On the heels of the Great Resignation and the ongoing cost of living crisis, the current financial climate feels like a minefield. Predictions of slow economic growth in the U.S. and a looming global recession might, understandably, make you cautious to make big moves to fund your retirement, invest in the market, or even buy your forever home.
Because personal finance is never one-size-fits-all, we spoke to six experts to ask their must-do advice to start 2023 off with solid financial footing. Their perspectives range across savings, investing, retirement, and even tax planning, but each provides insight into the ways that keeping it simple in the short term can have long-term benefits.
Put a price tag on your New Year’s resolutions.
It’s easy to get anxious and overwhelmed by the idea that there are big financial and personal milestones to accomplish. But, as Maria Melchor, financial content creator and founder of First Gen Living, explains, many of us don’t sit down to price out these milestones and see if we’re on track. Melchor says making a 12-month plan can help to not only resolve the money issues, but also calm the emotional anxiety that can come with juggling life’s complexities—including supporting family, funding causes, and acting in line with your core values.
“I try to teach other people how to think in this mindset of making your goals more concrete by putting a sticker price [on them] and then turning that sticker price into a monthly savings contribution,” she says, “It can really help with relieving that anxiety.” Putting a definitive number on your goals and tracking them means you can eliminate the guesswork and stop handwringing about whether you have too much or not enough money.
Tracking your financial goals can also make you more aware of lifestyle creep, a term which Melchor says often gets a bad rep. Many of Melchor’s clients are first-generation Americans, some of whom experienced poverty and are now transitioning from being financially under-resourced to having a livable wage. In these cases, she says, lifestyle creep is good. For example, “[my clients] can afford better housing, better health insurance,” she reminds. The only way to know if your lifestyle creep is within or outside of your means, though, is to track your financial goals, spending, and savings.
One hiccup Melchor finds along the way, however, is that people get confused about balancing their own personal finances with the needs of family members. With these two goals sometimes seemingly in conflict with each other, a scarcity mindset can set in. But Melchor recommends always understanding your own finances first. “Understand if you are on track to meet your financial priorities before blindly supporting family members,” she says. “This annual assessment can help you identify to what extent you can support the rest of your family members. If you literally don’t have money to save for yourself, it may make you more empowered to set financial boundaries with family members, knowing that your ‘no’ is very well-founded.”
Build—or rebuild—your emergency fund for today.
Personal finance author and host of Real Simple’s Money Confidential Podcast, Stefanie O’Connell Rodriguez’s top advice for 2023 is to reassess your emergency fund. After a pandemic, the last thing anyone needs is more lay off announcements, but here we are. Job security is hard to come by and many people have already dipped into their savings over the last two years to float immediate needs.
Although most millennials have gotten used to this economic roller coaster, O’Connell Rodriguez says it’s time to reinsert some stability into your personal finance outlook. “An emergency fund is a [financial] basic,” she says, “but we have to ask, ‘Is my emergency fund serving me for who I am today?’…The emergency fund I needed when I was 25 years old is different from the emergency fund I need today.”
This advice is personal to O’Connell Rodriguez, as she was forced to have this reassessment of needs during the pandemic when her husband was out of work for 18 months. Their emergency fund had only accounted for six.
So, it’s a good idea to revisit the amount in your emergency fund—whether it was fully funded years ago or you’re just starting out. O’Connell Rodriguez says your emergency funds should reflect the reality of what it would look like to pay expenses for six to nine months at your current rate of spending. Consider children and elder care for dependents, as well as health insurance and even the rising cost of groceries. Do the math on how much you’d need to have in the bank to feel financially stable, as well as emotionally safe. O’Connell Rodriguez says her recent experience has made her want an even higher level of emergency savings than she once thought possible. Figure out what size of safety net you need today and start putting money toward it.
Increase your investing contributions in 2023, even if it’s just by 1%.
Kimberly Hamilton, founder of Beworth Finance and author of Building Wealth on a Dime, says it’s time to increase your investing contributions. “You can start investing in an individual retirement arrangement (IRA) with as little as $20,” she says. Even if you can only afford to increase your contributions by a small amount, Hamilton strongly recommends you take advantage of the investment possibilities available to you and invest what you can now to build wealth down the line.
Hamilton explains that most people only focus on retirement investing via their employer sponsored accounts. That’s a great start, she says, but many people don’t realize that those contribution limits often increase annually and that you can have more than one account at the same time. “Someone can have a 401(k) and an IRA and contribute to both of those,” she adds.
If you’re already utilizing all the tax advantaged accounts available, including an IRA or HSA (health savings account), then consider a taxable brokerage account. A taxable brokerage account is an investment account which allows you to buy and sell investments like stocks, bonds, and exchange traded funds (ETFs). While these accounts don’t offer tax benefits, they can offer fewer restrictions and more flexibility than some retirement accounts.
Hamilton also often educates her clients to try index funds or exchange traded funds, which grow more predictably over time. The amount you invest doesn’t matter as much as simply getting started and making consistent contributions.
Don’t wait until April 18 to start prepping your taxes.
“Mark April 18 on your calendar, because three different chunks of money all come due on the same day,” says Hannah Cole, a tax expert and agent at Sunlight Tax. “A little advanced warning helps you budget for it so that you don’t end up messing up your personal finances.”
The first two months of the year are a good time to start reviewing your tax responsibilities and setting aside funds to make good on them by the April 18 due date. On that date, you’re on the hook to pay taxes on income earned for the prior calendar year, first quarter estimates for the current year (for self-employed people), and contributions to your individual retirement account. It’s important to note that even if you get an extension to file your taxes, that only means you get extra time for your paperwork, Cole explains, but your bill is still due on April 18.
“Whether or not you actually owe quarterly taxes might depend on how much of your income is from your self-employment,” Cole says. “So, if you’re in the world of side hustlers, where you have a day job and most of your income is on a W2 as an employee, then you might not need to pay quarterly taxes.” However, April 18 should still be an important date to you, because it’s the deadline to put money into your retirement account and reap associated tax advantages from a 401(k), IRA, or Roth IRA.
How to Save for Retirement—No Matter Your Current Finances
Cole says she’s seen plenty of people run into issues because they weren’t aware, or didn’t plan for, all of these deadlines converging on the same date. “They’ll end up with good intentions to fully fund their retirement,” she says, “But then they see that tax bill from the IRS and then they’re like, ‘Oh, shoot the quarterly payment. I forgot about that too,’ which is additional.” Before you know it, your cash is gone.
So, start the planning process early (read: right now) and save up for the inevitable. April 18 isn’t the start of tax season—it should be close to the end.
How Do My Investments Impact the Way I File My Taxes? Find Out on the Money Confidential Podcast
Get your future affairs in order now.
According to a 2016 study by Fidelity Investments, 69 percent of parents expect one of their children will help manage their investments and retirement finances, however, more than one-third (36 percent) of the kids identified as filling this role weren’t aware of this expectation. Beyond that, a 2019 report by the Insured Retirement Institute found that 45 percent of boomers have no retirement savings at all. That’s why, Emily Bartz of Firebird Finance says, it’s so important to start making your own in case of emergency (ICE) plan and to talk with your parents and elders about theirs, too.
“It starts with asking your loved ones, ‘What do you want? What do you want your retirement and aging with dignity to look like?’” she advises. These tough questions—where will your money go, do you have a will, who will take custody of children or pets—will stir emotions and fears, but Bartz says that using an Elder Care Planning Guide can help.
Life can be unpredictable, so start getting your future affairs in order today by making an estate plan: a will or living trust, power of attorney, and healthcare directive. If you plan to lean on your kids for your retirement plan, consider how it will affect their lives and dependents, and have a conversation with them about it.
Planning for retirement and life emergencies can look different depending on the makeup of your family, your goals, and the amount of preparation you’ve already done thus far. “The cost and surety of next steps can be very fragile and contentious depending on where you live and the state of clarity of the documents you prepare for your estate,” Bartz cautions.
As morbid as it sounds, many people put off this essential planning, thinking they’ll have plenty of time to sort out their affairs, but that’s not always the case. Instead, start the year off right by securing your family’s future with plans that take into account both your needs and wants.
You Should Consider Setting up a Trust Fund—Even if You’re Not a Millionaire
Start a small business or side hustle.
Serial entrepreneur, Tavonia Evans understands that people are rightfully concerned about the growing wealth gap and the shrinking job market. “While the job market might be threatened, a whole new world of entrepreneurship has opened up and the barrier to entry has lessened,” she says. So, she encourages people to think about monetizing their talents and hobbies this year. An ever-growing number of digital resources are helping small and local businesses reach more customers.
“So many new tools have flooded the market, and they make operating a business much more streamlined for individuals by providing them with numerous ways to automate processes that typically required us to have staffs of workers,” she says.
Although running any business has its challenges, she says that we’re in “the age of the super small business,” and there are many opportunities to increase your cash flow without lots of overhead or stress. Whether you’re selling on sites like Shopify or Etsy, or advertising your talents on social media, the online marketplace thrives on helping people offer hyper-local goods and services to consumers all around the globe. Thanks to tech tools like Calendly, Zoom, and 17hats, there are now more resources available to budding solo entrepreneurs and side hustlers, making it easier to increase income outside of a traditional 9 to 5.
