While inflation is cooling, projections still point to higher consumer prices next year. In addition, the threat of a recession remains high, unemployment may rise and investors are still reeling from stock and bond indices that have fallen by double digits this year. So experts say a strategic approach with your hard-earned dollar is key. Here are the 10 things money professionals say you must do in 2023.
1. Make sure you earn at least 3% in your savings account
One of the benefits of the current high interest rate environment we find ourselves in today is the relatively high annual rate of return, or APY, available in checking and savings accounts. “Make sure your savings account yields more than 3%. If not, find an alternative,” says Noah Schwab, certified financial planner at Stewardship Concepts in Spokane, Washington, who adds that making your money work as hard for you as you work to save, should have the highest priority. If you can’t decide where to find a high rate, here are five bank accounts that offer APY over 4%. View the highest savings interest you can get here.
2. Build an emergency fund
An “emergency fund can protect you from unexpected expenses and reduce stress,” explains Tommy Gallagher, founder of Top Mobile Banks – something you’ll especially want as we head into a recession next year.
Given your lifestyle, monthly expenses, income, and dependents, companies such as Vanguard, Chase, and Wells Fargo estimate that anywhere from three to six months of expenses are needed in a liquid emergency fund.
David Edmisten, a certified financial planner and founder of Next Phase Financial Planning in Prescott, Arizona, adds that those funds should also earn interest. “Consumers looking at cash savings, emergency funds, and conservative short-term investments options may be able to reap a significant increase in the amount of interest they earn by turning to one of these options instead of using their regular bank checks or savings. accounts,” said Edmistena. View the highest savings interest you can get here.
3. Pension contribution limits are going up, so maximize contributions
Indeed, retirement contribution limits will go up in 2023. For employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, the limit will increase from $20,500 to $22,500 in 2022, with catch-up contribution limits rising to $7,500, according to the IRS. Also next year, the IRA and Roth IRA contribution limits will increase to $6,500, while the annual cost-of-living adjustment will remain at $1,000.
Dennis DeKok, a certified financial planner at FCM Financial in Grand Rapids, Michigan says, “maximizing every 401(k) match from your employer is like free money, so that should be the number one priority.” He added that “Roth IRA and HSA contributions should be next in line because of the tax benefits,” and to “focus on maximizing these contributions before making any more 401(k) or other investment contributions.” .”
Vanessa N. Martinez, founder and CEO of Em-Powered Network, says anyone who qualifies should consider “maximizing your retirement contributions and looking for other ways to invest” in 2023. “This means that you should adjust your monthly contributions to ensure you contribute in full.”
4. Reassess your investment goals and rebalance if necessary
Too much in stock? Maybe not enough in fixed income or real estate? Halbert Hargrove Senior Wealth Advisor, Taylor Sutherland, says the beginning of the year is usually a good time to reassess your investment goals and consider rebalancing your portfolio. “Given the material declines in both stocks and bonds, maybe you’re not crazy,” Sutherland said. “You prefer to do this every year, which would mean winding down a presumably overweight equity portfolio in early 2022.”
If you feel it’s a bit complicated to do this on your own, consider working with a financial advisor to more strategically build your investment portfolio. (Looking for a new financial advisor? This tool can help you find an advisor who might meet your needs.) Robo-advisors also advocate asset allocation strategies that fit your risk tolerance levels. If you plan to go it alone, target date funds, often offered in employer-sponsored retirement plans, can do the allocation work for you and adjust over time depending on your age and target year.
5. Stick to your long-term goals
The S&P 500 has posted year-to-date losses year-to-date as of December 14 of more than 14% as measured by SPDR S&P 500 ETF Trust, also known as SPY, according to Morningstar data. However, over the past decade, SPY has achieved returns of over 13%. And while some investors experienced “significant short-term pain” than expected, as described by JP Morgan’s 2023 Long-Term Capital Market Assumptions report, “the underlying patterns of economic growth look stable.”
Pros say it’s important to think long term. Caleb Pepperday, a certified financial planner at JFS Wealth Advisors in Pittsburgh, agrees that no matter how much pressure investors feel to make up lost ground in 2022 — and there is quite a bit to gain — a steady focus on the future and long -term investment strategy is critical. “One of the biggest benefits of investing is compound interest, but you need time on your side,” Pepperday said. “We live in an instant gratification society, and investing in your 401(k) or IRAs certainly isn’t initially, as the effects of compound interest grow exponentially over time.”
6. Look for opportunities to buy stocks and bonds cheaply
Given the potential for a prolonged market downturn in 2023, Zachary Bachner, a certified financial planner at Summit Financial in Sterling Heights, Michigan, says less risky investments are one area where short-term protection can be found.
“Market volatility often creates discounts and cheaper buying opportunities for stocks and other investments,” Bachner said, adding that “the increase in interest rates has made guaranteed fixed-income investments more attractive and may suit investors uncomfortable with recent market volatility .”
With a maximum contribution limit of $10,000 this year, I-bonds are an attractive option for investors today with a combined annual rate of 6.89% for bonds issued from November 1 to April 30, 2023.
7. Watch your expenses
While inflation has started to ease in recent months, prices across the board are still significantly higher in 2023 than around this time last year. Food prices are 10.6% higher than 12 months earlier, according to BLS data, while gasoline is 10.1% higher and heating oil costs are more than 65% higher than in 2022.
Andrew Gonzales, co-founder and president of BusinessLoans.com, says consumers should take active steps to “spend more consciously” and “form a safety blanket” when making lifestyle or financial decisions. “This gives you a solid financial footing in the event of unexpected events,” Gonzales said. “While no one wants to put their life on hold, hedging against risk is crucial during such uncertainty. Making wise money moves and investing where possible is a great way to move forward so you can be proactive in better times.
8. Take stock of your monthly subscriptions
Ever feel like your monthly subscriptions are getting out of hand? Well, you’re not alone. When it came to monthly expenses for cell phones, the Internet, movie streaming apps and more, Americans will spend $213 dollars each month in 2022, according to a report from C+R Research. That’s $133 dollars higher than the average consumer expected to spend per month this year.
Needless to say, Andrew Gold, a financial advisor at Prestige Wealth Management in Southlake, Texas, said the solution here is simple: “We get so caught up in the month-to-month, we forget how many automatic payments there are.” he said, adding that reviewing statements should be “standard practice” for everyone. After reviewing monthly costs with one client, Gold said they were able to cut back on “more than 25 that she forgot to automatically come out of and saved her nearly $500 a month.”
9. Consider making an appointment with a financial advisor if you think you need additional financial help
Because many of these strategies require professional help, Bachner says working with a financial advisor should be a top priority. “Meeting with your personal advisor can often bring peace of mind during stressful periods, and they can reassure you whether or not recent market movements have had a negative impact on your overall financial plan.” Of course, not everyone needs an advisor, and if you’re confident in your money skills, going it alone can save you money. (Looking for a new financial advisor? This tool can help you find an advisor who might meet your needs.)
10. Update your resume
After a year of fiscal tightening by the Fed, one of the key areas economists are watching closely is the unemployment rate — a number that Fed Chairman Jerome Powell says needs to rise at least modestly for inflation to eventually reach the 2% target. to be reached. And with Bloomberg economists predicting unemployment to hit 4.6% by the end of next year and the New York Fed’s John Williams recently estimated it would rise to more than 5% from the current rate of 3.7 %, it might not be the worst idea to have a backup plan.
“The contraction in the labor market has just started and layoffs have been announced for 2023, but no action has been taken yet,” said Gold. “It’s never a bad idea to update your resume and consider some future changes in a booming job market.”
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