Making 2022 a better year

A wealth mindset, where you invest today for a better tomorrow, is key for ongoing financial success, writes Hannah McQueen.

We were all hoping that 2021 would hold better things than its Covidblighted predecessor . . . and we also all know how that turned out.

So, if you’ve reached the end of the year feeling knackered but without necessarily much progress to show for it, the odds are high you’re not alone. Whether you’ve been hit hard by lockdowns or have benefited from them, uncertainty tends to make decision-making (and life in general!) more difficult.

While we’re all wise enough now not to expect next year to be a Covid-free paradise, it’s time to shake off the malaise – because you will have to pay more attention to your finances to do anything more than stand still next year.

Why? Well, let’s start with high inflation. It’s currently running at 4.9 per cent, which means any return under 5 per cent is effectively negative in real terms because after tax it’s not outpacing inflation.

Then there’s rising interest rates, regulatory changes, and potentially a lockdown hangover to consider – whether for you that’s depleted emergency coffers or plans to do some catch-up spending.

So, what should you do to do better financially next year?

Start with what you’ve got

Review where you currently have your money invested – including your KiwiSaver, managed funds, index funds or direct shares you hold, investment properties or other assets. How are they performing, what are the fees – and are your settings still appropriate for a high-inflation environment? If you own investment property, you need to quantify the impact of this year’s changes to tax rules.

Then, before you hare off in search of higher returns, you need to assess whether you have the stomach for the higher risk that accompanies them.

Will you be sleeping like a baby or fretting through the night if there is a market correction? Does your situation have the capacity to absorb more risk, what would the implications be if your investment fell 5 per cent, 10 per cent, or more? And you need to be clear on when you’re going to need that money – your investment time horizon – because that also feeds into choosing the appropriate investment strategy. Ignore those things and inflation could end up being the least of your concerns.

Don’t panic about interest rates

Yes, interest rates are rising – but given they’re rising from the lowest levels we’ve ever seen, it shouldn’t be cause for alarm. For anyone who has bought in the past 10 years, however, it may be a bit of a shock to the system.

You need to consider whether you want to prioritise getting the lowest rate you can by fixing short or fixing for a longer period and accepting a higher rate in exchange for certainty. But remember, the pace matters more than the rate.

You want to be chipping away at that debt at a faster pace than the standard 25 or 30-year term. Rates are still low by historic standards, so if that’s not possible because things are already tight, we have other problems to fix – and need to fix them quickly before your current fixed rate expires.

Optimise to maximise

People hungry for a great investment return often overlook the risk-free gains to be made by optimising their own situation. Or they focus too much on maximising their income, overlooking the fact that if you still don’t have anything left over at the end of the month, you’re still poor.

We have a blind spot when it comes to the impact of our own behaviours but they matter. Focusing on finding the fritter or the slippage – which is often on things that don’t make us any happier – presents a huge opportunity to then put that money to work.

Implement systems to save you when willpower fails

Daily life taxes our willpower – and sometimes depletes it completely – which is when even the best financial plan comes unstuck. That’s why creating the systems to make it easy or automatic to stick to is essential.

It could be setting up a separate food account, so you know when you’re overspending; using a meal kit service to avoid buying so many takeaways; establishing direct debits so you always get the prompt payment discount; or even downloading a parking app so you never get stung by parking tickets.

Get your mindset right

Getting ahead often starts with working on your head. A wealth mindset, where you invest today for a better tomorrow, is key for ongoing financial success – and in my experience, little changes your mindset faster than seeing results. That requires being able to identify what the goal is, what the milestones are, measuring your progress towards them, and then celebrating those wins. There’s a reason they say that what gets measured gets done.

Hannah McQueen is a financial adviser, chartered accountant, personal finance author and the founder of enable.me – financial strategy and coaching.