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Anuj Nayar is the financial health officer at LendingClub, a digital marketplace bank based in San Francisco.
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As we settle into 2023, we are constantly reminded of the endless lists of to-dos, goals and intentions for the year. It can all feel overwhelming, especially when it comes to finances.
In a year with continued high interest rates and many economists expecting a recession, it’s evident that many of the traditional money rules are outdated. To stay afloat in 2023 and beyond, consider throwing away money rules of the past to usher in ones that reflect today’s macroeconomic environment.
Here are the top three money rules that no longer apply in 2023:
You need a spare $400 for an emergency expense.
Thanks to inflation and continued Fed hikes, the true cost of an emergency nowadays is over three times the famed $400 number, with consumers’ average emergency expense reaching approximately $1,400, according to 2022 research by PYMNTS.com and our company. Read more about why the $400 emergency expense number is obsolete here.
As the market remains uncertain, it’s important to keep in mind tools that’ll help maximize savings, such as safeguarding your “rainy day” funds in a high-yield savings account since some banks are paying APYs of 4% or greater, or strategically using credit products to gain rewards.
Read Related Also: Housing Market Downturn Pushes Record Number Of Investors Away—Here’s Why That’s Good News For Home Buyers
Owning a primary residence is the best form of investment.
Traditionally, buying a primary residence is seen as a rite of passage according to the white picket fence “American dream.” There’s this notion that these homeowners have access to more financial security than renters. But this can largely depend on the situation, and sometimes the maintenance and other costs that come with owning your home may not be worth the investment. If renting is the right decision for you, consider building wealth in a different way.
For example, investing in stock portfolios can help you meet long-term financial goals. You can also invest in property through real estate investment trusts (REITs) or by purchasing and renting an investment property. There are myriad options for building wealth, but make sure you’re choosing the best option based on your current financial reality.
Saving 20% of your income to build savings.
You’ve most likely heard the idea that saving 20% of your income is imperative for building wealth and financial longevity for retirement (the 50-30-20 strategy). While it’s important to save, inflation and Fed rate hikes have made it incredibly difficult for many Americans to save. Americans are struggling to meet the demands of sky-high everyday expenses such as housing, food and utilities, and often, they don’t have extra cash left to put toward savings.
If saving 20% of your paycheck is not possible, save a portion of your income that feels comfortable automatically every month and look to other ways to build financial security, such as starting a side hustle or investing your long-term savings in the stock market.
Whatever your financial goals are in 2023, make sure they reflect how you want to live your life today. Whenever you’re in doubt, stick to the rules that have stood the test of time: Spend less than you earn, save for the unexpected and leverage the power of compound interest.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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