2022 is drawing to a close, so it’s time to prepare financially for 2024. This year was challenging for many across the nation. As the markets plummeted, households faced inflation-driven budget cuts, and savings dwindled.
Numerous IT professionals have been laid off, and economists anticipate a recession. Cryptocurrency has suffered a hammering as exchanges and empires have fallen. Housing has become more expensive after 2021’s historically low-interest rates allowed a new generation of homeowners.
However, it has not all been terrible news. Numerous employees received raises for the first time in years, with job-hoppers experiencing the greatest gains.
What will occur in 2024 is a mystery. However, here are nine steps to prepare your money for whatever lies ahead.
Step 1: Update your budget
Your budget may be seriously outdated due to inflation and increased interest rates since you last evaluated it.
“A fresh budget should begin with the new year,” says Kendall Meade, a certified financial planner (CFP) of the fintech business SoFi. Meade stated that it is best to write out your financial objectives and costs, then design your new budget from there.
When designing a budget that works for you and your family, you may utilize sites such as Reddit’s finance hub or apps such as You Need a Budget, Copilot, and Personal Capital. Additionally, you may utilize a tool like Tiller to create functional financial spreadsheets.
Meade adds that now is an excellent opportunity to assess your subscriptions and terminate any underutilized services.
Step 2: Develop a strategy for your student debt.
While not everyone has student debt, if you do, this step is for you. The federal student loan payment suspension has been extended, so there will be no bill due in January. It is unknown when payments will begin due to continuing litigation, but depending on your debt, this might free up several hundred dollars each month.
Payments have been halted since early 2020, so you may have had some spare cash on hand for a time, but the renewal of the pause is another opportunity to be prudent with your spending. Examine your money to see where it may be best utilized. Will it be invested? Invest it in a down payment? Use it to mitigate the effects of inflation.
If you do not need the money for everyday expenditures, one option is to: Place the funds in a high-interest savings account. With rates increasing once again, you may earn a small amount on your balance and have the funds readily available when the payment halt formally concludes.
Step 3: Create a high-interest savings account.
Consider creating a high-yield savings account now that interest rates are again increasing. Online banks provide returns as high as 4%. Simply be wary of any fees or account minimums.
Once you’ve opened a high-yield account, what’s the greatest approach to building up your savings? Set up weekly or monthly automatic transfers, so you don’t have to move the money manually each month. Meade maintains, “Out of sight, out of mind.”
Start with a tiny contribution and raise it whenever feasible, she advises. If you feel that larger objectives might be overwhelming, you can create multiple smaller ones instead.
Step 4: Prioritize the reduction of high-interest debt.
While rising interest rates are beneficial for savers, they can increase the cost of your debt, particularly variable-rate debt. The average credit card interest rate has reached an all-time high of 19.34%.
According to Meade, this may be disastrous for individuals already trying to make ends meet due to excessive inflation. Analyze your debt to ensure you receive the best offers that meet your objectives.
Consider consolidating your credit card debt into a personal loan with a reduced annual percentage rate (APR) if, for example, your credit card interest rate continues to rise. You might also move the debt to a 0% APR card, which will not charge you interest for a specified period, allowing you to pay off the balance more simply (usually, there is a fee for transferring the balance).
Step 5: Save a bit extra in your retirement account.
For 2022, those under 50 can contribute up to $20,500 to their employer 401(k), while those 50 or over can contribute up to $27,000. This decreases your federal taxable income for the year on a pre-tax basis. You might send a portion of your anticipated year-end bonus directly to your 401(k) (k).
Don’t forget your regular or Roth IRA, either.
Contributions to 401(k)s will increase to $22,500 next year (and $30,000 for those 50 and older), whereas IRA contributions will increase to $6,500 for those under 50 and $7,500 for those 50 and older.
In cases where you cannot contribute the maximum amount to your accounts, consider raising your contributions by 1%. Over time, even a small amount can accumulate to a substantial sum.
Step 6: Utilize your FSA
If you have a flexible spending ac
count via your health insurance; you may have until the end of the year to use the money before they expire (although, for some companies, the deadline is later).
Check out FSAstore.com or Amazon’s FSA store to quickly locate goods suitable for purchase with your FSA dollars. You may not have realized that sunscreen, certain face cleansers, acne treatments, menstruation products, and over-the-counter pain relievers qualify (the latter two are relatively new additions).
Step 7: Investigate your credit report
Now is a perfect time. If you have not already checked your credit report, you can examine your report for inconsistencies or potential fraud. You may also view what lenders see when they retrieve your credit report, which can be helpful when making a major financial choice, such as purchasing a home.
Simply visit AnnualCreditReport.com to have free access to the three major credit bureaus.
Step 8: Evaluate potential tax loss harvesting
You may choose to visit a financial counselor regarding tax loss harvesting in your taxable investment accounts, given the volatility of the markets this year.
This method cuts taxes on capital gains. You sell certain investments at a loss and purchase similar but distinct securities to balance taxable gains.
Step 9: Think about a Roth conversion.
A market decline is an “ideal time” to convert a conventional IRA to a Roth IRA, according to Matt Sampson, CFP, senior investment advisor at Arnerich Massena, Inc.
He explains that future eligible withdrawals from a Roth account are tax-free. This may be a significant advantage. Yes, this implies that your retirement payouts will be tax-free (you will pay taxes today). In addition, unlike regular IRAs, Roth IRAs do not have mandatory distribution requirements, and your funds can continue to grow until you need them.