Smart money moves to make in 2023

Padmaja Choudhury   /   January 10, 2023

It’s a new year, and that means it’s time to start making plans for our financial future. As we look ahead into 2023, there are many smart money moves we can make to shore up our finances and ensure long-term success in the years ahead. If you’re ready to get serious about your goals, this post is here to help!

Here are some interesting money moves to make in 2023.

Fixed-income investment

In 2022, we saw a steep rise in interest rates which made investments in fixed-income instruments attractive. Experts believe this might be the right time to lock-in rates and earn stable returns. They believe that the increase in interest rates this year is likely to remain subdued. Banks are offering 7% plus for long term FDs, while medium and long term maturity debt mutual funds are a good bet to take exposure to fixed income now.

Prepaying home loans if holding surplus cash

While the increase in interest rates led to higher interest rates on fixed deposits, it also led to a spike in lending rates. The Home loan rates were 6.7% at the beginning of the year 2022 and ended the year at 8.65%.

 If you have surplus cash, you can consider prepaying loans. Increasing EMI every year in line with a hike in income is also a good option. This can have a remarkable impact on the loan tenure.

Keep surplus handy to invest if markets fall

As the world grapples with uncertainties around the recession, Covid and geopolitical tensions, the stock market is expected to remain volatile in the upcoming months. Any sharp sell-off will allow agile investors to purchase at an attractive cost.

Here’s what you can do:

  • Have a fund ready to invest in high-quality stocks when available at attractive valuations.
  • Even a part of your portfolio can be liquidated when necessary. If there is a liquidity shortage, the debt funds or fixed-income assets can be beneficial for cash flow.
  • This is an indicative plan, and investors may identify their own threshold and triggers.

 Gains from high rates on fixed deposits

Use the strategies to minimize liquidity, reduce tax and make the most of the high-interest rates:

  1. Laddering Strategy: In this strategy, instead of depositing a large lump sum, you can split it into smaller deposits of varying terms, with a defined purpose or financial goal for each deposit. This makes the investment more liquid. If opted for a five-year FD and require money after three years, a penalty of 0.1% will be levied to break the deposit. If you have four smaller deposits linked to specific goals, you will have the money when needed without paying any penalty. In addition to that, you’ll also benefit from the rising interest rates. A shorter-term FD can be locked into a higher rate after it matures instead of locking in a large sum for a longer period at a lower interest rate.
  2. Use family to lower tax: This is one of the smartest ideas to grow your money. If your parents or adult children do not fall in the tax bracket, you can invest in FDs on their behalf and earn a higher interest rate.
  3. Corporate FDs for higher interest: Certain companies offer deposits with higher interest rates than bank FDs. In addition, some of them have simpler premature withdrawal terms. On the flip side, there may be a risk if there is a default. But you can get good quality companies offering FDs. These do not offer tax benefits.
  4. Monthly income: Fixed deposits are a good option if your retired parents need a regular income without any risk. Opt for a non-cumulative fixed deposit, where interest is paid out at predetermined intervals, be it monthly, quarterly, half-yearly or annually. The interest rate may be slightly lower than the cumulative deposit. But, the senior citizens will be assured peace of mind.

Prepare for medical contingencies

With the surge in Covid cases, preparing for medical contingencies is crucial. It requires both financial and physical readiness. Besides adequate insurance and sufficient funds, you need a logistic plan. The increased health concerns necessitate bigger coverage. Implement the following strategies to ensure sufficient insurance at optimum cost.

  1. Maximum employer cover: Opt for the maximum cover provided by the employer to you and your family. It’ll be 20-30% cheaper than the market plan. But that shall not be enough. It is suggested to hold regular insurance cover as well.
  2. Keep a buffer amount: A buffer amount will be essential in case of delay or any issue with cashless reimbursement, where you need to pay upfront during admission.

Taking control of your finances in 2023 and making smart money moves is essential for overall financial health. With careful planning and the right mindset, anyone can get their financial house in order and create positive outcomes in the years ahead.

Download Wealthzi app: Invest in mutual funds, automated portfolio review and tracking