6 Financial New Year’s Resolutions for 2023
As another year draws to a close and a new one begins, it is time to start thinking about what New Year’s resolutions you want to set for 2023. Apart from the recurrent favorites – travel more, get fit etc., you may want to focus on financial resolutions too. New Year’s financial resolutions vary based on one’s financial situation and future goals, and can be anything from getting your finances in order, saving more for retirement, improving your credit score, to building an emergency fund, paying off your debts, creating an estate plan, and more.
Resolutions should be chosen carefully and backed with consistent efforts. Doing so will enable you to build discipline and stay focused on attaining your goals. Consider consulting with a professional financial advisor who can assess your present financial situation, investment portfolio, and retirement plan and guide you if you need to change it for 2023.
This article discusses 6 New Year financial resolutions that you can consider adopting to help you build a safer and more secure financial strategy for 2023.
1. Create a budget and stick to it
This is financial planning 101. A sound and well-designed budget is the bedrock of a financially secure life that can help you stay disciplined and keep you from making wrong decisions. Apart from ensuring you do not overspend, a sound budget can help you build your savings over time. Try and eliminate frivolous expenses that do not add any value to your life such as magazine or app subscriptions that you do not read or use. You can also cut down on discretionary spending. For example, use public transport instead of cabs, cook your meals at home, unsubscribe from OTT subscriptions, etc. Doing so will not only reduce your expenses but also help you save more money. Once you have a clear idea of how much you are spending on your discretionary and non-discretionary expenses, you can set a monthly savings target for yourself. This can be 15-20% of your monthly paycheck. Setting a realistic goal can help build a significant retirement corpus over time. In addition, when you get your monthly paycheck, first set aside your savings target and then use the rest for your expenses. Doing so can help you avoid overspending.
Creating a budget at the start of the New Year can help determine your present net worth and compare it to the previous year. You can estimate your current net worth by taking into account your assets like cash, real estate, cash, investments, gold, etc., along with your liabilities such as mortgage, credit card debt, loans, and more. Find out if your present net worth is higher than last year and calculate the percentage by which it has grown or decreased. This exercise will give you an idea of your growth and progress. Ascertain if the growth is as per your timeline and goals. If not, create a New Year savings plan to boost your savings and investments. You can do so by cutting down your expenses, creating new streams of income, and keeping a close eye on your money in general.
2. Eliminate your debt
Debt can play truant with your financial goals as the money that you could have used to build your retirement fund is diverted toward paying off interest and loans. Not only does it slow your progress toward attaining your goals, but debt also acts like rust on your savings, eroding their value. Thus, it is advised to clear your debt as soon as possible so it does not hamper your future growth. A New Year resolution to clear your debt can be tricky as it requires a significant amount of time, money, and focus. This is especially true if you have a student loan that needs to be repaid. A budget can help lower your debt as it restrains you from overspending and adding on to your debt like credit card dues. Create a repayment plan for your existing debt and avoid using your credit card before you pay off your debt. Further, when it comes to mortgage and student loans, you can try and use your investment returns to help repay the debt. To do so, invest in options that generate high returns. You can also consult with a financial advisor to help you come up with a debt repayment plan.
3. Create an emergency fund
As the Ukraine-Russia war rages on and inflation touches record levels in the U.S., it may take a while for things to go back to normal. Due to the uncertainty posed by these factors, it is critical that you have an emergency fund in place. A good New Year financial resolution would be to build an emergency fund comprising at least 6 to 12 months’ worth of your household expenses. The fund can help meet any financial or medical emergency if you fall sick, or lose your job or insurance. Start building an emergency fund on priority if you do not have one already. Store your money in a bank account or liquid mutual funds that can be easily redeemed in case of an emergency. Pick a low-risk option that shields your money from market ups and downs. In addition, ensure you have adequate insurance coverage. Choose the right insurance products based on your age and financial needs. Ideally, you should have health insurance, homeowners insurance, life insurance, auto insurance, long-term care insurance (if you have aging parents or you are retired yourself), etc. Be prepared for any outcome. It will afford you much-needed peace of mind and set things on track for the New Year.
4. Start investing to secure your financial future
This New Year try to build new financial habits like investing more. Doing so would not only help you increase your net worth but also act as a means to counter the effects of inflation. By investing your savings, you can prepare for retirement, attain your financial goals, safeguard your future, and a lot more. Choose investments based on your risk tolerance. If you have a high risk appetite, build an equity-heavy portfolio. High-risk investments such as stocks, high-yield bonds, real estate investment trusts (REITs), etc., can generate inflation-beating, high returns over a long investment horizon. On the other hand, if you have a low risk tolerance, you can go for conservative investments like corporate, municipal, or government bonds. These options can help preserve your capital and are ideal for individuals approaching retirement and looking to secure their retirement savings. You can also opt to build a well-diversified portfolio that combines both high-risk and low-risk investments. Set aside an investment budget that you would be comfortable investing in each month. This would help ensure that you remain committed to attaining your financial goals on time and do not stray from your target. Reach out to a financial advisor who can help you create a well-diversified portfolio as per your present and future goals.
5. Open a retirement account such as a 401k, IRA, etc.
Opening a retirement account is the first step toward securing your golden years. Start saving for retirement from a young age to give yourself ample time to reach your retirement income goals. If your workplace offers a retirement account such as the 401(k), try and max out your contributions. A 401k is a tax-advantaged retirement savings plan wherein employers may match employee contributions to their accounts. A 401k is primarily of two kinds – a traditional 401k and a Roth 401k. While the former allows you to defer taxes on your contributions but your withdrawals are taxed in retirement; the latter allows you to make tax-free withdrawals in retirement however your contributions are taxed. For 2023, you can contribute a sum of $22,500 plus an additional $7,500 as a catch-up contribution per annum if you are 50 and up. You can also open an Individual Retirement Account (IRA), created especially for self-employed individuals who cannot open company-sponsored accounts such as the 401k. Similar to a 401k, an IRA is a tax-advantaged retirement savings account. For 2023, you can contribute a sum of $6,500 to your IRA account along with an additional $1,000 per year if you are 50 years of age or above. Similar to a 401k, an IRA also provides both traditional and Roth versions. Pick one that best fits your needs as per your current and probable tax situation in the future.
6. Draft a foolproof estate plan
There is a misconception that an estate plan is needed primarily by high-net-worth individuals (HNWIs). However, that is not the case. An estate plan is critical for individuals of all ages and income groups. It includes a will, health directives, a trust, directives for funeral arrangements, a power of attorney, etc. An estate plan ensures that your hard-earned money and assets stay intact and are safely transferred to your beneficiaries without being wasted in taxes or legal fees. The New Year can be an apt moment to take stock of your financial situation. Use this opportunity to create an estate plan that reflects your current wishes and clearly mentions how your assets will be divided up in the event of your demise. Do note that if you have recently remarried, divorced, become a widow, or have had children in the previous year, your estate plan needs to be revised to reflect said changes. Consult with an advisor who can help draft an estate plan as per your wishes.
Take the first step this year towards long-term financial security and stability by implementing the above-mentioned financial tips. It’s alright if you cannot implement your financial resolutions right away; however, make sure that you stay consistent and try to adopt these tips gradually as the year progresses. If you find that you are coming up short, or need help to clear up doubts or concerns, reach out to a financial advisor near you. Use WiserAdvisor’s free advisor match service to find highly qualified and vetted financial advisors that are suited to help you. Answer a few simple questions and get matched with 1-3 financial advisors that are best suited to meet your financial requirements.