6 Key Steps to Financial Planning in 2022
It’s a new year, and with it comes a flurry of resolutions. You may want to lose weight, exercise more, or spend less. Although 50 percent of people report that saving money is one of their new year’s resolutions, according to US News & World Report, 80 percent of resolutions fail by the second week of February. Here are six ways to stay on track with financial planning and meet your savings goals in the new year.
Set Goals
While setting yearly resolutions is often not sustainable, you can transform those resolutions into realistic and attainable financial goals. Think big and small, short-term and long-term. Make sure you include savings in the essential category. The savings part is crucial—it can help you accomplish short-term and long-term goals, as well as prepare you for any unexpected expenses that may arise. Set realistic goals, stay on track, and make sure to include college savings as part of any plan. Long-term goals, like saving for higher education by investing in a 529 college savings plan with The Education Plan®, are key to managing your money wisely.
Create a Budget
This is an obvious first step, but one that many abandon after a few months or overlook entirely. Begin by tracking your spending for a month or two. This will probably be enlightening, as you see how much money you spend on non-essential goods and services. How to organize the budget is up to you – via a spreadsheet, an app, or simple pencil and paper. All that matters is that you actually do it and in a way that makes sense to you.
List all your income and expenses: be honest and specific. Analyze to see where you can cut back. Consider using the 50/30/20 rule: spend 50% on necessities (rent/mortgage, food, car), 20% on savings, and 30% for everything else. Above all, make a thoughtful and realistic budget that you can stick to.
Plan Ahead
Emergencies, retirement and higher education: these are the three most important categories for saving according to financial planning experts.
One simple way to save in these areas is to use auto-withdrawal from your paycheck. Just fill out a few forms at work or with your bank and allocate a certain amount to be deducted in each area on a monthly basis. Keep them in separate accounts so you’re not tempted to use the money for everyday expenses.
The best savings plans offer significant tax advantages, like a 529 college savings plan: contributions are not taxable, meaning there is no withdrawal fee for legitimate college expenses. Contributions are also compounded, meaning that your assets’ earnings are re-invested so the amount of money in the plan increases over time. If you’re a New Mexico resident, contributions to an account with The Education Plan are also 100% deductible from your state income taxes.
Also consider utilizing your employer’s 401(k) savings plan, if they have one, particularly if they match all or part of your contributions. It sets aside part of your paycheck before taxes are deducted, which means your gross income is reduced and, therefore, so are your federal and state income taxes.
Pay Off Debt
To reach financial freedom, you must pay off or at least reduce your debt. Credit card debt is particularly burdensome, given interest rates of more than 20% for most. As with your savings, use auto-debit to remove a certain amount each month to cover at least the minimum amount; if you can add a bit more, do so. If you are consistent with your payments and do not accrue more debt, you will see that debt shrink over time. You may also transfer your debt to a card with a lower rate, but be aware that after a certain amount of time – usually one year – those high rates may return.
Be Smart, Buy Smart
Be vigilant about both large and small expenses. Do comparison shopping ahead of large purchases. Search for lower car and homeowner’s insurance and refinance your car or mortgage when interest rates are low. On a smaller scale, analyze your shopping habits. Use coupons, discounts, and deals for items like food, entertainment, and trips. Make a list when you go to the grocery store, so you are not tempted to engage in impulse buying. You can even save on clothing by shopping at thrift stores or consignment shops.
Re-evaluate
Keep an eye on your budget. Adjust your spending and saving goals as your life changes. A marriage, buying a house, having a child – these are all good reasons to take a new look at your budget. If you get a new job with a higher salary, it’s time to up the savings. When children enter your life, make sure you open a tax-advantaged 529 college savings plan, which will help them to get what they need to pay for college with a lower debt burden. Start saving early, as soon as they are born; they grow up quickly, and suddenly it’s time to think about careers and universities.
Budgeting, saving, and making those hard financial decisions can be daunting, even confusing. But, today, help is easy to find. Many financial planning professionals have online profiles and services; and, there are apps for those who are tech-savvy. Yes, there is much involved in managing your money wisely, but making careful and prudent choices is a necessity for achieving your ultimate savings goals.
Ready to start saving for college in 2022? You can set up an account with The Education Plan in just 15 minutes. Get started here.
Frequently Asked Questions
A 529 plan is a tax-advantaged investment account that is designed to grow savings for future education expenses for a specified beneficiary. 529 plans offer unique benefits and features that make them an appealing strategy for education related saving.
A 529 plan can be used for “qualified educational expenses.” For federal tax purposes, qualified educational expenses include:
- Tuition and fees at accredited higher education institutions
- Books
- Supplies and equipment
- Room and board for beneficiaries attending on at least a half-time basis.
- Computer technology, equipment, and internet access
- Up to $10,000 a year for K-12 tuition and expenses (Limit increase to $20,000 in 2026)
- Expenses for educational special needs services
- Transfers to an ABLE account for the beneficiary (transfer subject to annual limit)
- Apprenticeship expenses
- Up to $10,000 for student loan repayment
- Credentialing expenses and certification programs
- Roth IRA rollover for the beneficiary
If you're not sure if an expense is considered "qualified," we recommend consulting with a tax professional or advisor. Unqualified expenses will be treated like ordinary income: state and federal taxes will apply, with a 10% federal penalty for withdrawals from your 529 plan used to pay for them.
New Mexico residents can deduct contributions to The Education Plan from their state taxable income each year. This includes contributions made to an account that you are not the account owner of.
You cannot deduct contributions from federal income taxes.
Any person at least 18 years old with a valid Social Security Number (SSN) or Tax Identification Number (TIN) can open a 529 account. The account holder chooses the investment options, designates a beneficiary, and requests the distribution of funds.
The cost of college continues to rise, including tuition, housing, food and supplies, so it’s important to begin saving as soon as possible. You can learn more about how much a typical college education costs on our Cost of College page. It’s never too early or too late to start.
The Education Plan offers a variety of investment options to fit you and your family’s needs, risk tolerance and goals. You can see all of the available investment portfolios on the investments page.
Yes, you can use up to $20,000* a year to cover tuition and expenses for K-12 education.
Qualified K-12 expenses include:
- Tuition (public, private, and religious)
- Curriculum materials, books (including digital/online) and instructional materials
- Tutoring and instructional classes**
- Fees for a nationally standardized norm-referenced achievement test, an advanced placement examination, or any examinations related to college or university admission
- Dual enrollment program fees
Educational therapies for students with disabilities provided by a licensed or accredited practitioner or provider, including occupational, behavioral, physical, and speech-language therapies
*Starting in tax year 2026. The annual limit is $10,000 in tax year 2025 and permitted for tuition only.
**Tuition for tutoring or educational classes outside of the home, including at a tutoring facility, but only if the tutor or instructor is not related to the student and—
(i) is licensed as a teacher in any State,
(ii) has taught at an eligible educational institution,
or (iii) is a subject matter expert in the relevant subject.
You can open an account with The Education Plan online or by mailing in the enrollment form. In order to open an account, you will need the following information:
- Your social security number or TIN
- Your address
- Your bank account information (in order to fund the account)
- The beneficiary’s social security number or TIN
- The beneficiary’s birthday
-The beneficiary’s address
