8 Smart Tips to Set Yourself Up for Financial Success in 2023
The global economy experienced a sharp decline in 2023, with several obstacles, such as high inflation, rising interest rates, and unemployment. Adapting and navigating these circumstances effectively becomes crucial in such a challenging economic environment. Alongside maintaining financial security, you must determine which avenues to invest in and how to budget and save more strategically.
So, read on as we explore eight tips to help you succeed financially in 2023.
- Automate Savings and Payments
Setting up automatic savings and payments is a smart move, especially during the Accounting busy season. This practice can simplify your financial management and help you stay on track toward your goals. Set aside 10 to 20% of your monthly income to be directly transferred to your savings account, ensuring that your savings grow consistently. Likewise, automatic payments play a crucial role in ensuring your bills are paid on time, thus avoiding late fees and penalties.
As a norm, individuals accumulate multiple checking, savings, brokerage, and retirement accounts throughout their careers. And managing multiple accounts can become overwhelming and lead to scattered tracking of savings and payments. That’s where consolidating your finances can prove extremely valuable. It combines various accounts into one comprehensive account, providing a more transparent overview of your financial situation. By consolidating, you can simplify the management of your finances, reduce administrative tasks, and potentially save on fees associated with maintaining multiple accounts.
And when you Consolidate Financial Accounts, you no longer need to remember multiple login credentials, track statements from various institutions, or monitor numerous transaction histories. Having everything in a single account allows you to access your financial research services, saving time and providing a holistic view of your finances. So, consolidate your accounts with a trusted financial entity and reap the benefits for years.
- Build an Emergency Fund
Life is full of unexpected situations and surprises, and having an emergency fund is essential to weather any financial storms that may come your way. Traditionally, the rule of thumb has been to save three to six months’ expenses in a separate, easily accessible account. But in the current economy, experts are advising people to save up for longer durations.
- Suze Orman, the #1 New York Times Bestselling author on Personal Finance, recommends having at least eight to twelve months of living expenses in your emergency savings.
- Ramit Sethi, another personal finance author, says that a 12-month emergency fund is an absolute necessity. It’s even the first of the top 10 money rules he lives by.
- Billionaire entrepreneur Mark Cuban has also shared that everyone needs 12 months of emergency savings to safeguard against unexpected events like the COVID-19 pandemic.
- Prioritize Debt Payments
In the first quarter of 2023, American household debt reached $17.05 trillion. If you have outstanding debt, make it a priority to pay it off as soon as possible. Because debts often come with interest rates, which increase the amount you owe over time. And the US interest rate is expected to rise by another 0.5% to reach 5.75%.
There are two debt repayment strategies you can use:
- Snowball Method: This method involves prioritizing debts with the smallest balances first. By paying off smaller debts quickly, you gain a sense of accomplishment and motivation, which can help fuel your debt repayment journey.
- Avalanche Method: With this method, you first pay off debts with the highest interest rates while making minimum payments on other debts. You can save money on interest payments over the long run by tackling high-interest debts early.
- The 50/30/20 Budget Rule
A budget is the foundation of solid financial management. In the United States, the CPI rose 8.6% in May, the highest in over 40 years. So, take the time to track your income and expenses meticulously. Categorize your spending, identify areas where you can cut back, and allocate funds towards your financial goals.
The 50/30/20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. And no, as much as we all love Netflix, it doesn’t count as a need. To give you a clear idea of how to divide your income, use the guide below:
- Needs (50%): Housing, utilities, transportation costs, groceries, healthcare, insurance premiums, and minimum debt payments.
- Wants (30%): Allot 30% to dining out, entertainment, travel, hobbies, fashion, and other personal indulgences.
- Savings (20%): Set aside 20% for an emergency fund, retirement savings, investing, and debt payments beyond the minimum amount.
- Evaluate Purchases on a Cost Per Use Basis
Imagine shopping for clothes and seeing two options: a $30 basic tee and a $5 trendy shirt. Financially, the $5 shirt makes sense, but only if you ignore the quality factor. And this is a mistake most people make. They opt for cheap trendy purchases that will either wear down or go out of fashion in a few months, leading to further spending.
When deciding if the latest tech gadget, apparel item, or kitchen appliance is worth it, factor in how many times you’ll use it.
- Consider the Opportunity Costs of Purchases
When making financial decisions, it’s essential to consider the concept of opportunity cost. Essentially, opportunity cost refers to what you’re giving up or sacrificing when choosing one option over another.
For instance, if you’re bored and considering going to the cinema, you’ll spend almost $30 on a movie ticket, popcorn, and drinks. And the movie will probably be out on streaming or digital in the next two to three months. Therefore, ditch going to the movies; instead, go bowling with your friends, visit an art museum, try an escape room, or go for an all-you-can-eat buffet dinner. Considering these options, you can make the most of your $30 budget while engaging in experiences that offer more interactive and long-lasting enjoyment.
Doing opportunity cost analysis can significantly boost your decision-making.
- Diversify Your Income Streams
Explore opportunities to diversify your income streams, especially passive income streams. The US is currently in a bull market, making it an excellent opportunity to make long-term investments.
The investment opportunities you can consider are as follows:
- High-yield savings accounts
- Dividend stock funds
- Series I bonds
- Crowdfunding
- NASDAQ-100 index funds
- REIT index funds
- S&P 500 index funds
- Real estate
- Use Apps for Personal Finance
As technology advances, there are a growing number of apps you can use to help make financial management more effortless.
- Automated Savings: Apps like Acorns and Digit round up your purchases to the nearest buck and automatically transfer the spare change into a savings or investment account.
- Expense Optimization: Apps like Honey and Rakuten help you find discounts, coupons, and cashback offers.
- Tax Preparation: Simplify the tax filing process with apps like TurboTax and H&R Block. These apps guide you through the necessary steps, ensure accurate calculations, and help you maximize your deductions and refunds.
Conclusion
Setting yourself up for financial success requires discipline, dedication, and a well-thought-out plan. By implementing these smart tips, you can take control of your finances and pave the way toward a prosperous future in 2023 and beyond. Remember, small steps today can lead to significant financial gains tomorrow.