Cents & Sensibility —  What not to do this year

Beth Peabody

Despite financial markets finishing the fourth quarter with solid gains, many readers may have avoided reviewing their investment accounts at year-end due to the poor results posted for the year.

However, January’s results provided savers and investors with very good news. Use this positive news — and emotional boost — as an opportunity to review your accounts in February and establish a few financial goals for 2023.

Crafting a solid plan for your finances early in the year is empowering and can lower stress levels and anxiety, making your life happier for you and your loved ones.

This column often provides action items of “what to do,” but this month it will focus on actions of “what not to do” in the new year.

  • Don’t forget to replenish emergency savings: If unforeseen circumstances caused you to use a portion of your savings bucket (three to six months of income), establish a plan to get this balance back to your goal.
  • Don’t forget to increase savings beyond emergency amounts: Review the amounts you are contributing to retirement savings. Annual amounts for 2023 have been adjusted higher for all types of tax-deferred accounts, including traditional IRAs, Roth IRAs, 401(k) and 403(b) plans, Self Employed Pensions (SEPs) and Health Savings accounts (HSAs).

If you received a raise last year, consider increasing the percentage withheld until you reach the annual maximum amount allowed by your employer. If that goal is not obtainable, check to make sure you are contributing the percentage amount that is matched by your employer. If you are not meeting the match, you are losing the advantage of this free money.

For those receiving social security, this year’s increase was significant and reflected the historic increase in inflation experienced last year. If your budget has not been impacted by inflation by as much as the amount of your monthly increase, consider saving the extra dollars each month to use in the future.

  • Don’t forget to review interest rates on your debt: Because the U.S. Federal Reserve raised short-term interest rates many times last year, odds are that the interest rate you are paying on lines of credit like a home equity loan may have doubled from the prior year. The rate of interest on credit cards may also have moved higher. Establish a monthly or quarterly plan to pay down this higher interest rate debt this year.
  • Don’t forget to check the interest rate paid on savings accounts: Banks generally pay a low rate of interest on savings account balances. Avoid tying up money in certificates of deposit offered by your bank unless the interest rate is competitive with money market funds that provide daily liquidity. If the bank rates are not meaningful, consider moving these dollars to an account with a brokerage firm. Schwab, Fidelity and Vanguard, for example, offer money market funds that are now yielding 4% or more.
  • Don’t take out a loan from your company’s retirement plan: While it is easy to access money in most retirement plans, try to use other sources if you are faced with a shortfall. A common misconception is “I am paying myself back interest.”

In reality, if you use your retirement plan assets, the money withdrawn will no longer be invested and you could miss out on future gains. In addition, you are paying back this loan with after-tax dollars, which means it costs you much more than the rate of interest that the plan will charge.

Action item for February: create a task list of the five items listed above and try to check one off each week.

Beth Stegner Peabody, CEO of Stegner Investment Associates, is a graduate of St. Agnes School and Sacred Heart Academy. Previous Cents & Sensibility columns may be viewed at therecordnewspaper.org/editorials-commentary/.

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