Are you someone who puts off planning for the next year until the week between Christmas and New Year’s Day? Or do you tend to avoid planning altogether?
This year, I want to challenge you to start thinking now about the goals you hope to achieve in 2023, the barriers that could keep you from reaching them, and the specific financial strategies that can help you reach your goals faster and more efficiently. After all, it’s never too early to make a plan!
If you aren’t sure where to start, here are three specific areas to focus on as you plan for the coming year.
1. Look for Vehicles that Align with Your Goals
It doesn’t matter if you’ve been investing for decades or if you’re preparing to make your first investment in 2023, this principle is always applicable: When choosing your investment opportunities, focus on finding the vehicle that will help you get closer to your ideal destination.
When you view each investment as a vehicle, it also frees you from feeling like you can’t deviate from your initial strategy. Remember that just because something has worked for you in the past doesn’t mean that it’s still the best option for you today.
So even if you’ve been seeing favorable results from certain investments this year, now is a great time to re-evaluate. Try asking yourself these questions:
- Is this investment still delivering the results I need or expect?
- Are there other opportunities that align more closely with my goals?
- How are the current economic conditions impacting my investments?
2. Consider Your Tax Strategy
It may seem excessive to start thinking now about 2023 taxes. After all, the 2022 tax season hasn’t even started yet. But the decisions you make starting January 1 can have a major impact on your taxes, for better or for worse.
This is especially important for Accredited Investors, who typically fall in one of the top three federal income tax brackets. If you want to build wealth more efficiently, you should look for ways to reduce your tax burden and keep more of your earned income, rather than paying 32-37% in earned income tax.
Different investments have different tax rules and advantages, so it’s important to closely examine the specific ways an investment vehicle will be taxed. For example, investing in real assets like real estate may allow you to generate passive income that’s taxed at a lower rate, but in most cases it will not decrease the 32%+ income tax you’ll pay on your earned, W-2 income.
To help identify the difference when learning about a new opportunity, try asking the question, “Will this investment decrease my overall taxes, or will it decrease my income taxes?” In most cases, the answer will be that while the investment comes with certain deductions you can claim, those deductions will not directly impact the amount of income tax you pay.
3. Don’t Let Learning Keep You From Taking Action
Have you ever found yourself saying, “This year will be the year I finally start investing,” only to realize 12 months later that you still haven’t taken the leap? Or are you waiting to invest until you’ve read more books, talked to more advisors, or started to feel more confident in your financial decisions? If so, then this tip is especially important for you.
While it’s important to educate yourself and make sure you understand the assets you’re investing in, you’ll never become an expert from books alone. The best way to learn is by taking action and making those first investments.
And you don’t have to let fear of failure hold you back, either. Keep in mind that there is no such thing as a perfect investment. Even if you choose a vehicle that delivers lower returns than you hoped, or even if you have to change your strategy entirely at the end of next year, an imperfect investment will still get you closer to your goals than if you never invest at all.
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