2022 was a strange year due to inflation, rocky equity market, and a crypto rollercoaster.
Uncertainty abounds despite a strong job market. Many people worry about possible layoffs or a recession. Others are worried about how they will afford to buy groceries. It's been like whiplash after 2021's incredible gains.
Financial advisors advise that if you are in recovery mode, the best thing to do for 2023 is not to think about the next best thing. Instead, go back to the basics.
"The new year will bring about economic twists and turns," says Carrie Schwab-Pomerantz, president and board chair of the Charles Schwab Foundation. While it might sound boring to some, my advice is to keep your finances simple," Carrie Schwab Pomerantz, president of the Charles Schwab Foundation, tells Fortune. Keep to time-tested principles like budgeting, saving, investing long term and diversifying your portfolio.
Schwab-Pomerantz believes that tried and true money management principles are going to win in 2023 as people put more emphasis on building wealth and protecting themselves against future volatility. Focusing on the basics is the best thing to do, especially when recession fears are affecting you. A large emergency fund can help you through job loss or reduced hours.
Here's what you should focus on if simplicity sounds appealing as a New Year's resolution.
You'll want to know your financial position after a difficult year. To get 2023 off to a good start, conduct a financial audit. This will allow you to determine where your money is going. This involves analyzing your bank and credit card statements, and categorizing your spending.
Brad Hindman is a financial advisor at Wells Fargo Advisors. "Most things will cost more next year." Consumers will pay more for the same item if they are financed using variable rates.
Hindman says you might be surprised at your own spending. Hindman points out that one client was able eliminate subscriptions, and another was able reduce her entertainment budget.
It is helpful to keep track of your spending or to use apps like You Need a Budget and Copilot to classify everything. You will likely find some type of spending that doesn't serve you, whether it's impulse buying after a stressful day or fancy food at the fancy grocery shop.
Also, determine how much money you have in retirement accounts as well as how much debt. Your net worth is determined. This information is important and will help you make informed financial decisions.
Julie Beckham, assistant vice-president of Financial Education, Development & Strategy officer at Rockland Trust, says that it is important to understand the difference between a real need and a desire when managing your money. Is it really necessary to spend money on Amazon knickknacks that you spotted while scrolling through TikTok? Or would you be able to live without them?
Beckham says, "In our consumer-based culture it is easy to forget what are needs and want, because the wants can be found everywhere."
She suggests that asking yourself prior to making a purchase whether it is necessary or not can help you avoid spending too much.
One proven way to cut back on spending is to put a 48-hour or longer waiting period before you purchase anything. This will remove the temptation to purchase immediately and give you time to consider whether you truly "need" the item you are about to purchase.
It can be useful to ask if you have a need for something or not.
While crypto and other alternative asset types can be very exciting, they shouldn't be your top priority, according to Alan Imberman chief financial officer at Wealthfront. Most people would be better off investing in low-cost index funds that offer broad exposure. Diversification is crucial to long-term wealth building. Instead of putting all your eggs in one basket you can spread your risk.
Imberman says, "This sounds boring. I get it. But good investing shouldn't be boring." If your investments are too exciting, you probably don't invest--you're just gambling. Gambling is always a winning strategy.
Robert Johnson, a chartered analyst and professor of finance at Creighton University’s Heider College of Business, says that the market's returns can be driven by a few big winners. It is impossible to consistently pick the winners. An index fund takes care of the hard work.
Johnson urges beginning investors to adopt the KISS mantra: Keep It Simple, stupid.
Johnson states that index investing is based on the principle of "if you can’t beat ‘em join em," Johnson. "Investors simply can't afford to make oversized bets on individual securities...Investing in a broadly diversified basket of securities is a prudent strategy."
You are now committed to investing in low cost index funds. Make it a daily habit.
Dollar-cost averaging is one of the most popular and well-respected strategies for long-term investment. Dollar-cost averaging is simply the act of investing a fixed amount in the same fund at regular intervals for a long time.
Dollar-cost averaging is when you make a contribution to your retirement account from each paycheck. This means that you aren't trying to time the market, which can lead to financial disaster for many investors. Instead, you are investing consistently at the market's annual highs and lows.
This is a great strategy to save in an emergency fund. While many people find it easier saving large sums of money like a year-end bonus or tax refund, it adds up over time.
Have you ever checked the APR of your credit card or the interest rate on your savings account? It is time to review the basics of all your financial accounts.
Tatiana Tsoir is a certified public accountant, author, and speaker. "Know exactly what you're getting into and whether it will help or hurt your financial position."
According to a survey by the Financial Industry Regulatory Authority Investor Education Foundation, 21% of respondents said they don't pay fees for non-retirement accounts. This is unlikely to be true. Financial companies don't offer services out of kindness. You can find the "expense ratio", or your financial advisor's explanation of how they make their money, if you aren't sure what you're paying. You may be surprised at what you find.
Fortune.com originally published this story.
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