Written by Katie Gomez

January is usually the most productive month of the year, with people still practicing their new year’s resolutions and setting themselves up for better days ahead. The stress of dealing with finances is usually set aside when we’re focused on other goals, such as improving our health. Unfortunately, due to the pressure cooker economy, we must take control of our financial future now. Finances are easy to put on the back burner—piling things on credit cards or taking out loans to deal with issues later—but when we forget about the back burner for too long, it will burn. 

While every generation experiences financial struggles and economic downturns, if the last few years are any indication, Millennials & GenZ might take the cake. Older generations settled down in their 20s, buying houses, and creating families. But, it‘s become more challenging than ever for people in their 20s and 30s to find an affordable apartment, let alone a mortgage on a house—trading out families for three roommates to keep their heads above water. 

Although there has been an upturn in new revenue streams and passive income for the younger generation, inflation, and the upcoming recession are making it hard to see any real progress for most individuals. Despite the current climate, we can still make sound fiscal choices to make it through this year. The silver lining is that we can focus on our habits (things we can control) and give less energy to inflation, interest rates rising, and stock market crashes (something we cannot control). When the economy’s greedy hands are tied, the only thing we can do is start taking responsibility for our current finances. In this article, I will introduce five financial topics everyone needs to understand going into 2023 and how to turn them into efficient habits to practice. 

1.) Budgeting. The financial tool everyone loves to ignore is budgeting. However, budgeting is one of personal finance’s most foundational financial topics. It is simply becoming aware of where your money goes and deciding how to allocate it best. Unfortunately, budgeting is ignored by younger individuals, primarily because they function on short-term gratification, and budgeting makes them feel like they are giving up their autonomy. Millennials and GenZ tend to fail to see the bigger picture regarding their finances. Budgeting is the solution, an easy tool to implement, not the enemy of fiscal freedom. 

Creating a budget appears much more complicated than it is. The most effective way to budget is micro-budgeting, or budgeting you barely notice but makes an immense difference in the grand scheme of things. Budgeting is not slashing all non-necessities, it’s simply becoming more aware of how much money is coming in and out each month. Slow is the way to go when creating a budget. A great place to start is simply bringing more awareness and reflection to your finances each month. From there, there are apps, like RocketMoney, that can help you find an effective and sustainable plan for you in the long run. 

2.) Dealing with your debt. The only thing scarier than looking at debit transactions and creating a budget for funds is looking over the money you spend that is not technically yours. The feeling of checking back on purchases and seeing the interest double would give anyone anxiety. Unfortunately, we sometimes become so reliant on our sources of debt (mortgages, loans, credit cards) that we ignore it, becoming paralyzed until forced to deal with it. However, given the surge of inflation and interest rates, there are better options than hiding. Like budgeting, we all have to start somewhere we are comfortable with so we are not scared back into that debt paralysis state. 

You must let go of the shame regarding your debt because you are not alone. Debt is more prevalent than ever in today’s society. Consumer data has shown that the average U.S. consumer owes an average of $24,000 (student loans, mortgages, credit cards), reaching ~17 trillion dollars last year. The more familiar debt acquirement becomes, the more critical it is for people to recognize how to begin managing it. 

What kind of debt do you have? The key to managing debt is knowing what you’re dealing with, so you can formulate an appropriate plan. Every type of debt is either revolving or non-revolving. Revolving debt is the fixed-interest credit we can continuously spend while paying off debt (i.e., credit cards). Non-revolving debt (i.e., student loans and mortgages) involves buying a lump sum of money and paying it back incrementally with accrued interest. 

Additionally, dealing with non-revolving debt sources requires the individual to know the difference between unsecured and secured debt. Secured debt is ensured by collateral (an asset up for seizure if payments are ignored or missed), while unsecured debts have no collateral behind them. Although the lender of an unsecured loan can still use legalities to get their money back, there is no legal precedent to seize any personal assets or property of the loan recipient.

How to understand your debt? This understanding requires you to become familiar with the specifics behind your loans and credit debt (total balance, interest rate, minimum monthly payment, estimated payoff date) to see the bigger picture and start formulating your payoff plan. This process of compartmentalization makes paying off your debt less daunting and more comfortable. 

3.) Invest, Invest, Invest, Invest. Although the economy appears despondent, it should not hold you back from achieving your investment goals. The stock market ebbs and flows, but there are other safer investments, such as stocks, mutual funds, and 401k contributions. Here are some basics to know before jumping into investing.

• Asset Allocation: the process of dividing up assets into various accounts: checking, savings, retirement, and trading/investment (helps avoid investing scared money)
• Diversification: diversifying your investments for greater returns (i.e., stocks, precious metals, mutual funds, cryptocurrency, and bonds)
• Risk management/tolerance: creating an investment plan that outlines specific goals and sustainable strategies to get there over time without risking too much or too little.

In conclusion, everyone can take better care of their financial health in many ways, but we all have to start somewhere. Staying in the dark about your money is worse than any action you could take. Not knowing where your money is going, how much you owe, or what your investment portfolio looks would be like shooting yourself in the foot. So whether it is budgeting, coming up with a plan to pay down debt, or reallocating funds toward investments, it’s time to open our eyes and start taking action. Once we stop hiding and making a plan, just one small step at a time, we usually see things are never as bad as we thought.