Amid inflation and recession fears, 10 money moves you should make in 2023

While inflation is cooling, projections still point to elevated consumer prices next year. What’s more, recession threats remain high, unemployment may rise and investors are still reeling from stock and bond indexes falling double digits for the year. So experts say a strategic approach with your hard-earned dollar is critical. Here are the 10 things money pros say you need to do in 2023.

1. Make sure you earn at least 3% on your savings account

One of the benefits of the current high interest-rate environment that we’re in these days is the relatively high annual percentage yield, or APY, available at checking and savings accounts.  “Make sure your savings account is returning above 3%. If it’s not, find an alternative,” says Noah Schwab, a certified financial planner at Stewardship Concepts in Spokane, Washington, who adds that ensuring your money is working as hard for you as you work to save should be top priority. If you can’t decide where to find a high rate, here are five bank accounts offering APY of more than 4%. See the highest savings account rates you may get here.

2. Build an emergency fund 

An “emergency fund can protect you from unexpected expenses and reduce stress,” explains Tommy Gallagher, founder of Top Mobile Banks — something you’ll especially want if we enter a recession next year.

Considering your lifestyle, monthly costs, income, and dependents, firms such as Vanguard, Chase and Wells Fargo estimate anywhere from three to six months worth of expenses are needed in a liquid emergency fund.

David Edmisten, a certified financial planner and founder of Next Phase Financial Planning in Prescott, Arizona, adds that those funds should also be earning interest. “Consumers who review the options for the cash savings, emergency funds and short-term conservative investments may be able to pick up a significant increase in the amount of interest they earn by moving to any of these options versus using their regular bank checking or savings accounts,” Edmistena said. See the highest savings account rates you may get here.

3. Retirement contribution limits are going up, so maximize contributions

Retirement contribution limits are indeed going up in 2023. For employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, the limit will increase to $22,500 from $20,500 in 2022, with catch-up contribution limits increasing to $7,500, according to the IRS. Also next year, IRA and Roth IRA contribution limits will increase to $6,500 with the annual cost of living adjustment remaining at $1,000. 

Dennis DeKok, a certified financial planner at FCM Financial in Grand Rapids, Michigan says “maximizing any 401(k) match from your employer is like free money, so that should be priority number one.” He added that “Roth IRA and HSA contributions should be next in line because of the tax benefits,” and to “focus on maximizing these contributions before making any more 401(k) or other investment contributions.”   

Vanessa N. Martinez, founder and CEO of Em-Powered Network, says anyone who qualifies should consider “maximizing your retirement contributions and looking for other ways to invest” in 2023. “This means you should adjust your monthly contributions to make sure you are fully contributing.”

4. Reassess your investment goals, and rebalance if necessary 

Too much in stocks? Maybe not enough in fixed-income or real estate? Halbert Hargrove Senior Wealth Advisor Taylor Sutherland, says the start of the year is typically a good time to reassess your investment goals and consider rebalancing your portfolio. “Given material declines in both stocks and bonds, you may not be that out of whack,” Sutherland said. “Preferably you do this each year, which would’ve meant trimming a presumably overweight stock portfolio at the beginning of 2022.” 

If you feel that doing this alone is a little complex, consider working with a financial advisor to more strategically construct your investment portfolio. (Looking for a new financial adviser? This tool can help match you with an adviser who might meet your needs.) Robo advisors also implore asset allocation strategies to match your risk tolerance levels. If you plan to go it alone, target-date funds, often offered in employer-sponsored retirement plans, can do the allocation work for you and adjust over time depending on your age and target year. 

5. Stick to your long-term goals

The S&P 500 this year has so far posted a year-to-date loss as of Dec. 14 of more than 14%, as measured by SPDR S&P 500 ETF Trust, also known as SPY, according to Morningstar data. Over the past decade, however, SPY has generated a return of more than 13%. And although some investors experienced “considerable pain” than had been expected over the near term, as described by J.P. Morgan’s 2023 Long-Term Capital Market Assumptions report, “the underlying patterns of economic growth look stable.”

Pros say it’s key to think long-term. Caleb Pepperday, a certified financial planner with JFS Wealth Advisors in Pittsburgh agrees that no matter how much pressure investors may be feeling to make up lost ground in 2022 — and there is quite a bit to gain — keeping a steady focus on the future and long-term investment strategy is critical. “One of the greatest benefits to investing is compound interest, but you need time on your side,” Pepperday said. “We live in a society of instant gratification, and investing in your 401(k) or IRAs initially are certainly not that since the impacts of compound interest grow exponentially over time.”

6. Look for low-cost stock and bond buying opportunities

Considering the potential for prolonged market downturn in 2023, Zachary Bachner, a certified financial planner with Summit Financial in Sterling Heights, Michigan, says less risky investments are one area to find short-term protection.

“Market volatility often creates discounts and cheaper buying opportunities for stocks and other investments,” Bachner said, adding that “the rise in interest rates has allowed guaranteed fixed-rate investments to become more attractive and those may be suitable for investors who are uncomfortable with the recent market volatility.”  

With a maximum contribution limit of $10,000 this year, I-bonds are one attractive option for investors these days with a combined annualized rate of 6.89% for those issued from Nov. 1 to April 30, 2023.

7. Watch your spending

Although inflation has started to come down in the last couple of months, prices across the board are still significantly higher going into 2023 than where we were this time last year. Food prices, according to BLS data, are 10.6% above where it was 12 months prior, while gasoline is 10.1% up and fuel oil costs are more than 65% higher than they were in 2022. 

Andrew Gonzales, co-founder and president at BusinessLoans.com, says consumers should take active steps to “spend more consciously” and “form a safety blanket” in the event of any lifestyle or financial decisions. “This puts you in firm financial footing in case of unexpected events,” Gonzales said. “Though nobody wants to put their lives on hold, hedging against risk is crucial during such uncertainty. Making sensible money moves, and investing where possible, is a great way to get ahead, so that you can be proactive when better times come.”

8. Take stock of your monthly subscriptions

Do you ever feel like your monthly subscriptions are getting out of hand? Well, you’re not alone. When it came to monthly costs for cell phone, internet, movie streaming apps and more, Americans spent $213 dollars every month in 2022, according to a report from C+R Research. That’s $133 dollars higher than the average consumer expected they would spend per month this year.

Needless to say, Andrew Gold, financial advisor at Prestige Wealth Management in Southlake, Texas, said the solution here is simple: “We get so caught up on the month-to-month, we forget how many automatic payments are out there,” he said, adding that reviewing statements should be a “standard practice” for everyone. After reviewing monthly fees with one client, Gold said they were able to cut back on “over 25 that she forgot about automatically coming out and saved her almost $500-per-month.”

9. Consider meeting with a financial adviser if you feel you need additional financial help

With many of these strategies requiring professional help, Bachner says working with a financial adviser should be top priority. “Meeting with your personal advisor can oftentimes bring peace of mind during stressful periods and they can reassure whether or not recent market moves have had any negative consequences on your overall financial plan.” Of course, not everyone needs and adviser, and if you feel confident in your money skills, going it alone can save you money. (Looking for a new financial adviser? This tool can help match you with an adviser who might meet your needs.)

10. Update your resume

Following a year of fiscal tightening from the Fed, one key area economists are watching closely is the unemployment rate — a number Fed Chairman Jerome Powell says needs to at least modestly rise for inflation to ultimately reach its 2% target. And with Bloomberg economists predicting unemployment to reach 4.6% by the end of next year and the New York Fed’s John Williams recently estimated it rising to more than 5% from its current rate of 3.7%, it may not be the worst idea to have a backup plan. 

“The contraction of the job market is just starting and layoffs have been announced for 2023 but not yet acted on,” Gold suggests. “It is never a bad idea to update your resume and consider some prospective changes in a thriving job market.”