With 2023 just days away, could there be a more confusing time for investors? On one hand, the discussion is all about the upcoming recession — but is there actually going to be one? On the other hand, the discussion is also about the inflation monster, which has seriously impacted all of our wallets.
For this year, M&A Accountants LLC will give you some tips on how to manage your money:
1-Supersize your retirement plan contribution
If you are still working and have the cash flow, 2023 could be a terrific time to max out your tax deferrals, says Rachel Elson, a certified financial planner in San Francisco, California. Federal limits have jumped sharply, so with catch-up contributions, workers age 50 and up will be able to put $30,000 into workplace retirement plans like a 401(k) or 403(b).
You’ll need to have sufficient income to allow this kind of saving because you could be tying up those dollars for several years, she says. But if you’re in your peak earning stage — and especially if you’re living in a high-tax state — the tax break from maximizing your deferrals can be meaningful.
2-Create a business owner retirement plan
More than 54 percent of America’s small business owners are age 50 and over, according to the Service Corps of Retired Executives. Those who are self-employed can still have access to a retirement plan although many don’t realize it, says Marguerita M. Cheng, a certified financial planner in Gaithersburg, Maryland. The benefit to them is additional savings for retirement and tax savings either today or in the future. For those who have employees, the options include Simple IRA, SEP IRA or 401(k).
3-Invest in U.S. Treasury bills
Treasury bills have several advantages. Since they mature so quickly, the investor doesn’t have to tie up money for a long time. Also, the principal can earn more money as the Fed increases rates to combat inflation. Benold says it is a smart idea to be investing in Treasury bills because they will likely continue to pay more if there are additional interest rate increases. You can buy them with no fee from Treasurydirect.gov.
4-Check your lifestyle creep
When you were just starting a family, you might have tried to save money by purchasing store brands at the grocery store and regularly using coupons. Somewhere along the way, you may have upgraded to the pricier name brands and even nixed the coupons. Maybe 2023 is the year to get back to the basics, says Grant. Also, consider gathering your friends together to take advantage of bulk buying through Sam’s Club and Costco.
5-Create a line of credit
It’s always a smart idea to have a line of credit, particularly during economic uncertainty, says Bruce Colin, a certified financial planner in Rancho Palos Verdes, California. Ideally, it is to be used only in the event of a job loss or to fund an unexpected expense that might otherwise require you to sell an asset at a depressed price.
We are often advised to maintain sufficient cash reserves so that we can navigate unexpected expenses. While this remains a bedrock financial planning principle, not everyone is able to keep that much cash set aside for such a purpose, so access to a credit line can help provide a short-term safety net. But a credit line should never be used to fund a lifestyle that could not otherwise be afforded. The best credit line is one that is readily available if needed, but rarely if ever used, he says.