The end of the year is a great time to take stock of your financial situation and make plans to reach your goals in the coming year.
However, the effectiveness of your plan depends on how well you analyze the current economic situation and how it impacts your finances.
Here, we’ll have a look at our seven financial tips that will help you plan your finances in 2024.
How 2023 panned out financially
Undoubtedly, the major themes of 2023 were interest rates and inflation.
With inflation reaching a 40-year high in June 2022, the Federal Reserve responded by hiking interest rates 3 times, with the last one in May 2023. This brought the baseline interest rate to 5.25%.
As expected, this had a ripple effect on the economy.
Borrowing costs went high, thousands were laid off from their jobs, and consumer confidence dropped as cost of living increased. All these led to fears of recession.
Outlook for 2024
However, as the year winds down, things are taking a new turn.
Inflation has dropped to a 2-year low, prompting the Fed to pause interest rates in its last two policy meetings. Investors are seeing this as a soft landing, with the possibility of the Fed cutting interest rates from July next year.
A weaker job market means there will be fewer openings as the gap between vacancies and unemployed people shrinks further, which would stall economic growth. Analysts expect the economy to pick up pace in the second half of the year.
7 Financial Tips for 2024
Here are seven things you can do to jump-start your year-end planning before heading into 2024.
1. Stick to your budget.
If higher expenses put a burden on your budget in 2023, you’re not alone. When money is tight, you may find yourself experiencing significant financial stress.
If you don’t like the idea of having to stick to a budget in 2024, you shouldn’t have to. On the other hand, doing so might help you better keep track of your money. This is how it works: stick to your budget instead of just making one.
To reach your financial goals, you may need to change the way you spend your money. With the new year ahead, being able to set priorities and spend your money wisely could make all the difference.
Sometimes, you might need to change your budget because of new information.
Think about how:
- your income will change
- how much you spend
- and how much you want to save
It would also be helpful if you found a good budgeting app that works for you.
2. Pay down debt.
The Federal Reserve has raised interest rates aggressively to rein in inflation.
This has dramatically increased household borrowing costs for everything from mortgages to auto loans, student loans, and credit card debt.
For example, the average credit card interest rate is at all-time highs – over 20%. So it’s advisable to put any extra money towards paying down debt.
To make the most of your debt reduction, consider using a strategy such as the avalanche method, which prioritizes paying off your highest-rate debt first while making minimum payments on all your other debts.
Once you pay off your highest-rate debt, transfer your payments to your second-highest-rate debt until it’s also paid off.
3. Invest as much as you can.
There are signs that the Fed may be lowering interest rates – or at least putting a pause on them in 2024.
This year, we have seen the US central bank pause rate hikes twice.
Slowing job growth and cooling wage pressures may give the Federal Reserve the initiative to start cutting interest rates. Analysts forecast that these rate cuts may come as early as mid-next year.
When this happens, risk assets like stocks will have upward momentum. Borrowing costs would reduce, which means companies may see their balance sheets bulge again. As such, 2024 may be a good time to invest.
4. Diversify.
Another one of the best financial tips for 2024 is that, as you plan to invest, it is also worthwhile to diversify your portfolio.
Explore various investment options like:
- stocks
- bonds
- and real estate
Also, consider newer investment trends that align with your risk tolerance and long-term goals. This would allow you to hedge risks from downturns and unforeseen risks.
5. Stay informed and educated.
The financial landscape continuously evolves with new investment opportunities, economic trends, and regulatory changes.
Staying informed helps you adapt to these shifts, make informed decisions, and seize new opportunities. It enables you to make informed decisions, navigate complexities, and work towards a more secure financial future.
6. Emergency fund planning.
Considering the cost of living crisis, increased borrowing costs, and the wave of layoffs, It’s important to have an emergency fund in place to cover unexpected financial hardships.
Putting aside at least 3 to 6 months of living expenses is a good rule of thumb. But of course, the more you can save, the better.
If you’re struggling to get started, begin with a small amount and build up your savings over time. Remember that as little as $50 a month gives you $600 in annual savings.
7. Retirement planning.
Review your retirement savings plan. If you haven’t started, consider setting up or increasing contributions to retirement accounts. Explore options like employer-sponsored plans or individual retirement accounts (IRAs) to secure your future.
Funding an IRA could not only set you up with a nice amount of retirement income down the line, but also help shield some of your near-term income from taxes.
Financial Tips for 2024: Final thoughts
No one can accurately predict how the economy or financial situation in 2024 will pan out.
Even analysts do not have the effect of knowing what will happen. However, it always helps to have a plan and strategy for how you want to position yourself financially. That is usually the first step to achieving financial independence.
However, regardless of the plans you make, bear in mind that the situation can change at any moment. As such, make your plans as flexible as possible and adjust them constantly to the financial realities.