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New year, are you new? Mostly not.
One of the revelations that will likely emerge in 2023 is that you are pretty much the same person as last year. You don’t like to run or take vitamins all of a sudden.
But sometimes it’s fine when things don’t change, and the fact that many of the money we have to move around stay the same from year to year at least gives us more times to try to get it right.
Here are three of the most important actions to take now (and at the start of each year), say financial experts:
1. Update your budget
“The new year is an opportunity to reflect and start over,” said Brian Bender, president of Schwab Retirement Plan Services. This should include your financial plan.
Bender recommends making a list of any major expenses you anticipate for the coming year, including a potential move, marriage, or expensive vacation.
He said you want to include these costs in your budget and prepare for them. Likewise, if you’re changing careers or anticipating a raise, you’ll want your new budget to reflect that.
To understand how much you spend, look at your purchases over the past two months, said Kimberly Palmer, personal finance expert at NerdWallet.
“From there, you can create a rough estimate of where you want your money to go,” Palmer said.
One helpful rule of thumb, she added, is the 50/30/20 budget, which allocates “50% of your take-home paycheck to needs, 30% to desires and 20% to savings and debt.”
2. Review your emergency savings
Having a solid emergency savings account is one of the best ways to sleep soundly at night, said Cristina Guglielmiti, president of Future Perfect Planning in Brooklyn.
How much money people need for a pretzel varies, Guglielmiti said, and the beginning of the year is the perfect time to evaluate what works best for you.
To get started, you’ll typically need to calculate your major monthly expenses, including rent, food, utilities, and pet care, and then decide how many months you want the account to be able to cover if you lose your job. (Of course, that money will also come in handy in case of a one-time emergency like an unexpected car repair or medical bill.)
“It can be low, like one to three months, especially if there are other pools of savings to withdraw from, the possibility of family support or if one or both jobs are very stable,” Guglielmiti said. “Or it can go up to nine to 12 months if someone prefers that kind of security.”
She recommends keeping the cash in a high-yield savings account. You’ll just need to make sure that any account you put your savings into is FDIC-insured, which means protecting up to $250,000 of your deposit (per account holder, per bank) from loss.
3. Make sure you’re on the right track for retirement
Experts say the start of the new year is the best time to check your retirement savings goals and make any needed changes.
Some people may be able to take advantage of the increased annual contribution plan limits for 401(k) retirement plans in the workplace ($22,500) and individual retirement accounts ($6,500), Guglielmiti said.
Workers 50 or older may be eligible to make additional “catch-up” contributions.
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Even a small increase in your savings rate can be powerful, said Rita Assaf, vice president of retirement at Fidelity Investments.
Assaf gave an example: For a 35-year-old earning $60,000 annually, increasing their retirement savings contribution by 1% (or less than $12 per week), could generate an additional $110,000 through retirement, assuming an annual return by 7%.
“If you have access to a 401(k) with a company match, try to save it at least to the level of your company match,” Assaf added. “If you don’t, it’s like leaving free money on the table.”