This year has been full of economic uncertainty for many. High inflation has affected the cost of living, making housing, food and gas more expensive. Now that we’re nearing the end of the year, people can set financial goals for 2023. Look at the current state of the economy and use it to shape your goals. This may mean being realistic about what changes you need to make and questions you need to ask yourself to make home ownership, investing, and saving possible if they are part of your 2023 goals.
It’s been quite a year. In 2022, we’ve lived through high inflation, a low stock market, a raging housing market, and the Federal Reserve continuing to raise interest rates. While we don’t have a crystal ball to predict what will happen to the economy next year, we can use this year’s events as a guide; things may continue to be rocky.
If ownership and investing are on your list of goals for 2023, here are some questions to ask yourself before you pull out your spreadsheet, money apps, or notebooks.
WHAT AM I READY TO SACRIFICE FOR A SPACE PRIVATE?
Whether you’re aiming to buy a new home or rent a new place next year, there’s a lot to consider. For example, 30-year fixed mortgage rates rose to 6.90% from an average of 3.45% in January, thanks to inflation and the Fed rate hike in October. The Fed has already raised interest rates by 75 basis points four times this year. That, combined with a housing shortage, pushed the national median home price above $400,000 for the first time, according to the National Association of Realtors.
Home ownership may still be an attainable goal, but you may have to make some sacrifices, says Zaneylia Harris, a certified financial planner and president of Harris & Harris Wealth Management Group in Upper Marlboro, Maryland.
“You have to evaluate what you’re willing to give up to own space,” Harris says. “You may have to gradually get to where you want to be, as opposed to just going into a single house.”
This could mean starting with a condo or townhome, then using the condo’s equity to buy your next property, Harris says.
HOW CAN I MAKE HOME MORE AFFORDABLE?
Another home ownership portal that Harris recommends is the Neighborhood Assistance Corporation of America, also known as NACA. This is a mortgage program that allows working people to buy a home without a down payment, closing costs, fees or strict credit requirements.
Members can also purchase their homes at below market rates. The program currently operates in 28 states and the District of Columbia.
Buying a home in 2023 may also be more affordable if you want a room, says Jocelyn Wright, CFP and certified retirement income specialist at PF Wealth Management Group in Bala Cynwide, Pennsylvania. This is something he did with his sister in 2017.
“It’s not necessarily going to be forever, but it’s given us the ability to own our own home and we can leverage the equity and all that later,” he says.
HOW DIVERSE IS MY PORTFOLIO?
This year was not the greenest for investors. As of early December, the S&P 500 is down more than 15% this year. Market volatility can understandably make investors hesitant to move forward. Financial experts say a diversified portfolio and taking the right amount of risk can be steps in the right direction.
Remember to diversify, Wright says. Diversification is when you invest in different assets to manage risk and market volatility. The collapses of FTX and BlockFi in November are a reminder of why you should avoid investing too much in one sector.
“Unfortunately, a lot of newer investors got too excited about bitcoin and crypto and (and) all that and forgot those lessons,” Wright says. “You don’t put your short-term money into the market, and those rules always apply.”
Wright considers short-term money to be cash that you will need in 12 months to three years.
Instead of investing all of your money in the stock market, put the money you need in the near future into an emergency fund, high-yield savings accounts, a certificate of deposit, or short-term fixed-income securities like Treasury bills, Wright says.
HOW MUCH RISK CAN I TAKE?
Ask yourself how much risk you’re willing to take, Harris says. A lot depends on your circumstances, but the risk isn’t something to be afraid of when you have enough income, an emergency fund and a diversified portfolio, he says. And the risk is worth it when you invest for the long term and can reap those long term rewards.
Young people who are further from retirement can and should be willing to take more risks, Harris says. Harris, who identifies as black, also says some people of color have historically been afraid to take big risks, but she wants them to remember that risk/reward combination, too.
If you haven’t started investing or have stopped investing due to lack of money, remember that you can always invest at a pace that feels comfortable to you.
“You have to invest and be comfortable with it, whether it’s bi-weekly, bi-monthly or monthly,” Harris says.
You can always start with lower risk investments if you want to play it safe. Some include I bonds, money market funds, or Treasury inflation-protected securities, also known as TIPS.
This column was provided to The Associated Press by the personal finance website NerdWallet. The content is for educational and informational purposes and does not constitute investment advice. Elizabeth Aiola is a writer for NerdWallet. Email: [email protected]