Fall is the perfect time to review your finances because there’s still time to make adjustments before the end of the year. The continuing pandemic and economic uncertainty are making it more complicated, but financial experts recommend taking a close look at your savings and planning for 2022 goals now.
Many government programs, including supplemental unemployment assistance, a pause on federal student loan payments and advance child tax credit payments, are poised to expire in 2022 or earlier.
“People are going back to having to pay for stuff,” says Malcolm Ethridge, a certified financial planner and host of the Tech Money Podcast.
Here are some financial to-do’s to tackle this fall:
1. Ramp up short-term savings
Ethridge suggests preparing for the phaseout of government benefits now: “The folks who received a moratorium on your student loans, use those additional dollars in your pocket to pay off credit card debt so you don’t have to pay both simultaneously,” he says. “We will find out we aren’t as rich as we felt we were in the last year and a half,” he adds.
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Ethridge also recommends building a cash pile. “We have no idea what next year will look like,” he says. Having cash on hand allows you to cope with unexpected expenses as well as to potentially take advantage of investing opportunities.
2. Anticipate tax changes
If you’ve undergone any major changes in the past year that could have an impact on your tax situation, such as moving to a new state, getting married or divorced, or changing jobs, then you might want to consider talking to a tax professional now, before their busy season begins in the new year and they are overwhelmed.
“They work long hours and are focused on processing tax returns in the spring, and that’s not a good time for them to deep dive into your situation or give you strategic guidance,” says Angela Moore, CFP and founder of Modern Money Education, which offers online personal finance courses for women.
3. Reflect on 2021
“It’s a good time to reflect: Did we do what we said we were going to do?” says Christine Centeno, CFP and founder of Simplicity Wealth Management. She recommends looking back at your savings and spending over the past six to 12 months so you can make any necessary adjustments.
Open enrollment, when employees can make selections related to health insurance and other workplace benefits like life insurance, also tends to take place before the end of the year. Centeno suggests carefully combing through your options before making a final choice and considering any needed supplemental insurance, such as disability or life insurance. Also, make sure listed beneficiaries are up to date. “People feel more urgency about getting things in order” because of the pandemic, she says.
4. Top off retirement contributions
“See if you can increase your retirement contributions and maximize them before the year end,” Moore says. You can continue to contribute up to $19,500 to your 401(k) through Dec. 31; if you are 50 or older, you can contribute an additional $6,500 for the year. Roth IRA or IRA contributions can continue until the April 15 tax deadline.
If you’re in the fortunate position of already having maxed out your retirement contributions for the year, then you will notice your paycheck is bigger because those deductions are no longer taken out. Ethridge suggests looking into supplemental savings options such as putting money into after-tax savings accounts or college savings for children. Holiday spending also hits at the end of the year, so setting money aside for that is another good idea.
5. Get ready for 2022
Lazetta Rainey Braxton, CFP and co-CEO of 2050 Wealth Partners, says some people are also thinking about job changes right now.
“For a lot of people, they don’t want to return to in-person workplaces, so they are looking at new jobs,” she says. If that’s the case, then you might need to set aside extra cash for a job transition, especially if it could mean a lower salary, she says.
Other big 2022 goals might include finally taking a vacation that was deferred earlier in the pandemic or renovating part of your house that you’ve been spending so much time in. “The sooner people say what they want and put it on the table, you can set that money aside so you’re ready,” Braxton says.
Part of that planning also means preparing for continued economic turbulence, warns Frank Pare, CFP and president and managing partner of PF Wealth Management Group.
“If something happens, like the market tanks tomorrow, money should be set aside for your near-term goals so that uncertainty wouldn’t impact you,” he says. That way, he says, you can still continue with your plans, whether it’s to finally retire or take a pandemic-delayed trip.
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7 red flags that jeopardize your credit
Foreclosures and bankruptcies
These are the two worst items you can have on your credit history — and both will give future lenders pause, says Griffin.
But seeing these items on your history “doesn’t mean they won’t make that loan,” says Creighton. “But they may price it differently.”
Foreclosures stay on your credit report for seven years. Chapter 7 bankruptcies — total liquidation — remain on your credit report for 10. Chapter 13 bankruptcies — where consumers reorganize to repay some or all of their debts—stay in your credit history for seven years.
The further in the past that a foreclosure or bankruptcy occurred — and the more the consumer has recovered financially — the less impact it will have on their credit, says Griffin.
High balances and maxed-out cards
“A high balance, as compared to the credit limit on your cards, is the second most important factor on your credit score,” says Griffin.
How much of your credit you’re using makes up about 30% of your score.
“Ideally, you would pay off your card in full every month and keep your utilization as low as possible. What we see is the people with the best score have a utilization ratio (the balance divided by the credit limit), of 10% or less,” he says. That goes for individual cards and the consumer’s collective total of credit lines and card balances.
One credit score rule-of-thumb used to be to keep the utilization ratio below 30%. “But 30% is the max, not a goal,” warns Griffin. “That’s the cliff. If you go beyond that, scores will drop precipitously.”
Someone else’s debt
When you co-sign a credit card or a loan, the entire debt goes on your credit report. So, as far as lenders are concerned, you’re carrying that debt yourself, and it will be included in your debt load when you apply for a mortgage, credit card or any other form of credit, says John Ulzheimer, a former credit industry executive and president of The Ulzheimer Group.
If the person you co-signed for stops paying, misses payments or pays late, that likely will be reflected on your credit report.
Co-signing means agreeing to repay the obligation if the borrower defaults and allowing that debt, and any late or nonpayments, to count against you the next time you apply for a loan.
A history of minimum payments
Lenders don’t like to see only minimum payments on your credit report.
“It suggests you may be under financial stress,” says Nessa Feddis, senior vice president of the American Bankers Association. “You may be at higher risk of defaulting.”
Occasionally paying the minimum doesn’t signal a problem. For instance, paying minimums in January, after holiday spending, is understandable. But consistently paying minimums month after month indicates you might be having trouble paying off the balance.
Cash advances on a credit card
“Cash advances, in many cases, indicate desperation,” Ulzheimer says. “You’re generally borrowing from Peter to pay Paul.”
The cash advance is immediately added to your debt balance, which lowers your available credit and your credit score for all potential lenders to see.
Secondly, larger card issuers regularly re-evaluate their customers’ behavior by pulling credit reports, FICO scores and customer account histories and running those through their own credit-scoring systems, Ulzheimer says. Many of the scoring models penalize for cash advances because they are considered risky, he says.
If the card issuer reduces your credit limit or cancels your account, that can damage your credit score — and make other lenders wary.
A flurry of loan applications
This one won’t so much scare lenders as cause them to take a second look at what’s going on in your financial life, says Griffin.
For someone who’s making minimum payments or late payments, and transferring balances, a burst of applications can be a sign of financial stress.
Hard inquiries for new credit stay on your credit report for two years and affect your credit score for a year. In the FICO scoring model, new credit counts for 10% of the score.
“They are the least important factor in credit scores, and the last thing that creditors are going to look at,” says Griffin.
Some types of credit applications — for mortgages, car loans or student loans — are grouped together and counted as one inquiry by credit scoring formulas. When it comes to those large purchases, lenders know you’ll want to shop around — and that’s smart.
While newer scoring formulas group similar loan inquiries together if they’re made within 45 days, older versions have only a 14-day window.
But you have no way of knowing which version potential lenders are using. To be safe, keep all inquiries within 14 days.
Late or missed payments
This one cuts to the heart of what lenders really want to know: “Are you going to pay your bills?” says Francis Creighton, president and CEO of the Credit Data Industry Association, the member organization for credit bureaus.
Anything other than timely, minimum payments are seen by creditors and lenders as missed payments.
“What matters is that you’re making the payment by the due date,” says Rod Griffin, senior director of consumer education for Experian, one of the three major credit bureaus. “If you only make a partial payment—as related to minimum payment due—that’s a bad sign. A partial payment is a late payment.”
When it comes to your credit score, making timely payments is the most important factor. It counts for 35% of your credit score.