Ways to Take Control of Your Personal Finances in 2023
The year 2021 has brought uncertainty and disruption for every stratum of society. It would not be surprising if all of your finances as well as personal resolutions went south or have not worked out according to the set plan.
There is no denying that 2022 has been a challenging year for all of us in one way or another. On one hand, some individuals lost their jobs; while businesses were forced to shut down entirely. However, even though your financial circumstances haven’t changed radically, but current economic conditions must certainly have made you reconsider your financial priorities. It is about time to start planning your personal finances for 2023.
Here are few ways to take control of your personal finances in 2023
Review All Your Major Financial Transactions in 2022
A better way to assess your financial behaviour is to go through your bank account statements of 12 months. Bank statements will reveal how much you are able to save each month, what is your spending pattern, where do you spend most of your money etc. With the help of this summarized information, you would be able to decide which expenses can be reduced or can be completely eliminated.
Furthermore, you will be able to estimate the necessary funds required to cover your monthly household expenses.
Comprehend Which Emotions Often Dominated Your Spending Decisions
We often fail to recognize that emotions tend to affect our judgment, even in case of the personal financial decision-making process. When an influx of emotions is combined with deep-seated cognitive biases, it contributes to a poor financial decision. Hence go through your bank account statements and take a look at your spending pattern for the entire year. Understand was a particular expense made out of necessity? Or the spending decision was taken on the basis of a strong emotional impulse. Recognizing and eliminating such causes can be a step towards taking control of your finances.
For example, falling for a fraudulent financing scheme without performing any background check. Such decisions are often stemmed out of “Fear of missing out” emotion. These schemes lure individuals in by making them feel that they are missing out on an excellent investment opportunity.
Impulse buying is another example of emotions driving your decisions. You’re purchasing expensive luxury goods from an irrational impulse. Avoiding such instances would therefore prove to be a wiser decision.
Do you have a habit of making a monthly budget? If your answer is no, then start creating a monthly budget by listing out all your income sources and gaining a clear understanding of how much money is coming in. Next step would be to note down all your monthly fix expenses which may include monthly house rent or mortgage payment, contribution towards insurance, phone and internet bills etc. Apart from the fix expenses, determine how much you monthly spend on variable expenses such as dining out, shopping or ordering take out.
By categorizing expenses you will be able to take notice of expenses which are absolutely necessary versus which expenses are simply eating out your savings.
Plan for Unforeseen Expenses
As Allen Saunders once said, “Life is what happens to us while we are making other plans.” We can make the most comprehensive financial plans for the entire year, but there’s always a room for unexpected events. Unexpected or seasonal expenses can occur due to various reasons, such as emergency home repair, emergency car repairs or unanticipated medical emergencies etc. All of these situations will result in substantial expenditure.
Though it is hard to predict such situations beforehand, you can surely prepare yourself for them in advance. Off course there are insurances for health emergencies or motor insurances for vehicle damage. But not all expenses can be recovered with insurance money.
One way is to start an emergency fund to cover any unexpected expenses. Deposit a certain amount each month into this fund and avoid making any withdrawal without until it is necessary. This way you will be ready for any unexpected expense.
Build Your Savings
One of the best advice we all have been receiving from our previous generation is to save as much as possible. Identify all the unnecessary expenses and try to reduce spending as much as possible. You must park as much as six months’ salary into a savings account to remain in a comfortable financial situation and may not have to wonder about how to take control of your personal finances.
Additionally, you can put money towards short term goals and long term goals as savings. If you make it as your monthly obligation, it would become much easier to remain focused on your goal for the rest of the year.
Furthermore, this year provided many people with an opportunity to work from home. It has helped many individuals save money on their daily commute to work, less spending on eating in restaurants and no planned vacations. Thus many individuals had an opportunity to save more money. If you are among these individuals and have been able to save some amount, you can repurpose this saving and use it in other areas. With this money, you can choose to increase your retirement savings or add an extra amount in your emergency funds.
Nevertheless, you can always choose to invest money in some instruments to receive more benefits later. For the purpose, take advice from an expert and then diversify your investments.
Plan for Your Retirement Funds
Increasing your retirement savings is a matter of consistency. In order to maintain consistency, you can choose to automate your contributions. Today banks offer automatic account transfer options which save you a lot of time. Additionally, if you are approaching your 50s then you can contribute more money to a tax-advantaged retirement account. Take all the necessary steps to put more money aside in your retirement account.
Start Planning While Withdrawing Money
It’s not just about adding extra money to the savings but to make it last when you start taking withdrawals. If you have made any recent withdrawals from your savings account, then make a plan on how you are going to fill in the dent. Set up a strategy to grow your retirement savings by investing in various financial instruments.
Do Regular Financial Check-ins Throughout the Year
When we go on road trips, we make occasional stops and to glance at the map to see if you were headed in the right direction or not. A similar strategy must be used for your financial journey as well. If you experience a major change in your income, in the middle of the year then you must adjust your budget according to that. For example, if you have received a significant raise in salary or gained a new client in your business, then this extra income can significantly improve your savings. Additionally, you can evaluate the performance of your other investments. Are your current investments giving you satisfactory benefits? Are they performing well as per current market conditions? All of these checks will save you from any potential derailment from your ultimate financial goal. Thus plan for regular check-ins for personal finances in 2023.
Gain At Least Basic Financial Knowledge
We have experienced the very turbulent year 2022 both personally and financially. The uncertainty still prevails as we approach the year 2023. Thus it would be prudent for each individual to gain at least basic financial knowledge in order to make well informed decisions.