How to Achieve Your Financial Goals in 2023

The new year is the perfect time to start with a fresh outlook on life, including a new financial outlook. Here's how to achieve your financial goals in 2023.
 

The new year is the perfect time to start with a fresh outlook on life, including a new financial outlook. And with the stresses of holiday spending still at the forefront of many people’s minds, taking the time to create and update your financial goals and plans is a great way to invest in self-improvement, too.

We’re dedicating our first post of the new year to some common financial resolutions that many of our customers are considering for 2023, from major life changes like purchasing a home and getting married to setting savings goals for retirement and college. Throughout this blog, you’ll also find links to more of our ‘Sound Advice’ on the topic, so you can continue exploring your options and create a plan tailored to your specific needs. We’ve included something for everyone, and we hope you will be inspired to start the new year with a plan that can help you achieve your goals for financial stability and prosperity. So, let’s start with an undertaking that everyone should complete at least once per year: creating a budget.

Create or Revise Your Budget

Creating a budget gives you the opportunity to see the overall picture of your cash flow—how much you have coming in and how much you have going out. And if you’re not happy with the current balance of your income, spending, and savings—especially after the holidays—now is the perfect time to evaluate your financial habits. And having a solid, workable budget is also key to achieving many other goals on this list.

Creating a budget that sticks doesn’t have to be complicated, either. First, set your financial goals, like saving for education, paying off debt, or growing your retirement nest egg. Then, gather information about how much income you are receiving and where all your money is going. This may include pay stubs, mortgage or rent payments, utility bills, credit card payments, and receipts for groceries, clothes items, the salon, and other everyday purchases and expenditures.

If you find that your current spending habits aren’t leaving enough money to meet those financial goals, it’s time to see how you can comfortably reduce expenses. Examine your bank and credit card statements to see where you tend to spend the most—whether it be takeout, clothing, entertainment, or other discretionary spending—and pick out a few flexible expenses that you could trim. Make a plan for reducing holiday spending next year while you’re at it. 

While you can certainly organize your finances the old-fashioned way, with a pen and paper, there are countless free digital tools to help you—and many even coordinate with your accounts so you can have a clear picture of your habits. Check out our post, Free Budgeting Apps for People New to Saving Money, to learn more and find an app that works for you. 

Read more about how to find the best budget for you. 

Create an Emergency Fund

As part of your budget, you should always have some funds set aside for emergencies and tight financial situations. When you have a rainy-day fund, you can avoid the trap of taking out loans or incurring credit card debt—paying extra in interest—should you need quick access to money, which will save you even more money down the road. 

While many financial experts will encourage you to have three to six months’ salary in savings, don’t be discouraged if that goal seems out of reach. Consider setting aside a smaller amount at first, especially if you are working on paying down debt, then gradually add to your emergency fund over time. You can start small, for instance, automatically depositing $20 or $50 from each paycheck into your savings account, until other aspects of your financial picture feel more secure. While you’re making a plan for an emergency fund, also set up some restrictions on how and when those funds can be used, so you don’t deplete them faster than they can accumulate. 

Improve Your Credit Score

Especially if one of your financial goals is to purchase a home (more on this below), improving your credit score is not only an important goal for 2023 but also an achievable one. 

The first step to improving your score is to understand how credit scores work and what factors are considered when generating them, including payment history, account balances, length of credit history, new credit, and the mix of accounts you have (the more diversity, the better). To increase your credit score, get a free copy of your credit report and focus on the areas where you need the most work. Here are some things you can do to make an impact:

• Establish credit (if you haven’t already done so) by opening a credit card account (and using it wisely).
• Pay your bills on time. Even if you’ve missed payments in the past, keep in mind that your most recent activity will have the most significant impact.
• Keep revolving balances low if you can’t pay your card off each month. Because your credit usage ratio is a big part of your score (and an easy one to adjust), work to minimize those balances where you can and avoid maxing out any cards.
• Pay off past-due accounts—especially if they’ve gone to collections.
• Avoid opening new credit cards unnecessarily.

Purchase a Home

Purchasing your own home is a major financial accomplishment. While it’s a significant monetary commitment, it can offer you years of housing stability and help buffer you from rising living expenses. If you’re planning on buying a home this year, there are several things you can do to prepare:

• Save for your down payment. While 20% down payment is still an industry standard there are numerous alternatives based on buyer qualifications, and a minimum of 3% is typical. Consider setting aside money in a CD or Money Market Account to take advantage of today’s great interest rates. 
• Improve your credit score. The better your score, the better your rate will be, and low scores can prevent you from getting approved. Aim for a score of 680 or above.
• Evaluate your debt-to-income ratio (DTI) and improve it if necessary. Most home loans require a 43% DTI or lower, and your income and credit history each play a role.  Your lender is here to help guide you through the qualification process.

Additionally, take the time to learn the ins and outs of homebuying. At First National Bank and Trust we have lots of homeownership resources for you.  

Renovate Your Home

With mortgage rates increasing and a low housing inventory, more homeowners are deciding to renovate their homes instead of moving into a new home. As renovation costs have risen significantly over the past few years, it’s important to make a financial plan for tackling renovations.  If your goal is to renovate your home in the next year, here’s what you need to do to prepare:

• Save and budget for your renovations. Depending on your renovation goals, it may be possible to begin setting aside funds now to cover your costs. While we’ve covered this topic before in our post, How to Budget For Your Next Home Renovation, the most important takeaway is to create a realistic budget (that includes overages) and consider this your ceiling: “A good rule of thumb is to spend no more on each room than the value of that room as a percentage of your overall house value.”
• Consider your financing options. If you’re unable to pay cash for your renovation project, research your financing options and decide what works best for you
  • Home Equity Loan: If you have a pretty firm idea of your total costs and the project has a shorter time frame, a Home Equity Loan can be helpful (as you’ll receive the funds in a lump sum).
  • Home Equity Line of Credit (HELOC): If you will need a little bit of money at a time for an ongoing project, a home equity line of credit might make more sense. 
  • Cash-Out Mortgage Refinance: If your mortgage rate is higher than current market rates and your home has risen in value since its purchase, refinancing could be the right choice.
  • Personal Loan or Line of Credit: For smaller projects especially, personal loans and lines of credit can be easier to acquire and won’t require a new lien on your home.
• Save in advance. Construction costs too high? Need more time to budget and save? Consider holding off on renovations this year, and instead make a solid financial plan for how to achieve your renovation. Consider a savings account or a certificate of deposit (CD) that will earn you more interest toward your expenses. 

 

Pay Off Debt

As mentioned above, paying down debt and having a lower debt-to-income ratio can help you be more attractive to lenders. It can also help you save more money for your other financial goals—this year and in years to come.

Start with high-interest debts that will save you the most on interest charges when determining how to tackle your debt. These debts tend to be considered ‘bad debt’—debt that won’t help you get ahead. While mortgages and student loans can help you stabilize your finances long term and lead to an increase in income, other debts, like credit card debt, can leave you owing an increasingly growing balance due to high interest rates on goods that depreciate in value.

Here are a few methods to help you pay off debt:

• Cut back on spending to keep those balances low. Put this money toward paying off existing debts. Make it official by setting aside a percentage of your budget for debt payments.
• Consider a side hustle, second job, or other ways to make extra money. If you tend to spend a lot of money during the holiday season, this is a prime time to pick up a second, temporary job.
• Consolidate your debt with a personal loan from FNBT. These loans can help you reduce overall interest costs and turn many accounts and payments into one simple monthly payment.
• Utilize the equity in your home. If you are a homeowner, you have the option to borrow against your home’s equity to help pay off debt. Home Equity Loans allow you to borrow up to 80-90% of your home’s equity in cash while Cash Out Refinancing pays off your existing mortgage with a new home loan, allowing you to “cash out” a percentage of your equity. These are two ways to take advantage of the lower interest rates associated with home equity loans to knock out high-interest debt.

In addition to paying off those ‘bad’ debts, keep in mind that paying off any debt early can end up saving you a lot on interest costs. To learn more about paying off your mortgage, visit our post, “Should I Pay Off My Home Loan Early?”

Start a Business

About four million new businesses launch each year, and if you have big plans to start your own, there are many things you can do to prepare, including:

• Create a business plan which includes your business’s goals, startup costs, timeline for launch, and legal structure. Check out our blog, “Starting a Business in Beloit, WI” for basic tips on how to start the planning stages for your local business. 
• Secure funding. Most businesses need significant startup funds to get off the ground. Creating a savings plan to set aside funds is an important first step. You may also need to secure a business loan from a bank, for which you will likely need a solid business plan (see above). Our post “How to Get a Small Business Loan” covers many must-know details on finding the right financing for your startup.
• Get a business bank account. From loan payments to material and supply costs to payroll, it’s essential to have a separate bank account to keep your business and personal finances separate—right from the start. Start with a business checking account. As your business grows, you can then set up other financial services through your bank, including:
  • Sweep and zero balance accounts to help manage your cash flow.
  • Merchant Card Services and POS (“Point of Sales”) payment systems, to enable you to accept multiple payment types onsite and online.
  • Business Credit Cards and Business Debit Cards.

Get Married

With the average cost of a wedding coming in at nearly $30,000, if you recently got engaged and you’re planning a wedding for this year or next, it’s time to start planning for it financially. Taking a holistic look at your financial picture, determine what a realistic spending limit (for you and your future spouse) may be. Then:

• Create a wedding budget that effectively divides key costs to fit within your spending limit.
• Decide how you will pay for your wedding. This may be a combination of savings, personal loans, family contributions, and other sources of income. If you decide to take out a personal loan, be sure you have a plan for how you will pay it off so you don’t saddle the first years of marriage with unnecessary debts. For more, check out our post: “Just Got Engaged? Here's How Your Local Bank Can Help You Afford Your Wedding.”
• Start a wedding fund—a special savings account where you set aside a certain percentage of income to cover wedding and other marriage-related expenses.

Getting married this year?Check out Pre-Wedding Checklist: 9 Financial Topics to Discuss with Your Fiancee. 

Set Up a College Fund

If you recently had a baby (or are expecting), now is the time to create a college savings plan and start saving right away for the maximum payoff. But even if your kids are approaching college age, it’s never too late to set aside money for their future education to help offset those growing costs. The older they are, the more they can be actively included in the plan. FNBT offers a variety of college savings accounts including 529 and Coverdell Plans. Wisconsin residents who contribute to a 529 account can claim contributions of up to $3,560 as a tax deduction, while residents of Illinois can claim contributions up to $10,000 as of 2022! 
Browse our collection of resources for paying for college for more ideas and information. 

Start Saving for Retirement

As with college, it’s never too early or too late to start. If you don’t already have a plan, now is the time to create and implement one. While there are many general guidelines for how much you should have saved by age, if you’re just starting out, start with whatever you can because every little bit helps. Those early contributions will grow exponentially over time. Here are some general retirement strategies to consider for 2023:

• Increase your 401(k) contribution. If you already have a 401(k) through work, consider upping the amount deducted from your paycheck this year to grow your savings. 
• Consider an IRA. Individual Retirement Accounts aren’t connected to your employer, you can contribute to them on your own, at your own pace, and keep them even when you change jobs. Even if you already have a 401(k), opening an additional retirement account is never a bad idea.
• Explore other saving options. Mutual funds, annuities, stocks, and bonds can be important aspects of your investment strategy that you shouldn’t overlook. 

Well-considered retirement planning can be complex, especially as you begin to incorporate other forms of investment beyond traditional retirement accounts. Working with a wealth manager or financial advisor can help you meet your retirement and investment goals and make sound decisions based on your needs and timeline for retirement. Take a look at our Retirement Planning Checklist, reach out to an investment advisor, or create an investor profile with us today to get started.

Develop an Estate Plan

Two-thirds of Americans do not have any will or estate plan in place, and if you are one of them, starting the process this year is essential. Having a plan will not only ensure that your estate is distributed per your wishes, but it will also save your loved ones from an exceptional burden during their time of grief.  

Depending on your age and life stage, there are different considerations to keep in mind as you make your estate plan, from how your children will be cared for if you are no longer there for them to how you want your legacy to be preserved if you’ve lived a long and full life. If you already have a will in place but have had a major life change, or recently added financial accounts, it’s important to update it regularly. 

FNBT offers both Estate Planning & Settlement as well as Trust Services to guide you through these complex decisions and create a strategy that serves you and your family. Read Estate Planning 101 for more information. 

Start Out on the Right Foot in 2023

At First National Bank and Trust, we strive to offer Sound Advice to help you and your family to improve your finances and achieve your goals. With resources on saving and budgeting, family finances, starting and growing a business, and retirement planning, we have the answers to all your complex money management questions.

We’re happy to provide one-on-one personalized advice, too! Contact us today with your pressing questions and financial plans for 2023, and we’ll do whatever we can to help you start out the new year on the right financial footing. 

Trying to save more money this year? Check out these 11 ways to save more money.