Make 2023 a productive year for your finances by reviewing your financial goals. This means taking stock of your investments, budget, debt and taxes. Here are six steps to get you started.
FINANCIAL GOALS • BUDGETING • INVESTING
6 Steps for Financial Health in 2023
1. Review your household budget
Jumpstart your new year with a financial check-in and map out an ideal budget for yourself. This will require a re-evaluation of your average monthly income, fixed expenses, and variable costs – such as groceries or gas. Make sure that your budget matches your personal and financial goals in 2023 and look for ways to reduces expenses and increase savings, especially when considering big ticket items such as buying a house, saving for retirement or a child’s education.
2. Look to reduce debt
Debt can be a massive hinderance to long-term financial goals. Seek to reduce your debt as quickly as you can and look to consolidate debt wherever possible. When thinking about where to allocate capital, always “pay yourself first”. What this means is reducing high interest rate debt instead of putting money in savings or investments. This creates a snowball effect through a reduction in future interest payments and an increase in savings and investments.
3. Diversify your investments
2022 exposed significant gaps in the traditional 60/40 portfolio as stocks and bonds were both simultaneously in decline. As we face ongoing geopolitical uncertainty, inflation and public market volatility, consider whether increasing your allocation to private markets could be advantageous. These opportunities could both decrease the volatility of your portfolio while also increasing the likelihood of achieving your financial goals. This can include the addition of income opportunities in real estate, infrastructure and private debt. Citizen Mint helps advisors and individuals gain access to a curated list of institutionally vetted private market opportunities at low minimums.
4. Contribute to and leverage tax-advantaged accounts
Utilize an IRA, either Roth or Traditional, to invest excess capital to grow tax free until retirement. Contribution limit is $6,500 for 2023 and $7,500 for individuals over 50. Reducing tax drag can add thousands to your portfolio over time. For investments that generate regular payments, an IRA can also help reduce higher ordinary income tax exposure through deferral of recognition.
Utilize your company’s 401(k) match to maximize your retirement savings. Here’s how you can make the most of your 401(k) match:
Utilize an Health Savings Account, which are one of the best and least known places to stash away capital for retirement. These accounts benefit from tax deductions both in the contributions and tax free withdrawals at retirement. They accounts provide triple tax preference as:
5. Align your portfolio with your values
As we look at 2023, it’s clear that investors want their investments to reflect the values they hold dear. Morgan Stanley’s Investor Pulse Poll reported 71% of all respondents feel this is important – but only 44% believe it currently happens.
Here are some steps to help you align your portfolio with your values:
Identify your values and priorities: Start by reflecting on your personal values and the issues that matter most to you. Examples of areas include climate change, sustainability, ethical business practices, or social justice, just to name a few. Clarify which values are most important to you and prioritize them in your investments.
Research and understand the investment opportunities that align with your values: Educate yourself about values aligned investment options across assets classes including stocks, bonds, and private market investments. Investing in value aligned opportunities in private markets is usually called Impact Investing. These are investments that seek to both maximize financial returns as well as have a positive impact on specific global challenges whether around climate change, sustainability, affordable housing, etc. This knowledge will help you make informed decisions when aligning your portfolio.
Diversify your portfolio: Apply the principles of diversification to your values-aligned portfolio. Allocate your investments across different asset classes, sectors, and regions to manage risk effectively. Diversification ensures that your portfolio is not overly exposed to the performance of a single company or sector, providing stability and potential for returns.
Citizen Mint is here to help advisors align client portfolios with their values while seeking to maximize returns.
6. Examine where your cash is held
As a result of the Federal Reserve’s aggressive rate hiking spree, investors have significantly better options for storing cash heading in 2023. Savings rates have creep up to 4% and, in some cases even approach ~5%. Some places to hold cash include:
High-yield savings accounts: These accounts are offered by banks and online financial institutions. Look for accounts with FDIC insurance to ensure your deposits are protected.
Money market accounts: Money market accounts are similar to savings accounts but often offer a higher interest rate. They provide liquidity, allowing you to withdraw cash when needed, and typically come with check-writing privileges. Like high-yield savings accounts, ensure they are FDIC-insured.
Certificates of Deposit (CDs): CDs are time deposits that offer a fixed interest rate for a specific term, ranging from a few months to several years. They provide a higher interest rate than regular savings accounts but require you to leave the money untouched for the duration of the term. CDs are a good option if you have a specific timeframe in mind and don’t need immediate access to the funds.
Treasury bills (T-bills): T-bills are short-term government securities issued by the U.S. Department of the Treasury. They typically have maturities of a few days to a year. T-bills are considered very safe investments as they are backed by the U.S. government. While they may not offer the highest returns, they provide a low-risk option for holding cash
When deciding where to hold your cash, consider the balance between safety, accessibility, and potential returns that align with your needs and risk tolerance. It’s advisable to diversify your cash holdings and keep an appropriate amount readily available for emergencies or immediate expenses, while allocating the rest to options that offer higher yields or potential tax advantages.
Learn how Citizen Mint reviews investment opportunities by downloading our Investment Philosophy and Process white paper.
Sign up to download Citizen Mint’s Investment Process & Philosophy white paper.
Sign up now to learn the benefits of private market impact investing for financial advisors