Here are the 5 best financial decisions you should make this year

If you’re planning to make financial decisions this year, you’re not alone.

A survey by Ascent shows that a majority (two-thirds) of Americans plan to have a cash settlement by 2023.

With interest rates on the rise, inflation still high, concerns about layoffs, and the broader economic picture in general, it makes sense that money-focused decisions are at the forefront of many Americans’ minds.

Here are some of the more popular and timely ones.

A woman looks at the giant, seven-foot-tall figures for “2023” arriving for the December 31 Times New Year’s Eve celebration in Times Square, New York City, U.S., December 20, 2022. REUTERS/ Eduardo Munoz

Pay off credit card debt

Paying off credit card debt is always the best solution, but this year it should be a priority as the average credit card interest rate is almost 20%. That’s up from just 16.3% at the start of 2022 and the highest since Bankrate began tracking credit card rates in 1985.

“For someone making minimum payments of $5,000 on credit card debt, the interest rate hike added seven months to the payback period and cost $1,166 in additional interest,” said Ted Rossman, senior industry analyst.

Given that the Fed has indicated that more rate hikes are on the way, that debt will only get more expensive in 2023.

Save for emergencies

An emergency fund is your first line of defense against financial hardship. Rossman, you’re putting yourself at risk for financial disaster without it, but only 27% of Americans have the recommended six months of savings.

Don’t become a statistic – especially now, because in 2023 we will go into recession.

“While most forecasts are for a relatively mild recession (as opposed to the double-digit unemployment rates we saw in 2009 and 2020), the unemployment rate has only one way to go from here: up. Even a rise in unemployment to 5% would leave about two million additional people out of work,” Rossman said. “I’m not saying this to scare people, but rather to emphasize the importance of saving for that proverbial rainy day.”

“It might not even be a job loss,” he said. “It could be a broken refrigerator, a leaking roof, a surprise medical bill, or some other unexpected event, and you need to be prepared for it.”

Readjust or revise your budget

That’s a good idea every year, but it’s especially important after a year of high inflation, said financial analyst Richard Barrington.

“Update your budget to make sure you spend less than you bring home. Otherwise, you’re going to increase your debt,” Barrington said. “It just adds interest costs on top of higher prices.”

Increase your retirement savings

Person Putting Coins In Piggy Bank On Table

(Photo: Getty Creative)

When it comes to saving for retirement, you may be discouraged by what happened last year.

“There’s a double whammy on pension savings in 2022,” Barrington said. “A very bad year for stocks and bonds has reduced the value of most retirement investments. Meanwhile, unusually high inflation means you’ll need more money to live on until retirement.”

Keep your emotions in check and keep contributing to your retirement account — at least enough to qualify for your employer’s full match. These matches typically cover 3% to 5% of your salary.

If you can’t afford to contribute that much right now, take a slow and steady approach with incremental increases that can make a big difference over time.

“Make a point to try to increase your contribution by one or two percent every six months,” Rossman says. “Every dollar you save for retirement in your 20s and 30s could be worth $15 or even $20 in retirement.”

Improve your credit

The type of environment we’ll be entering in 2023 — higher interest rates and a slower economy — makes having a strong credit score especially important, Barrington said.

“With interest rates rising, you’ll want a good enough credit score to qualify for the lowest interest rates available,” Barrington says.

Also, loan defaults tend to increase in a slow economy, Barrington added. “This can make banks tighten their lending standards. It’s a good idea to make sure your credit score is top notch in 2023 if you want to keep getting credit.”

Personal finance journalist Vera Gibbons is a former contributor to SmartMoney magazine and a former correspondent for Kiplinger’s Personal Finance. Vera, who spent more than a decade as a financial analyst at MSNBC, currently serves as host of the weekly non-political news podcast she founded. NoPo. He lives in Palm Beach, Florida.

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