By Andrew Shilling, MarketWatch featuring Taylor H. Sutherland, CFP®, CIMA® AIF®, Senior Wealth Advisor at Halbert Hargrove
Pros say taking these proactive steps can help prepare for whatever potential challenges the year ahead may hold.
While inflation is cooling, projections still point to elevated consumer prices next year. What’s more, recession threats remain high, unemployment may rise and investors are still reeling from stock and bond indexes falling double digits for the year. So experts say a strategic approach with your hard-earned dollar is critical. Here are the 10 things money pros say you need to do in 2023.
1. Make sure you earn at least 3% on your savings account
One of the benefits of the current high interest-rate environment that we’re in these days is the relatively high annual percentage yield, or APY, available at checking and savings accounts. “Make sure your savings account is returning above 3%. If it’s not, find an alternative,” says Noah Schwab, a certified financial planner at Stewardship Concepts in Spokane, Washington, who adds that ensuring your money is working as hard for you as you work to save should be top priority. If you can’t decide where to find a high rate, here are five bank accounts offering APY of more than 4%. See the highest savings account rates you may get here.
2. Build an emergency fund
An “emergency fund can protect you from unexpected expenses and reduce stress,” explains Tommy Gallagher, founder of Top Mobile Banks — something you’ll especially want if we enter a recession next year.
Considering your lifestyle, monthly costs, income, and dependents, firms such as Vanguard, Chase and Wells Fargo estimate anywhere from three to six months worth of expenses are needed in a liquid emergency fund.
David Edmisten, a certified financial planner and founder of Next Phase Financial Planning in Prescott, Arizona, adds that those funds should also be earning interest. “Consumers who review the options for the cash savings, emergency funds and short-term conservative investments may be able to pick up a significant increase in the amount of interest they earn by moving to any of these options versus using their regular bank checking or savings accounts,” Edmistena said. See the highest savings account rates you may get here.
3. Retirement contribution limits are going up, so maximize contributions
Retirement contribution limits are indeed going up in 2023. For employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, the limit will increase to $22,500 from $20,500 in 2022, with catch-up contribution limits increasing to $7,500, according to the IRS. Also next year, IRA and Roth IRA contribution limits will increase to $6,500 with the annual cost of living adjustment remaining at $1,000.
Dennis DeKok, a certified financial planner at FCM Financial in Grand Rapids, Michigan says “maximizing any 401(k) match from your employer is like free money, so that should be priority number one.” He added that “Roth IRA and HSA contributions should be next in line because of the tax benefits,” and to “focus on maximizing these contributions before making any more 401(k) or other investment contributions.”
Vanessa N. Martinez, founder and CEO of Em-Powered Network, says anyone who qualifies should consider “maximizing your retirement contributions and looking for other ways to invest” in 2023. “This means you should adjust your monthly contributions to make sure you are fully contributing.”
4. Reassess your investment goals, and rebalance if necessary
Too much in stocks? Maybe not enough in fixed-income or real estate? Halbert Hargrove Senior Wealth Advisor Taylor Sutherland, says the start of the year is typically a good time to reassess your investment goals and consider rebalancing your portfolio. “Given material declines in both stocks and bonds, you may not be that out of whack,” Sutherland said. “Preferably you do this each year, which would’ve meant trimming a presumably overweight stock portfolio at the beginning of 2022.”
If you feel that doing this alone is a little complex, consider working with a financial advisor to more strategically construct your investment portfolio. (Looking for a new financial adviser? This tool can help match you with an adviser who might meet your needs.) Robo advisors also implore asset allocation strategies to match your risk tolerance levels. If you plan to go it alone, target-date funds, often offered in employer-sponsored retirement plans, can do the allocation work for you and adjust over time depending on your age and target year.
