Here’s how to set yourself up for success in 2023

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Editor’s Note: This story is from Wealthramp.

The new year has arrived. As we turn the page, this is the perfect time to take an in-depth look at your finances and investments, see where you stand, and plan for where you want to be in 2023.

The economy undoubtedly took a hit in 2022 and it doesn’t look like things will change anytime soon in the new year.

A recession can be shallow or deep and recover quickly or slowly. No one can predict exactly where interest rates, the stock market, or gas prices will be six months from now. What we do know is higher inflation and interest rates will inevitably cause the economy to slow down.

The question is how do you position yourself financially?

You can take steps to face the looming recession head on and prepare for financial success in 2023.

Judge where you are

Here’s how to set yourself up for success in 2023UfaBizPhoto / Shutterstock.com

The first step in any good plan for your success is to assess where you are.

Are you contributing enough to your retirement goals? Knowing that interest rates have skyrocketed, are you still able to pay off your debt and set aside money for your retirement goals?

The rising inflation of 2022 is expected to continue, maybe even into 2024, so if you don’t have a budget to help you, now is the time to set one up. Consider saving at least six months of living expenses for emergencies.

This is your “night sleep” money in case a recession leads to layoffs that affect your income.

make a plan

Couple going about their financesgoodluz / Shutterstock.com

Higher interest rates mean you pay more for credit card debt. If the goal is to stay debt-free, you need a plan to pay off your current debt and avoid accumulating more credit card debt.

There are several payment strategies that can really help you pay off your debt faster.

Consider organizing your bills so that you pay more on debt or loans with the smallest balances first. It’s called the “snowball” method and it works because it feels good when you can see your balance being paid out in full. This dynamic can encourage you to continue paying off balances.

With interest rates rising, another smart strategy is to attack the highest-interest debt by putting extra money into those most expensive debts.

Credit card interest is currently costing consumers more than 16% per year. That can add up to thousands of dollars over the life of your debt.

Several budgeting apps like You Need A Budget can show you how to get out of debt faster by creating a budget that works for you.

Benefit from higher interest rates

rising interest ratesDoubletree Studio / Shutterstock.com

what do you do with your money

It’s wise to save money, but it’s even wiser to use your money to earn more for you. One of the benefits of higher interest rates is that returns on interest-bearing accounts also increase.

Some high-yield savings and money market accounts can earn 2% or more per year and also give you the ability to write checks. Online-only banks pay the highest interest rates on money market accounts and CDs, so now you can expect your money to earn up to 4% to 5% without risking your money.

Look for banks with the FDIC insurance guarantee or federally insured credit unions protected by NCUA.

Optimize your investment portfolio

Diverse portfolioFlorence-Joseph McGinn / Shutterstock.com

Looking at your investments now might be a bit worrying, but it’s also a good time to consider making adjustments to your portfolio.

Although you may consider withdrawing your money from the stock market, it would be the wrong move. Believe it or not, now is a good time to maximize your contribution.

With the downturn in the market, you can snag stocks at bargain prices. And these assets can deliver better returns when the market turns.

Our Wealthramp advisors align portfolios with high-quality stocks in companies that have a consistent track record of profitability, many of which are paying solid dividends despite the economic downturn.

Consider opening or converting to a Roth IRA

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The threshold amount you contribute to a Roth IRA increases significantly in 2023. As of 2019, the annual limit you can deposit is $6,000.

For 2023, that limit has been increased by 8.33% to $6,500 for adults under the age of 50. If you are 50 or older, the contribution limit has been increased to $7,500, which is $500 more than in 2022.

High-income earners who are not eligible to make direct contributions to a Roth IRA can convert a traditional IRA to a Roth to access their funds without the penalties of traditional IRA accounts.

Roth conversions, also known as backdoor Roths, could one day be a thing of the past. Some Washington, DC lawmakers want to eliminate the backdoor Roth IRA strategy entirely.

Roth conversions are still allowed in 2023, so take advantage of them. You may not be able to do this again in the future.

Benefit from an HSA account

health savings accountDesigner491/Shutterstock.com

Health savings accounts are essentially IRA accounts for your health care and medical expenses, and they’re considered one of the smartest (tax-deferred) ways to save for those expenses.

The contribution limit for Health Savings Accounts (HSA) has also been increased for 2023. Under the new limits, you can deposit up to $3,850 for individual insurance or up to $7,750 for families.

If you have the opportunity to get an HSA, it’s a good idea to open one.

An HSA allows you to set aside a portion of your income for medical expenses tax-free. To qualify for an HSA, your health insurance coverage must be a high-deductible health plan with a limit on out-of-pocket expenses.

The deductible threshold amounts and expense limits were also increased for 2023.

Minimum retention: 2022 vs. 2023

health spendingDavid Orcea / Shutterstock.com 2022 Single Coverage: $1,400 2023 Single Coverage: $1,500 2022 Family Coverage: $2,800 2023 Family Coverage: $3,000

Expenditures: 2022 vs. 2023

Woman overwhelmed by her expensesMarcos Mesa Sam Wordley / Shutterstock.com Single cover 2022: $7,050 Single cover 2023: $7,500 Family cover 2022: $14,100 Family cover 2023: $15,000

Why HSA instead of FSA

Doctor holding a piggy bankldutko / Shutterstock.com

Unlike a flexible spending account (FSA), the money you save in an HSA doesn’t have to be spent by the end of the year.

You can continue to accumulate funds in your HSA account year after year. You can also invest your HSA dollars to grow your money over time.

Here’s the best part: After you turn 65, you can even use your HSA funds for non-medical purposes.

bottom line

Woman holding a handful of cashSyda Productions / Shutterstock.com

There are many changes coming up for 2023 that you can use to better position yourself financially for your future.

This is the perfect time to assess where you stand and strategize for a profitable new year.