As 2022 comes to a close, it is time to begin thinking of how to manage our funds in 2023. As experts anticipate a recession and interest rates are rising, now more than ever we must manage our finances well. Here are five tips that will help you prepare for a strong financial footing in 2023.
1. Evaluate Your Budget
With rising interest rates, inflation, and a recession on the horizon, reviewing and updating your budget is necessary.
“With the start of a new year should be the start of a new budget,” Kendall Meade, a certified financial planner (CFP) at SoFi, a fintech company, told Fortune. “Write down your money goals and expenses, and from there, begin to build up your new budget.”
An online app such as Copilot or even a simple Excel spreadsheet that includes your income and expenses will help you realize where you should cut back on unnecessary expenses such as subscriptions and services. It will also allow you to realize if additional finances are available to pay off debt or increase your emergency savings.
2. Pay Attention To Rising Interest Rates on Credit Cards
Variable rate debt is climbing. Currently, the average credit card interest rate is hovering around 19.2% and higher for those with bad credit. What does this mean: your credit card bill will be higher because the interest rate has changed. “This can be catastrophic to those already struggling to make ends meet with high inflation,” Meade told Fortune. “Analyze your debt to make sure you are getting the deal that best aligns with your goals.”
While consolidating your credit card debt into a personal loan with a lower interest rate might be advantageous, it is also essential to investigate credit cards with a lower APR.
3. Establish A High Yield Savings Account
As interest rates continue to increase and will make you pay closer attention to charging on credit cards, there’s also a bright side. Annual percentage yields (APYs) — the interest you earn in savings accounts — will also increase, placing a few extra dollars in your pocket. Establishing a high-yield savings account to manage your emergency savings will offer higher interest rates than a traditional one. Currently, the average APY on savings accounts is .24 percent, while high-yield savings accounts average at 3 percent. While some financial institutions have a minimum balance for high-yield savings, many online banks, such as Capital One and Lending Tree, do not have this requirement.
4. Check Your Credit Report
According to a National Foundation of Credit Counseling study, two out of three adults do not check their credit scores frequently. Experts advise that consumers check their credit reports annually to understand their debt clearly and what lenders see when they review a credit report. Not only will you be able to review your payment history and credit score, but you will also be able to identify inaccuracies or fraud present. You can contact the lender and fix the error if there are any discrepancies.
5. Check Your Tax Withholding
Paying interest and penalties to the IRS is always a headache. The remedy: make sure that you are having enough tax taken out of your paycheck this year. If you have gotten a raise, retired, or withdrawn money from your retirement savings, you might see a change in your tax bill. If you want to see how much taxes you have paid throughout the year, the IRS’ tax withholding estimator will review your withheld taxes. Then, you can make a change to your tax withholding with your employer.