Every year, Ilyce and Sam offer their readers New Year’s resolutions for home buyers, sellers and their personal finances. These are their personal finance resolutions for 2023.
As we finish the third year of the pandemic, money and credit issues continue to weigh heavily on the minds of most Americans.
Let’s take a moment and recap the financial repercussions of the pandemic: In February, 2020, the unemployment rate was 3.5 percent, according to the Federal Reserve Bank of St. Louis. By April, it was nearly 15 percent. Some 22.4 million jobs were lost between March and April, 2020, and put an end to the great economic expansion in history, according to the Bureau of Labor Statistics. The unemployment rate for women reached 16.1 percent, as female employees dropped out of the workforce to care for sick relatives and manage children who were learning to do schoolwork via Zoom. Many more people lost contract work, gig jobs and other labor that wasn’t counted.
By January, 2021, the unemployment rate was 6.4 percent. By September, 2022, it had fallen to 3.5 percent, touching the lowest levels in history. It was the steepest rise and decline in U.S. unemployment, ever.
But over those two and a half years, there was a lot of personal financial angst as millions wondered how bills would get paid and whether anyone would go back to work.
The government responded by sending checks to most U.S. households, many of which got banked and helped Americans save more than they had in decades. Americans stayed home and didn’t spend much. The 45 million Americans who have federal student loans found their loan repayments paused. There was help for homeowners who couldn’t pay their mortgages, and for those who couldn’t manage rent payments, which like home prices was soon skyrocketing.
Employees are Earning More, They’re Also Spending
As we begin 2023, that financial anxiety seems to be in the distant past. With the Great Resignation, there are two jobs open for every person looking. Employers are providing wage increases of more than 5 percent. They’re also paying new hires more. The lowest wage workers are willing to accept for a new job increased to nearly $74,000, according to a survey from the New York Federal Reserve Bank.
While employees are earning more, they’re also spending. According to the New York Federal Reserve Bank, Americans were carrying $925 billion in credit card debt in the third quarter of 2022, just shy of the $927 billion all-time record set in the fourth quarter of 2019. As of November, 63 percent of Americans are living paycheck-to-paycheck, according to a LendingClub survey. That’s just under the all-time high of 64 percent, seen in March. The question is, what happens when student loan debt finally restart?
If you need a little help getting your own financial train back on track this year, consider adopting these financial resolutions:
Financial Resolutions #1: Spend less
We’re always in favor of spending less than you make. It’s a recipe for financial success no matter what else happens. But remember the lessons of the early days of the pandemic: spend less. Try to eat out a little less frequently, or drink water and shave up to 30 percent off your bill. Practice deferred gratification and put off what you don’t absolutely need. Invest in experiences over stuff, especially during the holidays.
It’s okay to spend. Just spend less.
Financial Resolutions #2: Save more
If you’re making more, try to save more. Up your 401k or retirement plan contributions. Open an emergency savings account if you don’t have one. Set up auto-deduct on your paycheck so that a portion goes right into your emergency savings and not your regular checking account.
Try to save at least 10 to 15 percent of your paycheck each year. If that seems too easy, up it to 25 percent. The worst thing that will happen is you’ll be able to do things sooner: buy a house or a vacation home; take a fabulous trip; retire. The wealthier you are, the more options you have. And that’s a good thing.
Financial Resolutions #3: Challenge yourself
Research published by the American Psychological Association PsycNet shows that if you set specific and challenging goals, you’ll achieve higher performance than if you set easy goals, “do your best” goals, or no goals at all. If you apply Goal Setting Theory to your finances, you’ll save more money if you target a specific number that feels just out of reach.
The trick is to set challenging goals, but design a system of rewards that makes you feel great when you’ve achieved them. For example, if you save $2,500, you can spend a portion of that to attend your best friend’s destination wedding.
Only you can design goals and rewards that meet your financial, emotional and psychological needs. But researchers say our intuitive need for achievement and self-esteem could be the reason setting specific, challenging financial goals helps us get over the finish line.
Financial Resolutions #4: Pay down your debt
With interest rates rising, carrying debt just got a lot more expensive. So, do yourself a favor and pay off your debt as quickly as possible.
Start with either the highest interest debt first or the smallest debt (which you can pay off quickly and then apply that amount toward the next smallest debt). Every dollar you prepay will effectively earn you that amount of interest, so consider each debt paid off a big win.
Financial Resolutions #5: Build up your credit history and raise your credit score
Credit is the driver behind life’s financial milestones. If you have good credit, you’ll pay less to get what you want.
So, pull a copy of your credit report from each of the three credit reporting bureaus, Equifax, Experian and Transunion. Look for errors and the reason why your score isn’t higher. If you sign up on each bureau’s website, you’ll have access to tools and information that will help you better understand your credit and what you can do to improve it.
Financial Resolutions #6: Learn something new about money this year
Last year, we challenged you to learn something new about money, and suggested NFTs and cryptocurrency. This year may well be remembered as the year crypto cratered, with four trading platforms declaring bankruptcy, including the iconic FTX, and Bitcoin trading at a more than 50 percent discount from its high.
That doesn’t mean you shouldn’t learn something new this year. How about starting with the Secure 2.0 Act. It has just been included in the year-end spending bill, making it easier for many Americans to achieve our first financial resolution: saving more money.