6 Smart Money Habits to Start in 2023

With these money habits, 2023 could be your best year yet financially.

A new year is a great time to think about what's working for you financially and where you'd like to improve going forward. There are lots of new habits you can adopt that will make a huge difference in how much you save and your overall financial satisfaction. If you're looking for ideas, here are some smart money habits to start in 2023.

1. Invest at least 10% of your income

The stock market didn't perform well in 2022. Prices plummeted, and we went into a bear market. It sounds like bad news, but it also means this is an excellent opportunity to buy stocks at a discount.

Now, to clarify, the best approach for the average investor is to invest on a regular basis. Trying to time the market rarely works out well. But it's especially important you invest while stock prices are down, since you can get more for your money.

If possible, invest at least 10% of your income. You can do that in a 401(k) at your work, an individual retirement account (IRA), or an individual brokerage account. Or, all of the above.

2. Build a six-month emergency fund, minimum

An emergency fund is one of those must-haves for adults. Everyone's going to run into expenses they didn't see coming. By having emergency savings, you can pay these bills without feeling stressed about what you'll do or ending up in debt.

To better protect yourself, set a goal of at least six months' worth of living expenses in your savings account. Conventional wisdom is three to six months of expenses, but there has been talk of a possible recession, and several experts have increased their emergency fund recommendations. Six months is a smart goal to give yourself more of a buffer if you need it.

3. Pay your credit card bill in full

Don't let their reputation fool you -- credit cards can be an amazing financial tool. Many of them earn rewards in the form of cash back or points and may include big sign-up bonuses. There are also cards that offer complimentary protections on your purchases, like extended warranty coverage.

Your experience with credit cards all depends on your spending and payment habits. If you spend more than you can afford and carry a balance, you're going to get charged credit card interest. That's usually expensive, and it makes your balance harder to pay off. But if you only spend what you can pay back, and you pay your card's full balance every month, then you won't be charged any interest. That's how savvy consumers make credit cards work for them.

If you've been carrying balances on any cards, learn about how to eliminate credit card debt and start paying off yours. Once you've gotten rid of those balances, set a goal of always paying in full going forward.

4. Save for big expenses in advance

Most of us have probably been in this situation: You have something expensive to buy. Maybe it's holiday gifts, or a vacation, or a new pair of shoes. But you have no idea how you're going to pay for it. You could dip into your emergency fund, take some money from your investments, or put it on your credit card, but none of those are great solutions.

The better approach is to think about what expenses you'll have coming up and save in advance. For example, if you know you want to take a vacation this summer, start saving now. Many of the top savings accounts even let you set up sub-accounts, which are a great way to categorize your savings for specific goals. You could have separate sub-accounts for a vacation fund, a holiday gift fund, and so on.

This method helps you get proactive about your finances. Instead of waiting for these expenses to come up and scrambling for a solution when they do, you plan for them and make it much easier on yourself.

5. Spend on what really matters to you

Even though it doesn't get touched on much in personal finance advice, knowing how to spend money is important. There's a lot of focus on using money for financial security, both by paying your bills and saving for the future. That makes sense, but you should also use your money to improve your quality of life in the present.

To get better at spending money, think about what kind of purchases will make you happy. The goal here is twofold.

First, it's to figure out the things that are really worth spending your money on. You could decide that what you want is to spend your money on a new hobby, or go on a trip without sticking to a strict travel budget.

By doing some brainstorming, you can also find areas where you're spending money that aren't worth it. Maybe you realize you've been paying for an expensive gym membership, but you'd be fine at a more affordable club with fewer amenities.

6. Keep it simple

With so many financial products available, it's easy to overcomplicate things. Some people end up juggling too many rewards credit cards or bouncing from bank account to bank account for a 0.1% difference in interest.

Aim to simplify your finances where you can. Find quality bank accounts, credit cards, and a stock broker you like. Consider picking a passive investment product, such as an index fund. Automate your investments and your savings so you don't need to do it yourself. The more you simplify, the more time you can free up for yourself.