9 financial moves to make before ringing in 2023

As 2022 draws to a close, it’s time to look ahead to 2023 and put yourself on the best possible financial footing for the new year.

This year has been difficult for many people across the country. Inflation continued to ravage household budgets and eat away at savings, while retirement savers saw their balances shrink as markets crashed. Many tech workers have been laid off and analysts are predicting a recession any day now. Crypto took a hit, as exchanges crashed and empires fell. And housing has become increasingly unaffordable after 2021’s record-low interest rates (literally) opened the door to a new generation of homeowners.

But it wasn’t all bad news. Many workers saw increases for the first time in years, with job jumpers, in particular, recording significant gains.

What will happen in 2023 is anyone’s guess. But here are nine things you can do to prepare your finances for whatever comes next.

1. Update your budget

Between inflation and rising interest rates, your budget may be very outdated since the last time you looked at it.

“With the start of a new year should be the start of a new budget,” says Kendall Meade, certified financial planner (CFP) at SoFi, a fintech company. “Write down your financial goals and expenses and from there start building your new budget.”

To create one that works for you and your family, you can find help on sites like Reddit’s personal finance hub or you can use an app like You Need a Budget, Copilot, or Personal Capital. You can also use a service like Tiller for actionable financial spreadsheets.

Meade adds that now is also a great time to check your subscriptions and cancel any unused services.

2. Make a plan for your student loans

The federal student loan payment break has been extended, so you won’t have a bill to pay in January after all. It’s unclear when payments will resume due to ongoing litigation, but it could free up a few hundred dollars each month, depending on your balance.

You may have had extra cash on hand for a while – payments have been paused since the start of 2020 – but renewing the pause is another opportunity to be careful about how you spend. Review your finances to see where they can be put to better use. Will you invest it? Put it towards a down payment? Use it to ward off the pains of inflation?

One suggestion if you don’t need the money to cover day-to-day expenses: put it in a high-yield savings account. With rates rising again, you can save a little on your balance and have the money available when the payment break officially ends.

3. Open a High Yield Savings Account

Speaking of which, with interest rates on the rise, consider opening a high yield savings account. Banks like Capital One offer yields as high as 3%. Just pay attention to fees or account minimums.

The best way to build up savings after opening a high yield account? Set up weekly or monthly automatic transfers so you don’t have to move the money every month. “Out of sight, out of mind,” says Meade.

“Start with a small amount and increase your contribution where possible,” she says. “If you find that larger goals can overwhelm you, you can set several smaller goals instead.”

4. Prioritize paying off high-interest debt

While rising interest rates are good for savers, they can make your debt, especially variable interest rate debt, more expensive. The average credit card interest rate is now 19.34%, the highest on record.

“It can be catastrophic for those who are already struggling to make ends meet with high inflation,” Meade says. “Analyze your debt to make sure you get the deal that best suits your goals.”

For example, if your credit card interest rate keeps rising, consider consolidating it into a personal loan, which may be more profitable if the loan has a lower APR. You can also transfer the balance to a 0% APR card, which won’t charge you interest for a set period of time, making it easier for you to pay off your balance (usually you pay a fee to transfer the balance).

5. Save a little more in your retirement account

For 2022, you can contribute up to $20,500 to your workplace 401(k) if you’re under age 50, or $27,000 if you’re 50 or older. Doing so on a pre-tax basis reduces your federal taxable income for the year. If you’re expecting a year-end bonus, you can transfer some of that extra money directly to your 401(k).

And don’t forget your Traditional or Roth IRA. Although you have until April 18, 2023 to make these contributions for the 2022 tax year, you can advance the deadline now.

Next year, the contribution limit for 401(k) increases to $22,500 (and $30,000 for those 50 and older), and the IRA contribution limit will increase from $6,000 to $6,500 (and $7,500 for those 50 and over).

If you can’t max out your accounts, try increasing your contributions by 1%. Even a seemingly small amount can build up generously over time.

6. Spend your FSA

If you have a flexible spending account through your health insurance, the end of the year might be the deadline to spend the funds before you lose them (although for some companies the deadline is later).

Visit FSAstore.com or Amazon’s FSA store to easily find products that qualify for your funds. You might not realize that certain things are eligible, like sunscreen, certain facial cleansers and acne treatments, menstrual products, and over-the-counter pain relievers (the latter two being add-ons). relatively new).

7. Check your credit report

If it’s been a while since you’ve pulled out your credit report, now is the time to do so. You can check for possible inaccuracies or fraud on your report. You can also get an idea of ​​what lenders see when they write your report, which can help you when making an important financial decision, like buying a home.

Just go to AnnualCreditReport.com and you can access all three major credit bureaus for free.

8. Assess opportunities for tax loss harvesting

Given the turbulent year in the markets, you may want to consult a financial planner about harvesting tax losses in your taxable investment accounts.

This is a strategy that reduces capital gains taxes. Essentially, you sell some investments at a loss and buy similar but different securities so you can offset taxable gains.

9. Consider a Roth Conversion

A bear market is an “optimal time” to consider a conversion from a traditional IRA to a Roth IRA, as it “translates into a lower tax bill upon conversion, coupled with the possibility of a market rebound occurring. producing under the tax-exempt shield of a Roth account,” says Matt Sampson, CFP and Senior Investment Advisor at Arnerich Massena, Inc.

“Remember that future qualified withdrawals from a Roth account are exempt from income tax, so this can be a big plus,” he says.

Yes, that means your retirement distributions will be tax-free (you’ll pay taxes now). Also, unlike traditional IRAs, Roth IRAs do not have required distribution mandates. Your money can keep growing until you need it.

This story was originally featured on Fortune.com

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