Planning for your finances may not be one of the tasks you think of for the upcoming year, especially if it’s something that doesn’t come naturally to you. However, ignoring it won’t make it go away and even lead you to bad financial habits that can have a long-term impact on your life.
With expert economists sounding the alarm bells on the likelihood of a recession in 2023, it only makes more sense to start fixing your finances. In this article, you’ll learn several ways to protect your finances and maybe some on how to get rich or increase your income stream.
Table of Contents
1. Build An Emergency Fund
Your first goal toward a more stable financial state is to create an emergency fund. From the loss of a job to unexpected medical expenses, having extra cash on hand can help you weather whatever life might throw at you.
You should have at least 3–6 months of living expenses built into your emergency fund. However, with the threat of an upcoming recession, some experts recommend saving at least 8-12 months’ worth of funds.
The amount still depends on your obligations and basic necessities. Don’t feel you should have the entire emergency fund ready right away. That said, when your emergency fund isn’t anywhere near the recommended amount, make it a priority.
2. Plan To Attack Your Debts
If money suddenly becomes tight, not having to worry about unnecessary expenses such as debts is a load off your shoulder. If you still have wiggle room in your finances, it makes sense to tackle your debts right away.
The most common high-interest debt you probably have is your credit card balance. While it’s challenging, do your best to get out or pay down your credit card debt so as not to harm your finances further.
If you have multiple debts, you have the option to refinance your debt for a lower interest rate. This can be tricky due to the rising interest rates, but you can still find plenty of lenders offering debt refinancing with low interest. Having a good credit score helps you save on interest charges.
3. Start Cutting Back On Expenses
Probably one of the most common pieces of advice to save money is to become more disciplined in your expenses, but it is often easier said than done. How many times have you convinced yourself to start cutting back your expenses only to double your previous monthly expenditures?
Be that as it may, being determined in cutting back your expenses can truly benefit your finances. Curbing your spending can free up more money, which you can use to increase your emergency savings or pay off debts.
You don’t have to go to extremes for this tip though. Even small things such as not going out to restaurants as often or canceling subscription services you haven’t been using lately can provide extra savings to get ahead with your finances in the upcoming years. Plus, this practice builds discipline so that you’re well on your way to becoming financially responsible.
4. Don’t Forget Tax Planning
Tax planning may not be your favorite part of the year, but it always comes to you right after the New Year. With sound tax planning, you can potentially save on taxes while conforming to your legal obligations and requirements.
Make sure that you know which documents you’d need when filing your taxes. Consider talking with a tax professional to know and understand any tax benefits you may be eligible for. If you’re expecting a tax refund, plan how it can benefit your finances.
Maybe you can use it to pay off a debt. If you don’t have anything to use it for, consider depositing it directly to an investment account.
5. Look For Extra Sources Of Income
It’s always a good idea to find more sources of income, whether looking for a second job or starting a side hustle. You can try looking for methods that can help you gain passive income such as affiliate marketing or investing in rental properties.
This way, you’re not completely reliant on one source of income. With multiple ways to earn money, you become less vulnerable in case 2023 takes a turn for the worse.
It may take a while to create and stick to good financial habits, but it’s worth it (pun intended). Financial management can help you save money and time and free you from stress and anxiety. It enables you to make well-informed spending decisions, prioritize expenditures, and allocate your resources more effectively.
If you want to control your finances and enjoy a more stable financial life in the upcoming year, start implementing the above tips right away.