After two years of the pandemic, we are seeing the short- and long-term effects it’s had on the economy. Based on how 2021 went, the year ahead will have its own set of challenges. Here are some potential obstacles to watch in 2022, and how to navigate them:
2022 Finances and Inflation
Inflation made headlines in 2021, and it will continue in 2022. Prices rose seven percent in December of 2021, which is the fastest increase we’ve seen in 40 years.
Much of that rise is attributed to the pandemic. Because so many supply chains were disrupted in 2020, demand has gone up in several industries. But prices have now gone up all over the place, which signals to the Federal Reserve that the inflation may be getting out of hand.
The Fed is looking at three potential interest rate increases this year to curb inflation.
What you should do: Keep a close eye on your spending. Spending a bit more on nearly everything can take a toll on your budget. Also, make sure you have a healthy emergency fund to buffer additional financial stress that might come up.
Unless completely necessary, you might want to avoid making big purchases. Prices are higher than usual on items like cars and appliances, and shipping delays are still going on.
Finally, check your portfolio to make sure that it’s balanced, but avoid knee-jerk reactions to market fluctuations.
We’ve seen sky-high housing competition in most areas around the country since the pandemic started. Low inventory paired with increased demand drove prices up fast.
We are seeing the competition cool off now, which means prices may come down in 2022. Inventory will creep back up thanks to new home construction (which had been stalled when the pandemic hit,) and homeowners having to sell due to financial strain.
We still have inflation to contend with, which will still create higher than usual prices.
What you should do: If buying a new house is more of a want than a need right now, you might think about holding off until prices even out a bit. Not only will you potentially get a better price, but you will likely have more housing options in the next year or two.
If you’re just looking to sell, then you may be well-poised to get the asking price or above. Just keep in mind that if you’re staying in the same area, then prices will be high on buying the next house, too.
2022 Finances and the Markets
The overall outlook for the 2022 financial markets is that it will look a lot like 2021, but slowed down. We saw plenty of records broken and market rallies in 2021, thanks in part to life returning to normal(ish). In 2022, there is still a lot of money to go around, and spending continues to be at a high.
But as inflation goes up, people may have to reign in their spending, which could impact the markets.
What you should do: As always, it’s tough to predict what the markets will do. There is potential for more volatility this year. Making sure you have a balanced, well-allocated portfolio will prepare you for market changes. Just make sure you avoid impulse decisions that could harm your returns in the long run.
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes you too should have access to financial resources and fee-only financial planning. For more information on the services offered, contact Katie today.