As you reflect and set goals for the upcoming year, one area to focus on is your financial wellness. The Consumer Financial Bureau defines financial wellness as controlling your day-to-day finances while feeling on track to reach your future goals. Here are some ways you could improve in this area during 2023.
Manage Money to Prepare for a Recession
Economists from Fannie Mae expect a modest recession in 2023, leading to lower growth and higher unemployment. Hopefully, the economy stays strong, but it would be wise to prepare your finances for a possible slowdown. Some ways to do so include:
- Build and maintain your emergency fund. Financial experts recommend three to six months of living expenses in cash savings.
- Be cautious about major purchases that drain your savings, especially non-essential ones like vacations and home renovations.
- Consider how your budget would handle a possible cut in pay or job loss. Keep your resume up-to-date and think about other career options.
- Find other possible sources of income, like a second job or gig work, as a backup.
- Mentally prepare for more tough investment markets. Keep calm and stick to your long-term plan even if the market faces short-term losses. You should also understand the risks of investing.
Plan for a Higher Cost of Living
Inflation hit a 40-year high in June 2022 as gas, groceries, airfare, and electricity prices increased substantially. It’s even worse if you live in a high-cost area like Portland or San Diego with soaring costs for homes and rent. While there is no easy fix for living in a high-cost area, there are some strategies you could use:
- Since housing is usually the largest expense for most people, think of ways to bring that down by moving to a less expensive part of your city, renting out unused space in your home for storage or while on vacation, or considering a roommate.
- Switch to using more public transportation to reduce gas spending or even avoid needing a car altogether.
- Set your budget with the expectation that prices will keep going up to build a buffer.
- Look for ways to save money, like cancelling unnecessary subscriptions or eating at home more often.
- Ask for cost of living raises when appropriate and continue pursuing other ways to get a higher salary, like a promotion or networking for a better job offer.
Invest in Yourself
Consider ways you could invest in yourself to improve your earning power and financial well-being. This could include taking some courses (especially free/low-cost ones online through Coursera and edX), working on a skill that could turn into a side hustle, planning the next steps to improve your career, and flushing out a plan for a new business.
Investing in yourself includes investing in your health. You can’t perform at your best if you aren’t feeling 100%. Not to mention, living a healthier lifestyle could prevent costly medical bills.
Improve Your Relationship with Money
Commit to reviewing your finances, even if the situation feels stressful, and figure out what you can control and can’t. While you can’t prevent a recession or other financial speedbumps, you can manage your money to prepare. Having financial peace of mind can reduce anxiety and stress.
Gaining more of an understanding of how finances work could also help. The majority of Americans struggled to answer questions on basic finance concepts like investing and interest rates on a quiz from FINRA. Committing to learning essential financial concepts can give you more confidence and improve your relationship with money.
Ask for Financial Guidance
For more help getting your financial wellness on track, consider meeting with a wealth management professional at Aldrich. They can review your current financial plan to identify what you’re doing well and where you can improve to set up a successful 2023.