As the new year begins, it’s a great time to review your budget, debt, and investments to see how they align with your financial goals. These six steps can help you start 2025 with a solid financial foundation.
Key Takeaways
- Reviewing your finances at the start of the year can help you create a clear plan and reach your long-term financial goals.
- Important steps include checking your budget, ensuring your emergency fund is adequate, and managing debt effectively.
- It’s also helpful to track progress toward goals like retirement savings.
- The new year is an ideal time to update your estate and insurance plans.
Taking time to reassess your finances in January may not seem as exciting as setting other goals, such as exercising more or eating healthier, but financial well-being is closely connected to both physical and mental health.
The good news is that improving your financial health may be easier than you think. Here are six simple steps to help set yourself up for financial success in 2025 and beyond.
1. Review Your Budget
Start the year by reviewing your household budget. Look at your average monthly income along with fixed and variable expenses. Identify your financial priorities for 2025 and adjust your budget accordingly.
This is especially important now, as high inflation means everyday expenses like groceries and gas may cost more. Making adjustments early in the year can help you stay on track.
2. Check Your Emergency Fund
It’s always wise to make sure you have enough savings for unexpected expenses, especially during times of economic uncertainty. Economic growth slowed in 2024, with GDP increasing by just 2.8% in the third quarter, down from 3% in the second and 4.4% in the third quarter of 2023.
An emergency fund can help protect you from financial strain if you or a loved one experiences a job loss or other unexpected expenses. A general rule of thumb is to save three to six months’ worth of living expenses in an easily accessible account. Since your needs may change over time, review your emergency fund to ensure it’s still sufficient.
3. Manage Your Debt
Even if you manage your debt well, consider ways to reduce and consolidate it further. If you’re expecting a raise or year-end bonus, using the extra income to pay down high-interest debt can help lower your balance faster.
You may also want to consolidate debt by combining multiple loans or credit card balances into one with a lower interest rate. This can make it easier to manage payments and reduce financial stress. Consulting with a financial advisor can help you explore options.
4. Track Your Financial Goals
Make sure you’re still on course to meet your financial goals, such as saving for retirement. If market changes or other factors have affected your progress, a financial advisor can help you adjust your strategy.
If you’re on track, consider setting new goals. For example, did you increase your contributions to a workplace retirement plan or an individual retirement account in 2024? If so, think about contributing even more in 2025.
5. Review Your Investment Strategy
Check how your investments are allocated across stocks, bonds, and cash. Your portfolio should reflect your current life stage and financial goals.
For instance, as you get closer to retirement, you may want to shift some investments toward lower-risk options like bonds. If market fluctuations have caused your portfolio to drift from your target allocation, consider rebalancing to stay aligned with your goals.
Since retirement is a time when you’ll rely more on your savings, minimizing risk becomes even more important as you get older.
6. Update Your Estate and Insurance Plans
The start of the year is a great time to review important documents and policies, including:
- Estate planning: If you don’t have an estate plan, including a will, power of attorney, and healthcare proxy, make it a priority this year. Having a plan in place ensures that your assets are distributed according to your wishes.
- Life insurance: Review your life insurance policy to ensure it still meets your financial needs. If your employer does not provide life insurance, consider purchasing an individual policy. Major life events—such as marriage, divorce, having children, buying a home, or starting a business—can impact your insurance needs. An annual review ensures your policy reflects your current situation and provides the right protection for your loved ones.
By February, many people have lost track of their New Year’s resolutions. Financial resolutions are no different—they only work if you stay committed. To help keep your financial goals on track in 2025, consider meeting with a financial advisor to review your plans for the year and beyond.
