Most of us are ready for 2022! 

Over the last two years, the pandemic has revealed our financial strengths and weaknesses. Now that you know your real position, this is the year to shore up your financial household.

If you're looking to protect your retirement and build wealth, it's time to set and exceed next year's investment goals. 

Set Challenging Investment Goals

Most people's investment goals fall into one of three buckets — saving, retirement, or college education. Let's look at each one in turn.

How to Set Savings Goals.

Set a reasonable goal. In general, you should have enough money in savings to cover 3-6 months worth of living expenses. If you're paying off debt, aim for three months. Does your employment feel tenuous or your expenses high? Save six months of your income.

How to Set Retirement Goals that Work.

Start by determining how much you'll need to live on once you retire. If you've paid off your mortgage, that may be about 70% of your current income. If you plan on achieving a major retirement goal such as earning a Ph.D. or volunteering for a mission, you may need 100% of your current salary. 

Assume you will withdraw 4-6% of your savings each year you are retired. If you save $1 million, you can withdraw about $40,000. If your budget exceeds that amount, you may need to alter your retirement investment behavior.

How to Plan for Your Kids' College.

Once you are putting at least 15% of your income into retirement, you're ready to save for your kids' or grandchildren's college. If you're just getting started, 2022 may be the year to open a 529 Plan, an Education Savings Account, or an education IRA.

Avoid Extremes 

Human beings by nature are overconfident. We set ambitious goals in the hope that a miracle will occur or we'll at least get close to our goal. But unattainable goals give us false hope and can derail our commitment to setting smart financial goals.

Allowing yourself to set extreme goals permits you to justify nearly any behavior. However, a clear-eyed view of reality will help you manage your finances more effectively than any extreme goal. 

When planning your 2022 investment goals, stick with the facts.

Prepare for Emergencies

You can't stop emergencies from happening, but you can soften their blow. 

First, make sure you keep a fully funded emergency account. You need 3-6 months of income stashed away to help cover unexpected expenses.

Second, obtain adequate insurance coverage. If you are supporting dependents, purchase life insurance to help cover the cost of raising and educating them. Also be sure you keep adequate health insurance. You can probably self-insure against the loss of your TV or computer. You cannot self-insure your way around cancer treatments. Buy enough insurance to cover major incidents.

Finally, create a backup budget, a pared-down version of your regular budget. In the event of a job loss or other financial hit, the backup budget becomes your new budget.  

Follow Your Budget

Your investment goals should stay in proportion to your income and expenses. 

For example, a good goal is to invest 15% of your income in a retirement account. If you set a goal much higher or lower than this, you may do yourself financial harm.

Don't try to invest more than what's in your spending plan. Sticking to a solid plan over time grows more wealth than spiking your investments. 

That said…

Update Your Budget

You should update your budget regularly. If it's been a while since you refreshed your spending plan, the start of a new year is the perfect time to rectify that.

Assess your income and expenses against your plan. Make adjustments as needed. Then, identify your weak spots — those categories where you're likely to overspend — and plug up the holes. 

Most importantly, see if you need to bump your investment dollars this year.

Track Your Investments' Growth

How are your investments performing? 

Do you know if your mutual funds and other stocks are keeping up with (or even beating) the market? 

You can track your investments' growth by accessing your online client portal. Then use a spreadsheet or a software such as QuickBooks to track performance over time.  

If an investment is underperforming, it might be time to talk to an investment advisor about making changes in your portfolio.

Don't Try to Time the Market

Timing the market means buying low and selling high. 

What's wrong with that? Nothing, of course. It's what investors hope to do every day.

But few people do it well. Most market timers lose their shirts in fact. 

Cheap assets are rarely "a steal" unless it's your money that's getting stolen. Most of them are worthless. Over the long term, valuable assets sell for high prices. Bargain stocks rarely produce results.

Don't Rely on Trading Apps

Apps are fun! They're also addictive, and they'll suck you in quickly. 

Investment apps give your brain little hits of dopamine — the feel-good hormone — every time you win on an investment. Soon, you're investing for the emotional hits, not for long-term results.

Get rich the way most millionaires did it — on a budget, with a wealth management professional, putting money where it will grow every single month. 

Is it boring? Maybe. 

Does it work? Absolutely!

Don't Succumb to Crypto Fever

Everyone loves crypto. Should you invest?

If your kids are college bound and debt free, your retirement account is loaded, and you're being generous with your money — then, maybe you want to buy crypto and see where it goes.

Still building your wealth? We recommend you stick to mutual funds, real estate, and other proven wealth-building assets.

Make an Appointment With Your Wealth Manager

No one becomes wealthy alone. You need a team of people on your side to help you make prudent financial plans in 2022. 

Contact your Irvine wealth management professional today, or give us a call at Cooke Wealth Management. Our advisors would love to help you set and achieve your financial goals.