The New Year is a time to make resolutions. This year, let’s commit to getting our personal finances in order. Whether you feel like you’re just starting out or on the right track, this wise money moves will help you thrive in 2023 and beyond. We picked these 5 steps because they’re attainable by nearly everyone that commits to making a change.
Build Your Emergency Savings
Your emergency savings is what you would need for an unexpected expense, a sudden loss of employment, or anything that life might throw at you. When we refer to savings, we’re talking about cash that can easily be accessed – not tied up in stocks, bonds, or anything similar. It’s boring cash.
You can think of your emergency savings as your fortress of ready for anything. With a pile of cash protecting you and your family, you can rest easier at night, take career risks, and stress less about finances.
Isn’t that the point of getting your personal finances right this year? You want to stress less about money.
Build Your Cash in a High Yield Savings Account
We get it. Cash is boring. However, where your emergency savings lives can make a big difference when it comes to preserving the value of that money. Inflation has been getting the news headlines these days, and if you’re like most Americans, it might be a top concern.
The interest rate you earn in your typical big bank savings account is 0.01% to 0.1%. Even with typical annual inflation (2%), your money is losing value. A way to grow your savings while you sleep is to shop for a high yield savings account.
High yield savings accounts are typical with online banks – they don’t have local branches, so they can pass those savings to consumers by offering higher rates in savings accounts. How big is the difference? Let’s say your average big bank with a local branch gives you 0.1%. As of now, many of the online high yield savings accounts are offering +3% interest rates.
See how using a high yield savings account can impact the interest earned each year:
| Bank | Yield | Balance | Interest Earned (annual) |
|---|---|---|---|
| Traditional Savings | 0.01% | $5,000 | $0.50 |
| High Yield Savings | 3.3% | $5,000 | $165.00 |
Invest in Yourself
The year is 2023 and a plethora of education material is available online. Whether you want to earn a degree, add a new certification, or even learn how to build apps, you can easily skill up by investing in yourself this year.
Ultimately, there’s one investment that supersedes all others: Invest in yourself. Nobody can take away what you’ve got in yourself, and everybody has potential they haven’t use.
Warren Buffett (Investor)
Some of our favorite online education resources include:
- Udemy – IT, Business, Design, Marketing, Coding, and more. Courses are paid, and very affordable. For example, you could learn how to become a Python developer in 100 days. Reviews/ratings can help guide you to the highest quality Udemy courses.
- YouTube – Free resource to learn the very basics. We recommend using YouTube if you want a very basic introduction to a topic.
Investment Accounts for Retirement and Long Term Goals
Once you have established your emergency savings, it’s time to start investing in your long term goals. Perhaps you don’t want to be worried about money in retirement, or maybe you even want to retire early. These are all great goals.
Using an investment account, like an online brokerage, allows you to buy stocks in businesses, exchange traded funds (ETFs), mutual funds, and more. Of course, there are risks involved. This is especially true if you’re looking at short term goals. If you have short term goals (like saving up for a downpayment on a new home), then a high yield savings account might be more appropriate.
Market risks often grab news headlines. 2021 was a historically bad year for stocks. If you dumped $10,000 into stocks on January 1, 2021, you would be feeling a lot of pain right now. History shows that buying stocks and holding them over a long period of time is the best way to not only preserve purchasing power, but grow wealth.
Even during the darkest periods of the stock market, investors that used dollar cost averaging (ie. investing each month into funds or stocks) grew their money and preserved their purchasing power .
It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.
Robert Kiyosaki (Author of “Rich Dad, Poor Dad”)
Earn Rewards for What You Have to Spend
It’s really tough to save your way into wealth. However, cutting unnecessary costs (how many streaming subscriptions do your really need?) can help you cut debt, reign in your expenses, and help you put more money away in savings or investments.
Some expenses you simply can’t cut, and some expenses you need to just enjoy life. Whether it’s your internet bill or upcoming vacation, one of the best ways to find savings on expenses is to earn rewards on them. There are two easy ways to do it:
- Credit Card Rewards: Depending on your credit, you can earn cash back, travel rewards, or points to use on a variety of things like gift cards from your everyday expenses. Most cash back cards will offer 1%-2% cash back. That means you get $1 back on every $100 you spend. Depending on your lifestyle and goals, other rewards programs might be a better fit (ie. travel rewards).
- Credit Card Reward Bonuses: Many of the mid-level and premium rewards cards offer special incentives and bonus rewards for spending on specific categories, websites, or even groceries. If you are feeding a large family, a card that offers 5x points on grocery store expenses might be right for you. Maybe you love to travel. A travel card that offers 10x miles for booking through their online portal might be a better way to earn a cheaper or even free vacation.
Note: Using credit cards to earn rewards only works if you are committed to paying off your balance every month. Otherwise, your financial goals can get hit hard by high interest that can snowball quickly into out of control debt.
Make a Money Plan, Make It Automatic
You have probably heard the phrase, “pay yourself first.” It’s referring to the idea that you should put away savings and investments on payday, before you go shopping or even pay other bills. That sounds tough, but you might be surprised at how easy it is if you setup your accounts to automatically save for you.
David Bach, author of “The Automatic Millionaire,” wrote, “Once the decision is out of your hands, there’s no way you can be tempted into doing the wrong thing.” He was talking about making your savings automatic.
This might be an uncomfortable concept. Remember, starting small is still a start. Whether you automatically save $5 a week or $500 a month, setting your accounts to automatically transfer that money over without you ever thinking about it is a great way to make building wealth in 2023 an easier goal.
Set your goals, and make it happen!
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