Happy New Year 2023!
Each new year offers a great opportunity for a fresh start and new beginnings. Setting resolutions is a long-standing tradition. However, only about 10% of people achieve their New Year’s resolutions each year. And many people stop working towards their resolutions after just the first two weeks.
When it comes to finances, 2022 was a challenging year. With high inflation, rising prices on everything, and volatile stock markets ‘2022 was the sixth-most volatile year since the Great Depression’.
Almost 81% of Americans are concerned about their financial New Year’s resolutions and believe that inflation makes it harder to meet their goals.
But making New Year’s resolutions is a great way to change your life for the better. The new year can be a great time to think about what is possible in your near future. Also, the new year is a great time to set some good financial goals. But make sure to set some small realistic goals that will help you work towards larger goals.
Even though we all like to set up new goals and resolutions, different generations have different goals for the new year.
If you are a baby boomer, here are my tips and advice to help you make your 2023 New Year’s resolutions.
1. Eliminate any debts.
Why is it so important to reduce or eliminate debt?
Debt is always a slippery slope because the interest will eat massive chunks of your spending money. The faster you can get rid of it, the faster you can get ahead.
That is why the beginning of the year is a great time to sit down and create a debt payment plan.
There are two strategic and popular methods to get out of debt faster. The Avalanche method helps to reduce the debt that carries the highest interest rate. The Snowball method helps to get rid of debt with the lowest balance first, and then move on to the next lowest one.
The way the snowball approach works is you arrange all of your debts from largest to small ones. Pay off your smallest debt first. Then once the smallest debt is paid off, the money you were paying toward it will be applied to your next smallest debt.
With the avalanche approach, you will start paying off the debt with the highest interest rate and then move to the next highest.
Goals to get out of debt:
- Identify what debt to pay first.
- Set up a debt payment plan.
- Consider reducing other expenses to pay debt faster.
2. Increase retirement savings.
Sometimes we do not realize how expensive it will be to retire.
Building a nest egg that allows for retirement income to be close to 100% of pre-retirement income is a hard financial task. Unfortunately, very few people are confident in their retirement savings goals. Most people do not have the proper number in mind, and they forget the impact of inflation on their savings.
In terms of total retirement savings, retirees need to be able to live on no more than a 4% annual withdrawal from their retirement assets. You are not ready to retire if you have minimal savings. Social Security is generally not enough for a comfortable retirement. You will need to keep working and saving more money.
When you are a few years away from retirement, being short on retirement savings can be problematic. The best option is to start reducing your expenses, so you can put more money into your retirement savings.
Goals to help you save:
- Set a monthly savings goal.
- Analyze your budget to see how much you can save.
- Reduce your spending in a specific category each month.
- Save a portion of your paycheck each month.
- Increase your contributions to retirement plans – 401(k), IRA, Roth IRA.
- Checklist for Retirement Planning in Your 60s
- Understanding Different Types of Retirement Accounts
- 20 Easy Ways to Save More Money Every Day
3. Save more for emergencies.
One of the biggest worries about money among baby boomers is that you do not know what will happen in the future.
You do not know if it would be enough to maintain your lifestyle in retirement and if you would not run out of money later when you are in your 80s or 90s.
When you retire, you do not have the security of your job to rely on and have to live on a fixed income. While you cannot exactly plan for the unknown, you can create a backup plan for emergencies.
In general, every household needs an emergency fund to cover unexpected expenses and it should be between 3 to 6 months of household income. But for retirees (in an ideal world) 1 to 3 years of living expenses should be set aside in cash.
Even though your emergency fund cannot cover everything, it can still reduce the money you have to borrow from your family or use credit cards and increase your debt.
The beginning of the year is a great time to put aside extra money into your emergency fund.
Goals for an emergency fund:
- Figure out how much you need in your emergency fund.
- Create a separate account (money market account, bank savings account, certificate of deposit.
- Set up automatic transfers to your emergency fund each month.
4. Create a retirement budget.
Creating a retirement budget, along with a strategy of how you will draw money from your retirement funds is an excellent New Year’s resolution for many baby boomers.
Start by setting up a budget using the amount of money you will have when you retire plus a Social Security paycheck. Do not forget the emergency expenses like home maintenance, car repairs, and medical bills. See if you can live on that budget.
If you cannot, you need to come up with another plan. Think about downsizing if you are a homeowner or relocating to a more affordable area so you can put that extra money into retirement savings.
Think about how much you want to save and how much to spend in 2023. Sticking to your budget can help to know where your money is going. If you want to save more money for your upcoming retirement, begin eliminating some expenses that may not be important to you anymore.
When you retire, you do not need a lot of things that you did when you were working. The costs of commute, take-out lunches and business clothes will go down. On the other hand, you will start spending more money on travel, hobbies, and activities.
Goals for retirement budget:
- Identify your potential retirement income.
- Calculate your future retirement expenses by looking at your current costs of living.
- Budget with your spouse or partner.
- Calculate your net worth.
5. Reduce your expenses.
One of the simplest parts of your financial life to control is spending.
The beginning of the year is a great time to look at your personal spending and set up new goals. 2022 has been full of change and adjustment with many people preferred to work remote. There is a good chance that your spending habits have changed as well.
How did you do last year? Did you get a full picture of your finances and know how much money you have saved (or not) in 2022?
If you struggled last year, decide how to improve your financial situation in 2023.
Look at your credit card and bank statements and see what expenses could be avoided last year, and plan to cut them this year.
Keep in mind, that balancing your income with your spending is the key to saving more money for retirement.
Goals for reducing your expenses before retirement:
- Find ways to reduce transportation costs.
- Pay off your mortgage or reduce housing costs by downsizing.
- Eliminate high-interest debt – credit cards, personal loans, student loans.
- Evaluate your insurance coverage.
- Figure out where you will live in retirement.
- Should I Pay off a Mortgage Before Retirement?
- How to Cut Expenses Before You Retire?
- 5 Biggest Retirement Expenses and How to Reduce Them
6. Manage your overall stress and focus on happiness.
We all know that financial stress is not good for our health. Financial anxiety negatively impacts not only our health, but our mood, home and social life, marriage, and ability to pursue our dreams and passions.
Unfortunately, in the current economic climate, it is unlikely that our financial difficulties will disappear overnight. However, it does not mean we have to give up. Perhaps, we need to take small steps to ease our stress levels and focus on happiness and not money.
Everyone’s dream is to have a happy family and be financially secure. So, if you want to be happy and have a secure retirement, try to:
Stop accumulating stuff – Spending money on accumulating stuff does not bring happiness and might put you in debt. Downsize and de-clutter your home, so you can spend more time enjoying your life rather than maintaining it.
Think about experiences – It is a proven fact that you are happier when you spend your money on experiences than on stuff. Accumulating more stuff does not make you happy but doing interesting things do.
Focus on your priorities – Know what is important to you and stop worrying about the rest.
Express gratitude – Be grateful for the good things in your life. It is easy to focus all your attention on the negatives when you are overwhelmed by financial uncertainty and money worries. While you do not have to ignore reality, you can be grateful for many small things in your life. Take a moment to appreciate the beauty of the sunset, flowers in your garden, a gorgeous sunny day, or just a good book.
Find ways to be kind and to help others. These efforts help you see beyond your own financial problems to give something back to the world.
Have you thought about your 2023 resolutions yet? Do you have any financial goals?
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