9 financial moves to make before you ring in 2023

This year was a hard one for many across the country. Inflation continued to ravage household budgets and eat away at savings, while retirement savers saw their balances shrink as markets tanked. Many tech workers have faced layoffs, and analysts predict a recession any day now. Crypto has taken a beating, as exchanges collapsed and empires fell. And housing has become increasingly unaffordable after 2021’s historically low interest rates opened the door (literally) to a new generation of owners.

But it hasn’t been all bad news. Many workers saw raises for the first time in years, with job hoppers, especially, seeing significant gains.

What will happen in 2023 is anyone’s guess. But here are nine things you can do to prepare your finances for whatever comes next.

1. Update your budget

Between inflation and rising interest rates, your budget may be severely out of date since you last reviewed it.

“With the start of a new year should be the start of a new budget,” says Kendall Meade, a certified financial planner (CFP) at SoFi, a fintech company. “Write down your money goals and expenses and from there begin to build up your new budget.”

To create one that works for you and your family, you can find help on sites like Reddit’s personal finance hub or you can use an app like You Need a Budget, Copilot, or Personal Capital. You can also use a service like Tiller for workable financial spreadsheets.

Meade adds now is also a great time to take audit of your subscriptions and cancel any unused services.

2. Make a plan for your student loans

The federal student loan payment pause has been extended, so you won’t have a bill due in January after all. It’s unclear when payments will resume because of ongoing litigation, but that could free up a few hundred dollars each month, depending on your balance.

You may have had some extra cash on hand for a while—payments have paused since early 2020—but the pause’s renewal is another chance to be mindful of how you’re spending. Review your finances to see where it can be best put to work. Will you invest it? Put it toward a down payment? Use it to stave off the pains of inflation?

One suggestion if you don’t need the money to cover daily expenses: Stash it in a high-yield savings account. With rates rising again, you can earn a little bit on your balance, and have the cash accessible when the payment pause officially ends.

3. Open a high-yield savings account

Speaking of, with interest rates on the rise again, consider opening a high-yield savings account. Banks like Capital One are offering yields as high as 3%. Just watch out for any fees or account minimums.

The best way to build up your savings once you open a high-yield account? Set up automatic transfers weekly or monthly so you don’t have to do the work of moving the money each month. “Out of sight, out of mind,” says Meade.

“Start with a small amount and increase your contribution where possible,” she says. “If you find that bigger goals can overwhelm you, you can set several smaller goals instead.”

4. Prioritize paying down high-interest debt

While rising interest rates are good for savers, they can make your debt—particularly debt with a variable interest rate—more expensive. The average credit card interest rate is now 19.34%, the highest ever.

“This can be catastrophic to those already struggling to make ends meet with high inflation,” says Meade. “Analyze your debt to make sure you are getting the deal that best aligns with your goals.”

For example, if your credit card interest rate keeps rising, consider consolidating it in a personal loan, which can be more cost-effective if the loan has a lower APR. You could also transfer the balance to a 0% APR card, which won’t charge you interest for a defined period of time, allowing you to pay down your balance more easily (typically you pay a fee to transfer the balance).

5. Save a little extra in your retirement account

For 2022, you can contribute up to $20,500 to your workplace 401(k) if you’re under 50, or $27,000 if you are 50 or over. Doing so on a pre-tax basis reduces your federal taxable income for the year. If you’re expecting a year-end bonus, you could transfer some of that extra cash directly to your 401(k).

And don’t forget about your traditional or Roth IRA. While you have until April 18, 2023 to make those contributions for tax year 2022, you can get ahead of the deadline now.

Next year, the contribution limit for 401(k)s increases to $22,500 (and $30,000 for those 50 and older), and the IRA contribution limit will increase from $6,000 to $6,500 (and $7,500 for those 50 and older).

If you can’t max out your accounts, try increasing your contributions by 1%. Even a seemingly small amount can add up generously over time.

6. Spend down your FSA

If you have a flexible spending account through your health insurance, the end of the year could be the deadline to spend the funds before you lose them (although for some companies the deadline is later).

Check out the FSAstore.com or Amazon’s FSA store to easily find products that are eligible for your funds. There might be some things that you didn’t realize qualify, like sunscreen, some face washes and acne treatments, menstrual products, and over-the-counter pain killers (the latter two being relatively new additions).

7. Check your credit report

If you haven’t pulled up your credit report in a while, now is the time to do so. You can check for inaccuracies or possible fraud on your report. You can also get an idea of what lenders see when they pull your report, which can help you when you’re making a big financial decision, like buying a home.

Simply go to AnnualCreditReport.com, and you’ll be able to access the three main credit bureaus for free.

8. Evaluate tax loss harvesting opportunities

Given the turbulent year in the markets, you may want to consult a financial planner about tax loss harvesting in your taxable investment accounts.

This is a strategy that reduces capital gains taxes. Essentially, you sell some investments at a loss and buy similar but different securities so that you can offset taxable gains.

9. Consider a Roth conversion

A down market is an “optimal time” to consider a conversion from a traditional to a Roth IRA, because it “results in a lower tax bill at conversion, coupled with the potential for a market rebound occurring within the tax-free shield of a Roth account,” says Matt Sampson, CFP and senior investment advisor at Arnerich Massena, Inc.

“Remember, future qualified withdrawals from a Roth account are free of income taxes, so it can be a tremendous benefit,” he says.

Yes, that means your distributions upon retirement will be tax-free (you’ll pay taxes now). Plus, unlike traditional IRAs, Roth IRAs don’t have required distribution mandates. YouR money can keep growing until you need it.