2013 is just a few weeks away, and with it will come uncertainty and change. You have likely heard the term “fiscal cliff” bandied about on the news or seen the phrase in newspapers and magazines in the past few months. But regardless of whether we go over the cliff or avoid it, everyone’s financial situation is likely to be effected in some way. With that in mind, here are a couple tips to deal with the uncertainty of 2013.
Firstly, what is the fiscal cliff?
The “fiscal cliff” is a term used to describe the combination of expiring tax cuts, new taxes, and decreased government spending, all set to begin on January 1, 2013. This would mean higher taxes and increased unemployment, and many pundits believe it could lead to a down period in the stock market and possibly another recession. Congress has been looking into ways to avoid the fiscal cliff, but no deal has been reached as of December 10th. And even if some sort of deal is reached, it will mean change.
There’s no need to stash your savings in your sock drawer or under your mattress. While the economic uncertainty facing the nation is worrisome, be wary of overreacting. Be patient, seek information, and assess your situation before making any changes to your finances. When it comes to investing, we believe a long-term plan and diversified portfolio will help mitigate economic difficulties. In other words – hang in there!
Tax changes might not only affect people’s paychecks, but can also affect tax credits (e.g., the Earned Income Credit, Child Tax Credit) tax deductions (e.g., for charitable donations), retirement accounts (e.g., 401(k)s and IRAs), and estate plans. So how might the changes affect you? Consider working with a financial and/or a tax advisor to find out. If that doesn’t appeal to you, you should be able to find plenty info online.
Adjusting is easier said than done, but hopefully, learning more about the changes will help you prepare. There will be many factors that you can’t control: the stock market, taxes, etc., so try focusing on the things you can control: reduce spending; increase tax deductions; save more.
Remember that when your financial situation changes, your financial plan might need to change, too. In other words, you might have goals and budgets that work for you now, but they might not work for you next year. It’s important to remain proactive in maintaining your finances; once you know more about how the economic changes will affect your finances, work towards adjusting your budget and financial plans so that you can maintain — or improve — your financial situation.
Does the fiscal cliff worry you? How are you preparing for it?
(infographic courtesy of nerdwallet.com)