Last year, the Federal Reserve raised interest rates 5 times and it’s signaled that it will raise it more this year. That makes the cost of borrowing more expensive, whether that's a credit card, mortgage or loan. WMFE’s Talia Blake spoke with Tommy Lucas, Senior Financial Analyst at Moisand Fitzgerald Tamayo in Orlando, about financial tips for this new year.
Handling Debt in 2023
After the Federal Reserve raised interest rates 5 times last year, many residents are rethinking the way they tackle savings and debt.
Financial Analyst Tommy Lucas says it's important to get your expenses under control now.
"We're coming out of this holiday season where we've been spending more. And so really taking a second look and saying 'okay, you know, let me get my budget under control, let me see where I can cut back'."
Interest rates on credit card can vary from 14% to 21%.
That's why Lucas says its important to tackle debt while saving as much as you can.
He said, "paying off the highest one first, throwing as much as you can to it, trying to get one card down. And then snowballing that payment into another card, and, and so on and so forth."
One of the best ways to pay off debt while also saving is to write down your budget.
Lucas says writing your budget down or using a budgeting app will help you keep better track of your spending.
"Having it written down helps you keep it accountable," he said. "And that's really going to help kind of make or break because if it's just in your head, it can get away and you can forget."
There is also the Dave Ramsey envelope method as a way to budget, where you take cash out and separate them into envelopes categorized based on your budget. For example, you could have a 'fun' envelope meant for going out with friends.
Lucas says you can feel the impact as you physically watch your money dwindle.
Advice for 401k
Besides resetting your budget, getting your expenses under control, tackling high interest rate debt, Lucas says its also important to take a look at your investments, including your retirement accounts.
"If you have a 401k out there somewhere, and you've just kind of been letting it ride, you might have more or less risk than you want or need."
While reviewing your 401k, Lucas says its also important to take advantage of those accounts.
"If you're in a position where, you've got an emergency fund (and) debt under control, maybe look at contributing an extra 1% to your 401k and pay yourself first, that's going to pay dividends," he said.
The maximums for 401k's have gone up an additional $2,000 for 2023.
Lucas says if you're retiring this year, remember this is your last year of income.
"Your income usually drops in retirement, especially when it comes to taxable income, what shows up on your tax return," says Lucas. "So this is where you really want to make sure if you have the ability, put in as much to your 401k as you can, because you're probably going to be in a higher tax bracket for this year."
He says next year when you're in full blown retirement, you will likely be in a lower tax bracket.
"That's the name of the game of 401ks," says Lucas. "Put it in when you're in a high tax bracket. Take out the 401k when you're in a low tax bracket."