as a down payment on the rental property. Maybe it'll take me two years. I'm gonna do 15,000 this year, $15,000 next year, I'll have $30,000 to put down towards a rental property. So it really does depend on you and what your individual goals are. Now, if you're saving a ton of money, then maybe you're going to hit that full match. You're gonna hit the HSA. You're gonna do the Roth. You're gonna throw some money into a brokerage account or into a savings account for a down payment on house, for crypto, and then maybe you're gonna circle back around and you're gonna go back to your 401k and you're gonna try to max out that 401k for the year. Many people do that. They hit these order of operations, then they circle back around to the 401k. And once they filled all those other buckets, they try to max out that 401k for the year. Now, if you're just starting out and your big goal for 2022 is to just get better with your money, then the first step is really the educational piece, right? Learn what is gonna have the biggest bang for your buck when it comes to saving. Is it paying off debt? Is it paying off student loans? Is it going ahead and getting the match in your 401k or saving in a Roth IRA? Lay it all out. Get very good with your numbers so you understand your current situation and the processes that you need to put in place in order to start building your net worth and getting ahead in life. So please let me know down below which accounts, what savings vehicles are you prioritizing in 2022? And make sure that you have a number walking into it. Make sure that you know how much money, if I do great this year, how much money could I expect to save and where should I allocate it? Start breaking it down, looking at it as a whole and say, wow, if I could save $20,000 this year and I could invest it and I could grow that money at say six or seven or 8% and I could do that each year for the next five or six years, what will that look like for me? How will my future look? What could I expect in retirement if I could save this kind of money? How does it impact my life? How does it change things? What would I need to do to put myself in a situation that maybe I could retire early or I can make a big job change or start my own business or just do something off the beaten path? What would I need to do financially in order to put myself in that position? And start breaking it down and go for it. Set the processes in place, automate everything. Everything is so much easier when it's automated. That's why 401ks are such a popular savings vehicle because it just comes out of your paycheck before it even hits your bank account. It's automatic. Do the same thing with other savings. If you wanna invest in crypto, set up an automatic monthly contribution over into Coinbase so that you're buying on a monthly basis. Roth IRA, set it up on a monthly basis so that it just automatically goes and you're buying each and every month. Automation, it is the key to success. All right, everyone, that is it for this one. I hope that you found it helpful. Please make sure to hit that like button if you enjoyed this video. I will see you again in the next one. Thanks.