How to get financially ready for 2022

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2021 was a memorable year financially. Maybe this was the year you decided to quit your job and change your career – like many people in the phenomenon known as the “Great resignation” –, or maybe you discovered Vivid and invested for the first time. 

Clearly, something has changed for good in the financial markets: investing is now accessible to anyone, and retail investors have gained an unprecedented relevance. 

Another change: never before has inflation risen so much while interest rates have remained low, nor have stocks in major global indices been worth so much, nor have crypto gained so much value and prestige – who could have said a year ago that Bitcoin would be the official currency in a country, and that there would be ETFs tracking its performance on the NYSE? 

If you felt like you were late to this party, made mistakes or missed opportunities, and want to be prepared for what's coming in 2022, this blog post is for you.

Keep your savings safe

We were all eager to get out. So, once it was possible to move outdoors, we decided to spend what we hadn't been able to spend before: revenge spending!

We realized that post-pandemic prices are significantly higher: from bars and nightlife (the businesses that suffered the most during the lockdowns) to energy (oil and gas), electronics, cars, and so on and so forth. 

Last year's rise in inflation was historic – in November annual inflation was 4.9% in the Eurozone and 6.8% in the US– and all signs suggest that prices will continue to rise. 

For how long? We can't tell for sure, but probably until central banks raise interest rates. The US Federal Reserve said it would not raise rates until 2024, but then changed to 2023, and finally, have decided it will rise three times over the course of 2022, starting in late winter/early spring. In Europe, ECB’s head Christine Lagarde said they are unlikely to raise them in 2022 and will wait until 2024, but this decision may change and be brought forward to the end of 2022, to match the third increase in the US.

And then? As investors will find it more profitable to buy bonds than stocks, indices like the S&P 500 are likely to fall. As it becomes more expensive to borrow money, companies tend to make fewer investments. With less money available in the economy, demand falls, and with it prices. 

Our advice: first, cut excessive spending. Then - I know it sounds contradictory - prepare for a rise in inflation in the short term, and a fall in interest rates in the medium term. So don't put off necessary purchases that require a large outlay of money any longer, because things will be more expensive, but also don't wait if you need to borrow money.

Plan your spending

The last two years have deeply changed our spending habits. Now that we know how intermittent lockdown measures will affect our spending, we can predict which months we are spending more or less and organise our budget accordingly. 

There are typically a couple of peaks in spending during the year, often in the summer and at Christmas. During the colder seasons, late autumn, winter and early spring, when Covid is more easily transmitted, more restrictive measures are usually implemented, such as the closure of shops, bars and restaurants. Throughout these months, expenses are reduced.

What we propose for 2022 is that you save in the quieter periods, taking into account your spending spikes. This way, you can enjoy your holiday spending with peace of mind and without giving up your long-term financial goals. 

If you're not good at planning, you can start by tracking how much you spend each month by recording your purchases in a financial diary. Even easier, Vivid includes spending analytics that make it easy to visualise your shopping habits.

Get ready for tax season

Did you sell your investments and make some money out of them?

No wonder. This has been a very good year in terms of corporate earnings, and thanks to this many companies have managed to have a very good performance in the stock market. Cryptocurrencies have also reached peaks that we have not seen before. Hopefully, your portfolio has benefited from these rallies.

Friendly reminder: in most countries, you must include the returns you got with your investments in your tax declaration as capital gains. The percentages, minimum amounts and other details vary from country to country and even from year to year, so check it out with your local tax office. 

Your broker is often required to withhold some of your profits in taxes. Check to see if that’s the case with yours. 

In any case, by setting aside a part of the profits of your investments right after selling them, you can spare yourself the inconvenience of having to make a payment you did not count on.  

Large multinational corporations also have to start preparing budget items to pay taxes. The new global minimum corporate tax rate will be at least 15% from 2023. Will this significantly change the financial results of Amazon, Apple or Alphabet?

We can't wait to see what the new year has in store for us!

Photo by Djordje Vezilic from Pexels

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