As 2022 draws to a close, it’s a great time to think about some financial strategies for 2023.
Any way you cut it, this year has been tough on money management, and we’re all feeling it. Markets are in 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, with the new year fast approaching, what ways can you try to set yourself up for financial success in 2023?
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For starters, expect inflation, rising short-term interest rates and market volatility to persist next year. If things change, take it as a happy development. But plan to keep things the same so you’re prepared.
The question is what to do, and my advice is to keep things simple. Turn off the noise and get back to basics. Adopt some proven principles and stick to them.
Here are some simple rules of the road to consider:
1. Meet inflation head-on by revisiting your budget.
There are many open questions about the impact inflation will have on the economy and markets. Instead of speculating in those areas, there is a simpler way to respond to higher prices – adjust your spending.
Of course, there are some expenses that are out of your control—groceries, commuting expenses, emergency home repairs. Identify them and look for compensations in other areas of your life. Use inflation as an opportunity to re-prioritize your purchasing decisions.
One good example is the holiday season right now. This is one of the biggest spending periods of the year. This time, you may find a gap between what you planned in the past and what the actual costs look like today.
Instead of just giving in to spending more, take a moment to rethink who, what, why and how you’re celebrating this year. Quality time with friends and family can be a great gift. Instead of a big gift exchange, maybe host a dinner and agree to make a small donation to charity.
2. Deal with rising interest rates by rethinking your debt.
Interest rates have risen rapidly over the past year, and there are signs that they will continue to rise in 2023. That makes the cost of borrowing more expensive, including everything from mortgages to car loans to credit cards.
As a result, personal debt management plays a bigger role. It’s time to focus on paying off debt if you can and try to avoid unnecessary new sources of debt like credit cards that come with higher interest rates. Instead, look into opportunities to consolidate your credit card debt and transfer any existing balances to cards that offer lower rates.
Review your entire debt portfolio and see if you have variable rate loans. Factor that into your budget and consider whether there are ways to lock in rates before they rise.
Finally, be wary of offers like “buy now, pay later.” At the moment, it might seem like a way to avoid taking on credit card debt, but it’s actually just debt in another form. Perhaps the best choice is to postpone any large purchases that are not currently critical or necessary.
3. Face market volatility by staying calm and without panicking.
Investing for most people is a long-term exercise. But it can be hard not to get distracted by the daily movements of the markets, especially when the numbers are going down.
On the one hand, we know that the main rule of investing is to avoid buying high and selling low. On the other hand, it’s only human to want to stop losses when markets are falling.
Rather than trying to predict the next zig or zag, it may be better to see it as an emotional exercise. The goal is to stay calm and not panic — and 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 few weeks away from the end of the year, and it’s always around this time that I get asked about resolutions. I don’t mind making a list of things you want to improve next year with your finances, but if I had one piece of advice, it would be to avoid overdoing it. Make your lists simple and small and be committed to sticking to them; you will have a better shot at success.
Here are three ideas for 2023 – cut back on your spending a little, manage your debt carefully and stay calm.
The information provided herein is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. When special advice is necessary or appropriate, consult a qualified tax advisor, CPA, financial planner or investment manager. (1122-26AKS)
This article was written by and represents the views of our advisor, not Kiplinger’s editorial team. You can check the advisor’s record with the SEC (opens in new tab) or with FINRA (opens in new tab).
