Financial resolutions may be inflated for 2023

2022 was a year of financial challenges for many people, and not just because of market declines, but also because of rising inflation.

The Consumer Price Index (CPI) inflation figure for the 12 months through November 2022 was 7.1%. That’s a far higher figure than we’ve experienced over the last decade.

The rise in inflation actually began in 2021. The CPI was 1.4% for the 12 months ending January 2021, 2.6% in March 2021, 4.2% in April, and has climbed above 5% since then, according to the Bureau of Labor Statistics (tinyurl.com/hwfvfv2c).

The battle with inflation has changed the outlook for many families, as evidenced by Fidelity Investments’ recently released 2023 New Year’s Financial Resolutions Study (tinyurl.com/5ch78fnc), a survey of 3,020 adults age 18 and older, conducted in October.

Thirty-six percent of those surveyed reported their families were in a worse financial situation than the previous year, while another 36% said their families were in the same financial situation.

For those in a worse financial situation, 58% cited inflation as the reason. A substantial number (43%) ranked “Inflation’s impact on day-to-day expenses and savings” as the top financial concern for next year, just ahead of “economic uncertainty/ recession” (39%) and “unexpected expenses” (38%).

And among those who experienced a financial setback during the past year, 44% said they had to dip into their emergency fund.

When thinking about the future, 2 out of 3 believed they would be better off in 2023, and another 2 out of 3 were considering a financial resolution for 2023.

Because the timing is right for New Year’s resolutions, let me share the respondents’ thinking.

The top resolutions were consistent with prior years — save more money (39%), pay down debt (32%) and spend less money (28%) — all solid goals.

What was new, however, was a shift from long-term to short-term goals.

For the first time in the 14-year history of the Fidelity study, there was a greater focus on saving money for short-term goals (for example, credit card debt, emergency savings, mortgages and big-ticket purchases) rather than longterm goals (such as retirement, college savings and long-term care).

Planning is one thing; taking action is another. It turns out that more than half of Americans (54% of 1,004 surveyed in September 2022 by Allianz Life Insurance Company of North America) have actually reduced or stopped saving for retirement because of inflation, and 43% said they had to draw from retirement savings due to inflation (tinyurl.com/yt353bwu).

What does this mean in terms of expectations for the future?

The vast majority (more than 8 in 10) of those surveyed by Fidelity believe that having a plan in place “can help them better deal with the unexpected.”

If you are a regular reader of this column, you’ll know that I wholeheartedly agree. Preparation allows one to anticipate the inevitable down periods in the markets, disruptions in income and emergencies that affect all families.

While only 1 in 3 (29%) surveyed by Fidelity expected that 2023 would be the year of “living sensibly,” and only 1 out of 5 (20%) thought of 2023 as the year of “planning ahead,” 1 out of 2 (49%) resolved to try to maintain the savings habits they picked up during the COVID-19 pandemic.

Inflation may continue at current levels for a while. And, there may be additional financial challenges on the horizon in 2023. The important takeaway from survey-takers and resolution-makers is to do the best you can under the circumstances. If you haven’t made a resolution yet for the coming year, “living sensibly” and “planning ahead” seem to be a good place to start for 2023.

Roughly 1 out of 2 nonretired investors surveyed in July and August (the Nationwide Retirement Institute’s Advisor Authority Survey) felt “terrified” about their long-term financial futures (tinyurl.com/25z5c86v). That doesn’t have to be you.

Seasoned Investment Counsel and award-winning columnist and author, Julie Jason, JD, LLM, promotes financial literacy and investor protection. Read her latest book, “The Discerning Investor: Personal Portfolio Management in Retirement for Lawyers (and Their Clients),” published by the American Bar Association. Write to Julie at readers@juliejason.com. While all questions cannot be answered, each email is read and reviewed and can lead to discussion in a future column.