Every new year is a fresh opportunity to improve our lifestyle habits including our personal financial practices. Here are some tips to get your finances in tip-top shape for 2023 and beyond.
Know your net worth
The first step to improving your finances is to create a snapshot of your current financial situation. So note all your assets, then subtract all your liabilities (what you owe others) to calculate your net worth. When done on a regular basis, you will be able to evaluate changes to your financial status and identify steps to reach your financial goals.
Plan for hardships
If the pandemic has taught us anything, it's to plan for the unexpected. Now is the time to prepare by building an emergency fund that covers six or more months of expenses. Start with whatever you can afford to set aside each month. As you pay off outstanding debts, you can add those amounts into your savings allotment each month. A high-yield savings account will help grow this emergency fund faster.
Prepare for a lower refund
The 2021 tax year saw increases to the child tax credit and the dependent care credit, resulting in a big jump in tax refunds for many taxpayers. These changes, however, were not extended to 2022. If you plan to take advantage of either of these two credits on your 2022 tax return, be prepared for a possible decrease in your refund.
Create a debt repayment plan
Design a plan to pay off your existing debts and try to avoid taking on any new debt. Pay special attention to credit card debt, as inflation is vastly increasing the cost of this debt every month. Also, consider whether consolidating your debt is a good option for you. Keep in mind that paying off high-interest debt will help stop the additional interest that is piling up each month.
Save for retirement
Plan for your future self by building your retirement fund. In 2023, you can contribute up to $22,500 in your 401(k), plus another $7,500 if you're 50 or older. Keep in mind your company may provide matching contributions up to a stated percentage of compensation. And you may be able to supplement this account with contributions to IRAs and/or other qualified plans.
Review and re-balance your portfolio
Review your investments periodically and reallocate funds to reflect your main objectives, risk tolerance, and other personal preferences. This will put you in a better position to handle the ups and downs of the markets.
Set a date to review your estate
Review your estate and legal documents at least once a year, in addition to whenever you experience a significant change in your life. Now is a good time to review your will, trust documents, beneficiary designations, powers of attorney, healthcare directives, and other estate- and legal-related documents.