How to Plan Your Finances for 2023

7 Strategies

1. Take Inventory of your current financial situation.

Going from point A to point B is impossible unless you know where point A is. You need to know where you stand financially before making any decisions for the next 12 months. Consider reviewing all your finances. Start with key financial metrics, such as these:

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• Your income

• How much you spend

• Current debt levels

• Financial assets (savings and investments)

• Other assets

• Know your financial goals

This will give you an idea of your current financial situation and help identify any areas in need of attention. Once you complete your inventory you can start planning.

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2. Prepare for the Unexpected

Things can change rapidly. The last 2 years have shown us the reality of this statement. Having a healthy emergency fund can help you deal with unexpected expenses. If you have dipped into your savings recently you will need to take steps to rebuild your rainy-day fund. Being well prepared for unexpected expenses can help cover unforeseen costs without disrupting your regular spending.

If you lack the discipline to save regularly, set up automatic monthly transfers that correlate with your payday to a dedicated account (rainy day account or emergency fund account). This requires no extra effort and the account will grow over time.

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3. Take Control of Debt

Recent global events have demonstrated to us just how fragile job security is. Job loss or reduced working hours have triggered unprecedented financial challenges and stress for many individuals and families causing an increase in debt. According to the Federal Reserve Bank of New York's Center for Microeconomic Data, the total non-housing debt has seen the largest nominal increase since 2016. If you want to eliminate debt (some people are comfortably married to their debt), having a roadmap to live debt free is essential.

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Start by making a list of each debt including interest rate and balance. This would include mortgages, auto loans, credit cards and student loans. Once you complete the list, look at the various financial debt reducing strategies and find the one that suits your needs. Try to avoid consolidation programs as these can negatively affect your credit in the short term.

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4. Revisit Investment Strategies

A variety of investment options are available depending on your particular needs so it’s important to evaluate your investment strategy periodically to make sure you’re on target to reach your goals. If your investments began for quick profits and the exhilaration of the market, you may want to step back and evaluate if these strategies still make sense for your long-term goals. Some of these activities carry a big risk. If you can make money quickly it can be lost just as quickly.

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If your goal is funding your retirement or a child’s education, long-term investing might make more sense. Consider speaking with a financial professional about strategies that will help you achieve these goals and evaluate all of the alternatives before making a final decision. It’s important to remember that investments cannot guarantee growth; they can lose value over time.

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5. Revisit your Financial Roadmap

Today’s world is very different than it was just a few short years ago. For many, personal finances and goals have also changed and in some cases dramatically. Now is a good time to review your progress toward your financial goals. Ask yourself if you still want the same things as before or have your needs changed? Just as a map on a GPS guides us to our destination, a financial road map gets us to our goals. If you need help creating a financial roadmap, reach out to a professional who can design a customized plan that makes sense and aligns with your goals.

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6. Take Advantage of Savings Opportunities

Each year, you get new opportunities to save in retirement accounts. It's important to meet annual deadlines if you want to maximize your savings because the window eventually closes for each tax year. Before New Year's Eve, check to see if you've contributed as much as you can to individual and workplace retirement plans. If you're eligible to contribute to a Health Savings Account, explore the pros and cons of those contributions, as well.

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In 2023, the contribution limits are even more generous, because those limits are adjusted for inflation each year. Savers will be able to put away $22,500 a year in 2023; those ages 50 and above can contribute an additional $7,500, for a total annual contribution of $30,000 enabling you to save even more for the future. If you have access to these accounts through an employer, check with your benefits department to learn about any opportunities to save more and to update your contributions.

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At this point I do need to caution that taxes on qualified accounts like 401k and 403b will be calculated at time of withdrawal. You may end up paying more in the end than the tax deferred benefit you receive now. Remember, the less you pay, the more you keep. There are other options available that may help you legally pay less tax and even avoid tax altogether.

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7. Review your Estate Plan

If you do not have an estate plan, now is the time to make one. If you do have a plan, it would be wise to review it periodically. For example:

• Do you need to update your will?

• Do you want to establish a trust or change the provisions of an existing trust?

• Do you have enough life insurance, and are the beneficiaries up to date on all your policies?

A living or revocable trust holds the assets of the trust creator in a trust for his or her benefit during their lifetime. Upon the death of the trust creator, the assets are transferred to designated beneficiaries by the “successor trustee," the person who had been chosen by the trust creator to do so. This can avoid the lengthy and costly process of probate thus leaving more to the beneficiaries.

Looking Forward to 2023

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Hopefully, these ideas on financial planning for the new year will help you on your journey to a productive and fulfilling 2023. Focusing on the strategies above can help you improve your chances of reaching your goals. Also, putting in place a solid estate plan will reduce stress for your loved ones and help them keep more of your hard-earned assets.

Personal financial planning is a continual process that requires ongoing attention and course corrections. You'll be off to a good start with these steps. If you find that you'd like more information, consider reaching out to a financial professional for personalized attention and assistance.