3 Simple 2023 Financial Strategies to Think About When 2022 Ends
As 2022 draws to a close, it’s a good time to think about some financial strategies for 2023.
Any way you look at it, this year has been a tough one to manage money, and we’re all feeling it. The markets are down double digits, and everything from gas to groceries costs more. Uncertainty is everywhere, from central bankers to Wall Street traders.
All that noise can make us second guess and question our financial decisions, and it introduces additional layers of complexity that make managing our finances more challenging than in years past. So, as the new year quickly approaches, what are some ways you can try to set yourself up for financial success in 2023?
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To get started, wait inflationgrowing in the short term Interest rates and market volatility to hold up next year. If things change, take it as a happy development. But plan for business as usual to be prepared.
The question then is what to do, and my advice is to keep things simple. Forget the noise and get back to basics. Take some time-tested principles and stick with them.
Here are some simple rules of the road to consider:
1. Tackle inflation by reviewing your budget.
There are many open questions about the impact that inflation will have on the economy and markets. Rather than speculate in those areas, there’s an easier way to respond to higher prices: adjust your spending.
Okay, there are some costs that are out of your control: essential groceries, transportation costs, urgent home repairs. Identify them and look for compensation in other parts of your life. Use inflation as an opportunity to re-prioritize your purchasing decisions.
A good example: the vacation expenses season right now. This is one of the biggest spending periods of the year. This time, you may find a gap between what you have budgeted for in the past and current actual costs.
Instead of giving in to spending more, seize the moment to rethink who, what, why, and how you celebrate this year. Quality time with friends and family can be a great gift to give. Instead of a big gift exchange, perhaps host a dinner party and agree to make a small donation to charity.
2. Cope with rising interest rates by reviewing your debt.
Interest rates have risen rapidly over the past year and there are signs they will continue to rise in 2023. That makes the cost of borrowing more expensive, covering everything from mortgages to car loans to credit cards.
As a result, personal debt management has higher stakes. It’s a time to focus on paying down debt if you can and try to avoid unnecessary new sources of debt, like credit cards that come with higher interest rates. Instead, look for opportunities to consolidate your credit card debt and transfer existing balances to cards that offer lower rates.
Go through your entire debt portfolio and see if you have any variable rate loans. Factor that into your budget and consider if there are ways to lock in rates before they go higher.
Lastly, beware of “buy now, pay later” offers. At the moment, it might seem like a way to avoid getting deeper into credit card debt, but it’s really just debt in a different form. Perhaps the best option is to delay making major purchases that are not critical or necessary at this time.
3. Cope with market volatility by staying calm and not panicking.
Investing for most people is a long-term exercise. But it can be hard not to get distracted by the daily swings in the markets, especially when the numbers are trending lower.
On the one hand, we know that the cardinal rule of investing is to avoid buying high and selling low. On the other hand, it is human to want to stop losses when markets are falling.
Rather than trying to anticipate the next switchback, it may be better to view it as an emotional exercise. The goal is to stay calm and not panic, and to remember that history has generally favored investors who don’t sell when markets drop significantly.
Avoid impulsive decisions, remember it’s a marathon, not a sprint, and stick to your long-term plan.
We’re only a couple weeks away from the end of the year, and it’s always around this time that I get asked about resolutions. I have nothing against making a list of things you want to improve next year with your finances, but if I had any advice, it would be to avoid excesses. Keep your lists simple and small and stick to them; you will have a better chance of success.
Here are three ideas for 2023: cut back on your spending a bit, manage your debt carefully, and stay calm.
The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, please consult a qualified tax advisor, CPA, financial planner or investment manager. (1122-26AX)