Seven Steps to Keeping Your Finances in Good Shape in 2023

With the economy expected to slow down and economists sounding the alarm, it’s critical to plan ahead for a downturn. Building an emergency fund and budget is key to preparing yourself in the event of a recession. Insider talked to five personal finance experts to get the scoop on what to do to prepare for a recession.

Budgeting

If you want to keep your business going in the coming years, it is essential to have a plan for your finances. While it is never easy to predict the future, good financial management will save you time and money. It will help you allocate resources wisely and prioritize expenditures. However, remember that driving cost reductions must never come at the expense of long-term business growth.

For example, you should not neglect to set aside money to invest in your business and to expand your product line. This commitment will increase your profits, employee retention, and customer satisfaction.

Fall is a great time to review your financial plans. Ask yourself what goals you still need to accomplish this year, and which ones you want to pursue in the next few years. By figuring out which goals you want to achieve in 2023, you can begin making financial moves.

Developing a budget is the first step to better managing your finances. Create a list of your monthly expenses and compare them to your income. If you find that some of them are disproportionate to your income, consider cutting them. A monthly budget will help you avoid overspending and stay within your means.

Paying Bills on Time

Making sure you pay your bills on time will reduce stress and increase your credit score, enabling you to receive lower-interest credit in the future. Likewise, it will help you maintain a healthy balance in your checking account. It is also important to coordinate your bill pay-by dates with your sources of income. You can also avoid late fees by prepaying your bills before the due date. This is possible with most creditors, and it can help you create credit by reducing your late payment history.

Prepaying recurring bills can be useful if you have irregular income or surplus cash on hand. While this solution can save you time and money, you should monitor your monthly statements carefully to avoid any fee increases.

Paying your bills on time is one of the best ways to improve your credit score. It will reduce your financial stress and prevent you from worrying about your money or late fees. It will ensure that you don’t write checks that you can’t cover. A good credit score means a good credit record.

If you’re prone to forgetting to pay your bills, it is important to create a designated place where you can keep track of all your bills. This place should have access to your computer and internet, as well as pens and stamps. Also, you should have a good filing system so you can easily keep track of your paid bills.

Getting A Budgeting App

Using a budgeting app can help you stay on top of your finances. It can help you keep track of your spending habits and save money for the future. Many budgeting apps are designed with various features in mind. Some of them can connect to your bank account to send notifications about upcoming bills, while others can help you track your credit score and spend history. They also help you set financial goals.

One such app is You Need a Budget, which is free and available on iOS and Android. This budgeting app works with a web-based budgeting program to let you set up spending categories. It also offers online bill payment. The app can be used to set up budgets for different expenses, such as entertainment and groceries.

Another benefit of budgeting apps is that they can help you live according to your budget. They provide you with insights into your spending habits and help you identify areas where you can improve. However, the success of a budgeting app relies on how committed you are to making it work. You need to commit to sticking to your budget and make financial decisions that are in line with your goals.

Some budgeting apps are free, and others require monthly fees to keep track of your finances. The free apps are more basic and may include in-app ads. The paid apps will be more robust and have more features.

Creating an Emergency Fund

Creating an emergency fund is crucial to your financial health and it’s essential to keep this fund in a safe place. Experts recommend that you have three to six months’ worth of living expenses saved up. You can reach this goal by cutting down on your spending and increasing your income. This type of fund is bulletproof and can save you from a potential recession in the future.

Creating an emergency fund is a smart idea because inflation and interest rates are rising in the United States. Higher interest rates mean higher payments and more spending, and these expenses can add up over time. The last thing you need is an emergency situation when you don’t have the money you need.

Many people have competing financial goals, including retirement planning, and investing in the stock market. By setting up an emergency fund, you can make the other financial goals easier to prioritize. Besides being able to cover your bills in a pinch, having an emergency fund will allow you to spend more time on other financial goals.

In addition to creating an emergency fund, you should also prioritize paying off debt. If you have high interest debt, it’s best to begin paying it off first. Many financial experts consider paying off debt as important as building an emergency fund. Ideally, you should dedicate half of your additional income toward paying off your debt and half to saving. This way, you’ll have no debt and a healthy savings account to fall back on.

Preparing For a Downturn

A number of market watchers have suggested that a recession could hit the U.S. as early as 2023, though they disagree on the exact date. According to the National Bureau of Economic Research, a recession is defined as an economic slowdown lasting two consecutive quarters. But because GDP is a lagging indicator, the effects of a recession are often felt long before it’s officially designated. This may be a good time to start preparing for the next downturn.

Economists use a combination of indicators to predict a recession. However, these estimates may not be accurate. Some experts believe that a recession could last one or two years, but others believe it will be much longer. It’s important to remember that recessions are a normal part of the economic cycle and will pass.

Aside from lowering your spending, another good way to prepare for a downturn is to save your money. In the past year, consumers have dipped into their savings because of rising prices and falling wages. This can leave them with less financial security in the event of a layoff or a cutback in hours.

Developing a long-term strategy for investing in the future will allow you to take advantage of lower prices and compound your gains once the market recovers. Unfortunately, no one knows when the next downturn will hit, but preparing for it is a surefire way to keep your finances afloat and provide peace of mind when the storm clouds gather.

Advanced Stuff: Dividend Investing

Dividend investing can be a great way to preserve your wealth. This method works for companies that pay dividends, such as utilities, consumer staples, and healthcare.

You can diversify your portfolio by choosing a portfolio with a mix of sectors. Dividend ETFs have outperformed the S&P 500 and financials. You can also invest in ETFs that are weighted toward health care and consumer staples.

Investing in Dividend Growth Stocks

Dividend growth stocks are a good way to invest in the stock market. They have a low risk profile and can provide you with consistent dividend growth. These stocks have strong balance sheets and free cash flow visibility. You can even invest in them for their capital gains potential.

Dividend growth stocks have outperformed other investment categories in the S&P 500. Dividend Aristocrats are individual S&P 500 stocks that have consistently raised their dividends. These stocks are great for your portfolio if you are worried about the economy’s potential for recession.

Investing in Consumer Staples

If you’re looking to protect your portfolio and keep your finances in good shape in 2023, it might be time to start looking at consumer staples. These stocks can produce steady returns for investors over the long run.

For example, over the past 25 years, the S&P 500 has returned over 55% to shareholders via dividends. In addition, a buy-and-hold strategy can prevent you from suffering significant losses during market sell-offs.

Investing in Utilities

Utility stocks are good choices for dividend investors for a few reasons. First, these companies are defensive by nature, which means they will hold their value better in a down market than other types of stocks. And second, these stocks tend to pay high dividends. Utility dividends also get preferential tax treatment. This means that investors will get to maximize their investment income tax deductions, which can compound your wealth more quickly.

Dividends from utility stocks are taxed at 20% for individuals in the 35% and 37% tax brackets. For individuals in lower tax brackets, these dividends will be taxed at zero. However, if you’re unsure of your tax situation, you can check Investopedia’s article on qualified dividends.

Investing in Healthcare

Dividend investing is an excellent way to keep your finances in good shape even during recessions. Historically, a recession can lead to a 15% to 20% downside risk in the market.

The best sectors to invest in during a recession are consumer staples and healthcare stocks.

Dividend stocks are particularly appealing for investors in 2023. Despite recent market volatility, dividends have accounted for over half of the S&P 500’s total return since 1990. With a healthy balance sheet and free cash flow visibility, dividend stocks have the potential to reward long-term investors with stock re-ratings and capital gains.

Takeaway

There are several ways to keep your finances in good shape in 2023. You can start by creating an emergency fund, prioritizing your debt, or be active and invest wisely. Whatever you do, make sure to stay informed and keep your financial goals in mind.