We understand if you would prefer not to think about the year 2022; however, don’t wait until the middle of 2023 to assess how your financial situation may have altered in the last year. It may be necessary to make modifications, and it is important to do it as soon as possible.
Here are five areas you should review to avoid any unwelcome financial surprises this year.
#1 Increased Interest Rates
As a result of the Federal Reserve’s seven rate rises in 2022, 2023 is projected to see even more increases. That means the cost of maintaining a balance on a credit card is certain to rise. Similarly, if you want to buy a house or automobile in the new year, you should prepare for a bigger monthly payment.
In 2022, the average rate for a 30-year mortgage was 6.47%, up from 3.25% in 2021. As a result, the payment on a property with a mortgage of $350,000 is now $2,205, up from $1,523 a year earlier.
It’s important to prioritize paying off credit card debt (or any other debt with a variable interest rate) since the cost of carrying that balance will only increase over time. Be cautious about including the increased rates in your calculations before making a large purchase like a home or car with financing since interest rates are currently higher than they were a year or two ago.
#2 Income Taxes for Social Security
First, some encouraging news for the elderly: This is the largest boost to Social Security benefits since 1981. This increase is especially welcome because lower Medicare Part B costs would allow retirees to keep a larger portion of their Social Security payments.
An unanticipated tax liability is a possibility for some beneficiaries. You’ll have to pay these rates on your Social Security checks:
When your modified adjusted gross income (MAGI) is between $25,000 and $34,000 (single filers) or between $32,000 and $44,000 (joint filers), then half of your Social Security payment is taxed (married couples filing jointly).
If your combined income from Social Security and other sources is $34,000 or more (single filers) or $44,000 or more (joint filers), then 85% of your benefit will be taxed (married couples filing jointly).
A person relying only on Social Security payments is unlikely to have any tax liability. However, you should begin preparing for your tax payment now if your COLA increase in 2023 would cause your income to exceed the abovementioned levels.
#3 Nonpayment of Student Loans
Forbearance on federally held student loans ceased in March 2020, so borrowers should be prepared to resume paying payments on their principal and any accrued interest.
While forbearance has been extended until 2023, and broad student debt forgiveness is still available, you should still prepare for the day when payments will be due again. You must look closely at your budget if you can’t afford the minimum monthly payments.
Applying for an income-driven repayment plan while on the conventional repayment plan might significantly cut your payments when the forbearance period ends. Adjust your monthly payment based on your current income if you are on an income-driven plan.
#4 Overdraft Charges
As those who are already struggling financially are more prone to overdraw their accounts due to a temporary lapse in funds management, overdraft fees are often viewed with skepticism when reviewed by financial institutions.
Many financial companies, like Ally Bank, Alliant Credit Union, and Capital One, have done away with their overdraft fees, which is wonderful news.
In 2022, Bank of America announced reduced overdraft fees from $35 to $10. Although Wells Fargo has not budged on the $35 overdraft charge, it has announced that it will offer clients 24 hours to make good on overdrafts.
If you’re currently banking somewhere that’s socking you with fees, maybe 2023 is the year you find a new bank.
A growing number of analysts (65%) polled for Bankrate’s Economic Indicator predicted a recession in the following 12-18 months. Preparing for a recession with an emergency fund is a must. While having enough money to cover six months’ worth of bills is ideal, doing so may take a long time to achieve. A savings cushion of even a few months’ expenses is better than nothing.
A bank account insured by the FDIC is a safe place to store this cash due to the uncertainty of the stock market. The bright side of the increased interest rates: There are currently high-yield savings accounts that offer annual percentage yields (APYs) of more than 3%.