Mark P. Bernier, CFA | Posted on Dec 29, 2022
The current impact of inflation and higher interest rates are likely to result in many consumers contending with a holiday spending hangover – higher credit balances and higher interest payments on those balances, resulting in household budgets being stretched further than ever before. Spending habits are just one of the behaviors we may resolve to change in the New Year, but there are some other financial habits to put into action in 2023.
Prioritize your credit card payments.
If you find yourself carrying high credit card balances after the holidays, prioritize your payments to those cards with the highest interest rates first, while paying the minimum payment required for others. The U.S. Federal Reserve is expected to continue to raise interest rates in 2023 in its fight against inflation; credit card interest rates are likely to follow suit. Paying down those highest rate cards first will reduce the overall amount of interest you are paying each month. Secondly, do your best to refrain from rebuilding those credit card balances.
Maximize your retirement savings.
If you participate in an employer-sponsored retirement plan, consider increasing your contributions. Even a $50 per month increase, compounded at 6% annually, could result in over $23,000 in additional retirement account balances in 20 years. Many employers offer a matching component to retirement plan contributions, so be sure to contribute enough to fully capture your employer’s matching benefit. Further, the Internal Revenue Service has increased contribution limits for a number of retirement savings plans, so you may have additional opportunities for savings next year even if you typically maximize your annual contributions.
If you’re a small business owner and do not have a retirement plan for your business, consider talking with a retirement plan advisor and your tax advisor to determine which retirement plan might be best for you and your business. There are a variety of options to consider, so be sure to work with experts.
Interest rates are at levels we’ve not seen for over a decade, so there is a wide range of interest-bearing products available to consider for excess cash savings. Aside from traditional savings and money market accounts, products available through a financial advisor may provide other opportunities to maximize earnings on your cash savings. Consider consulting with a financial professional to learn more about potential solutions.
Review your insurance coverage.
Inflation seems to have permeated all facets of life today, including insurance. From property and casualty insurance policy premiums to health care coverage, consumers are facing the potential for increased premiums across a variety of policy types. While individual factors likely have the biggest impact on insurance coverage and costs, replacement cost appears to be having the most impact on property and casualty insurance coverage. Consider meeting with your insurance agent to review your coverage, as he or she may be able to identify improved coverage options, premium savings, or a combination of both.
Create or review and update your estate planning documents.
Estate planning can be complex and time consuming, but the results of the process are critical to ensure your financial and medical affairs are handled according to your directives. If you do not have a will, durable power of attorney, or living will, consider working with an experienced attorney to draft these important documents. If you already have these documents in place, review them annually to ensure they still accomplish the intended outcomes and consider revising them as your circumstances and family dynamics change over time by working with your legal advisor.
Review your investments.
The volatility of capital markets in 2022 has had a material impact on most investor portfolios and the outlook for 2023. Schedule time with your financial advisor to review your investments and to refine your financial plan. Markets as challenging as those experienced in 2022 likely present opportunities for long-term investors. The guidance of a professional advisor may help to provide clarity and peace of mind.
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