5 Scary Financial Surprises That Could Cost You Big in 2023
Maybe you’d rather forget 2022 — we get it.
But before getting too far into 2023, it’s a good idea to take stock of how your finances may have changed during the last 12 months and make any needed adjustments.
Here are five areas of your finances to check on so you don’t get any unpleasant surprises this year.
5 Financial Surprises (the Bad Kind) to Avoid in 2023
Higher Interest Rates
The Federal Reserve raised interest rates seven times in 2022, and additional hikes are expected in 2023. That means carrying a credit card balance is about to become more costly. It also means you can expect a higher monthly payment if you buy a home or car in the new year.
Consider that the average 30-year mortgage rate on Dec. 20, 2022 was 6.47%, up from 3.25% at the end of 2021. On a home with a $350,000 mortgage, that translates to a monthly payment of $2,205 vs. $1,523 a year ago.
If you’ve got credit card debt (or any other debt with a variable interest rate), prioritize paying it off, as you can expect your debt to get more expensive. And if you’re buying a home or making another major purchase that requires financing, be sure to factor those higher rates into your budget. You probably can’t afford as much house as you could have a year or two ago, when interest rates were nearly zero.
Social Security Taxes
For retirees, first some good news: Social Security payments are getting their biggest cost of living increase since 1981. That raise is especially sweet because Medicare Part B premiums will drop slightly, meaning seniors can hang onto more of their Social Security checks.
The downside of fatter Social Security checks: Some recipients could end up with an unexpected tax bill. Social Security benefits are taxed at the following rates:
50% of your Social Security benefits are taxable if:
- Half of your benefits + other income = $25,000 to $34,000 (singles filers) or $32,000 to $44,000 (married couples filing jointly).
85% of your Social Security benefits are taxable if:
- Half of your benefits + other income = $34,000 or more (single filers) or $44,000 or more (married couples filing jointly).
If Social Security benefits are your only source of income, it’s unlikely that you’ll owe taxes. But if your higher benefit in 2023 will push your income above the thresholds listed above, start planning for your tax bill now.
Missed Student Loan Payments
If you’ve been taking advantage of student loan forbearance since March 2020 — when all payments and interest on federally held student loans were suspended — be prepared to start making payments again.
Though forbearance was extended into 2023 and sweeping student loan forgiveness is still possible, start planning now for the inevitable day that payments resume. Take a hard look at your budget to determine whether you can afford your expenses once you factor in your minimum monthly payments.
If you’re on the standard repayment plan and are unable to make the payments, apply for an income-driven repayment plan, which could substantially reduce your monthly payments when the forbearance period ends. If you’re already on an income-driven plan, update your income to modify your monthly payment.
Overdraft fees are among the most criticized fees assessed by banks, since those who live paycheck to paycheck are the ones likely to accidentally overdraft.
The goods is that a number of institutions eliminated their overdraft fees, including Ally Bank, Alliant Credit Union and Capital One.
In 2022, Bank of America announced it’s slashing overdraft fees from $35 to $10 and intends to drop bounced check fees. Wells Fargo said that it will give customers 24 hours to make good on overdrafts, although it hasn’t budged on the $35 overdraft penalty.
What does that mean for you? If you’re banking at a place that’s socking you with fees, then maybe 2023 should be the year you find a new bank — here’s a rundown of those fee changes, plus a list of banks that don’t charge overdraft fees at all.
A growing number of economists are now predicting a recession in 2023, with those polled for Bankrate’s Third-Quarter Economic Indicator pegging the odds of a recession in the next 12 to 18 months at 65%.
An emergency fund is the best way to safeguard yourself against a recession. Ideally, you’d have enough to pay for six months’ worth of necessities, but amassing this much cash can take years. Even if you’re able to stash away enough to live off of for a month or two, that will provide a valuable safety net.
Because the stock market is volatile, this is money you should keep in an FDIC-insured bank account, rather than investing it. The silver lining of those higher interest rates: Some high-yield savings accounts are now paying annual percentage yields (APYs) above 3%.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder.