Inflation has been hitting everyone hard and going into 2023 there are a number of things you can be on … [+]
Inflation has been hitting everyone hard, and going into 2023, there are several things you can do to protect the state of your finances.
Ask for more at the bank.
Because interest rates have risen sharply over the past year, it’s suddenly possible to earn a return on savings accounts, money markets, certificates of deposit, and other cash-equivalent instruments. Look at your statement, and if your interest rate is still negligible, consider changing banks or talking to your financial advisor to find better alternatives.
Ask for more at work.
Due to the rate of inflation, companies that typically give a “cost of living” increase will likely have to increase the percentage of increases just to keep up. If your HR department offered you the normal 3%, you’ll actually take a pay cut.
Talk to your company about at least getting close to the 8.7% cost-of-living adjustment set by Social Security to offset the increase in goods and services we’re seeing in most industries.
Use it wisely.
If you’re lucky enough to receive a significant raise, you’ll want to use that extra money wisely. Especially in current conditions, you don’t want to fall victim to a slow lifestyle or an increase in your normal spending when you have access to more money.
Try to continue living on the amount you previously earned, and use the extra funds to pay off debt, invest for your future, or build an emergency fund. If you have any variable-rate debt, like a line of credit on your home or personal credit cards, pay those debts off as soon as you can because they’re getting more expensive every time interest rates rise.
Increase your contributions.
The IRS has increased the contribution limits for most retirement savings vehicles. The 2023 limits will be:
401(k): $22,500/year with a $7,500 catch-up provision starting at age 50
IRA: $6,500/year with a $1,000 catch-up provision starting at age 50
HSA: $3,850/year for individuals or $7,750/year for families with a $1,000 catch-up provision starting at age 55
SIMPLE IRA: $15,500/year with a $3,500 catch-up provision starting at age 50
Defined Benefit Plan: $265,000/year
Defined Contribution Plan: $66,000/year
If you’re already used to maxing out your retirement accounts in 2022, consider increasing your contributions to meet the new, higher limits in 2023.
Start planning.
We are seeing unprecedented changes in the cost of living, and there may be several new planning conversations to have with your advisors. Talk to your CPA or financial advisor about possible tax planning opportunities related to continued employment, relocation to a different state in the US.
The lesson:
Inflation is scary and is hurting many families, but there are ways to minimize the effects. Making strategic decisions with the help of a trusted and professional advisor can have a huge impact on your financial future.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those of Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations to any individual. It is suggested that you consult your financial professional, attorney or tax adviser regarding your individual situation. Comments on past performance are not intended to be forward-looking and should not be viewed as an indication of future results.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Brotman Financial Group, Inc. and BFG Financial Advisors are not affiliated with Kestra IS or Kestra AS.
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