What Will Impact Your Financial Decisions in 2023?

We speak with Erin Wood, senior vice president of Financial Planning & Advanced Solutions at Carson Group about the ways emotions and learned behaviors play a role in how we make financial decisions. Wood also shares what investors should keep in mind about their money in 2023.

What are some good and bad learned behaviors that impact financial decisions?

Good and bad behaviors frequently start young. These are areas like budgeting and saving. For example, learning to put part of our birthday money away for a larger gift in the future. Delayed gratification is a learned behavior that will do us well in the future. The opposite of that is instant gratification. Another phrase for that is “Keeping Up with the Joneses.” As children, we unconsciously see these behaviors from our parents and frequently adopt them for ourselves. If your parents spent every dollar on instant gratification or allowed you to act that way, then you will likely carry that behavior into adulthood.

Knowing the above, what are some tips for investors to make better financial decisions?

Learn to recognize your learned behaviors. One way to do this is to look at your “Money Family Tree.” Create your family tree but instead of names include what you know about how money was related to them. Were there single parents, widows, savvy business owners, bankruptcy claims or an inheritance? Anything that would be related to money, good or bad. When you are done, look for patterns. Items that could be influencing how you interact with money. Once you have identified issues, now you can work on improving them.

Last year was a tough financial year, how big of a role did emotions and learned behaviors play in impacting financial decisions?

Emotions always play a big role in the decisions we make. Logic tells us to “Buy Low & Sell High” while emotions tell us to run for the hills; we are losing our money and our dreams are going up in smoke. Usually, short- term market conditions don’t derail our long-term goals. It’s important to remember the day you retire you don’t spend all your savings in the first year. Retirement will likely last 20-30 years for most individuals. During that time, there will be many good and bad years.

In this new year, what should people keep in mind?

There is always change and volatility, but that doesn’t mean any given year is all good or all bad. Look for opportunities that you can take advantage of, for example, higher interest rates also mean higher savings rates. Take advantage of these rates and earn more on your cash reserves. The SECURE Act 2.0, which was passed at the end of December, has around 100 new provisions. Additional catch-up contributions, new Roth opportunities and easier access to retirement funds for emergencies, are all positives.

What will impact finances in 2023?

A tightening job market, the rising cost of goods, increasing interest rates and lower tax refunds. This combination of lower income and higher costs will make for a challenging year for many individuals. Going back to the basics of having a solid cash reserve and controlling expenses can help minimize the negative impact. For those who are cash positive, rising interest rates will help them achieve higher rates of return on cash for the first time in many years.

This interview originally appeared in our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks videos from the past week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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