Year 2022: Ready… ready… Run! Goals to help you prepare for the new year
You did, and you are here. The year 2021 is drawing to a close. It is essential that you close your finances in a systematic and organized manner that allows for review, soul-searching, and planning for 2022.
2022 will come with new opportunities and taxes. The world has changed, and expenses and work have changed too. There are now more digital opportunities to earn, save, spend and invest. Take the bank, for example. If you live in Nigeria, you can use the digital currency, eNaira.
There are also digital banking options like Kuda Bank. And invest? You can bet your USD stablecoins on an exchange like Bybit and earn inflation-indexed returns. And the credit? You can apply for a loan from Carbon, pay later using a Buy Now Pay Later service like CreditClan, and get a credit score from CRC Credit Bureau, all from Nigeria.
Let’s review the year 2021 and plan for 2022. Along with these topics:
V. Net worth
VI. Retirement plans
VII. Target savings
X. Estate plan
So what were your financial goals? Have you achieved them?
Did you increase your income in 2021? Has this change been made to your active or passive income? Did you have multiple sources of income? The long-term goal of personal finance is for your non-discretionary or necessary expenses to be fully covered by your passive income.
Did you track your spending at any time during 2021? Do you know where all your earned funds have gone? What are your three main expense items? Did you have a plan to reduce them? How? ‘Or’ What? Every financial plan begins and ends with your spending habits and priorities. Spending review is paramount and prepares you for success or not in 2022.
Have you established and used a budget this year? Was your budget on average over or under your initial projections? When did you identify significant deviations from your budget projections? Why did you have a surplus or a deficit? These reflective questions allow you to determine the factors that led to your budget success or failure.
As a percentage of income, has your debt increased or decreased? It is essential to compare debt to income and measure it as a percentage of active and passive income. This analysis allows you to determine how “oriented” you are. 2021 has seen a lot of job losses. Have you taken on new debt? Or have you paid off an existing debt? Regarding the cost of debt, has your average annual rate (APR) increased or decreased? The APR represents the total cost of the debt you hold.
â¢ Net value
Have you reconciled your assets and liabilities, broken down into income-generating and interest-bearing liabilities for 2021? Did you get richer i.e. your net worth increased? Why Has Your Net Worth Increased? More assets or fewer liabilities or both? If you’ve got more debt, it’s best to see that debt create new assets, such as a new mortgage that creates new real estate.
â¢ Pension plan
A defined contributory plan is mandatory for all formal employers to offer to their employees in Nigeria. A defined contribution plan means that the final amount of your retirement is based on your contributions during your working life. With higher inflation in Nigeria, RSA cash yields would have lower purchasing power today than at the start of the year. It would be helpful if you made additional voluntary contributions to your RSA to take advantage of tax-exempt funding. Your last pension payment should be enough to fund at least 50% of your retirement expenses. You can calculate the amount you need in retirement using a stream of payments of the present value of the annuity. By making annual adjustments, the difference between the final payment of your pension and the contributions does not become too large.
â¢ Target savings plans (TSP)
Did you have a TSP? Do you have an emergency fund? How many months of your non-discretionary spending have you saved? With double digit inflation you have to increase the funds saved, maybe add a month more.
If you have dependents, you must have life insurance to protect your dependents against losses resulting from premature death. Remember, loss of income is guaranteed, not life. Also, as you get older, start looking for long term health care plans, and premiums are cheaper when you buy early, when you are in good health.
â¢ Investment plan
How has your portfolio performed in 2021? If you invest in Naira, you need to earn a 15% return to avoid losing value due to inflation. It’s a lot. Does your portfolio generate inflation-adjusted returns? Have you thought about diversification? Have you thought about meeting a professional and reviewing your portfolio based on your risk profile and your goals? Have you hedged your Naira wallet with foreign currency income? Are you investing in riskier assets like cryptocurrency? Keep in mind that your investment plan is only for you. If your goal is to generate income without risk, then earning below inflation is a success according to your plan.
â¢ Estate plan
The end of the year is always a good time to go over information about loved ones, look at the benefits at work, and make sure you have access to them. Organizing, protecting your assets is imperative to ensure that your named dependents maintain control of your assets without undue dissipation. Have you drawn up a will?
2021 shows us that there are no islands of self-sufficiency. We all need each other. Giving is essential to the soul, but it is also tax deductible. So give. Support your schools or orphans; making the world a better place is the best for everyone.
2022 will see an increased focus on taxes and compliance; prepare.
1. Increase your contributions to your Retirement Savings Account (RSA) via Additional Voluntary Contributions (CVA). Penson contributions are tax exempt.
2. Open a new health insurance account or increase your NHIS / Private Insurance coverage as medical expenses and insurance premiums are tax deductible.
3. Consider purchasing life coverage or annuities because the premiums paid for these policies are also tax exempt for you and your spouse.
4. Get an employer-funded loan to purchase a primary residence, as these and mortgages are also deductible. In addition, contributions to the National Housing Fund (NHF) are deductible.
5. Start a business, register a business, start small. It enjoys tax benefits, including deductions from rents paid on business premises, interest on borrowed money, and expenses for repair and maintenance of business assets.
Transfer the personal car to a business and deduct the maintenance and upkeep of the car as tax deductible items.
Start writing your annual financial plans. A financial goal is a statement of economic intent, with numbers to make it measurable and a date to ensure a goal. I list financial goal example examples below in no order, and you can change them to suit your needs.
Objective 1: Reduce my interest-bearing debt by 10% by the second quarter of 2022.
Objective 2: I plan to set up a 3-month emergency non-discretionary spending fund by Q2 2022.
Objective 3: Build passive income that covers 10% of my discretionary spending by 2022.
Objective 4: Increase my retirement savings by 10% starting in the first quarter of 2022.
Objective 5: Reduce my discretionary consumption by 20% and channel savings to my investment account by Q2 2022.
Objective 6: I plan to register a business by Q1 2022 and start operations by Q3 2022.
Objective 7: To organize my assets and liabilities in an orderly and legal manner by the first quarter of 2022.
Objective 8: Plan and protect my ability to generate income, purchase insurance, update information about my loved ones by January 30, 2022.
In conclusion, remember that planning is the first success.