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If high inflation or other money challenges have left you feeling financially behind or struggling in 2024, you may be looking to make 2025 the year you get ahead financially.
Getting ahead financially often requires discipline and strategy, but it’s possible for anyone to take at least a few steps toward more solid financial footing.
Nate Hanft, CFP, a senior vice president and financial advisor at Wealth Enhancement Group, offered some key steps to take to get ahead next year.
Build a Budget To Review Spending
Building a budget may sound like an obvious piece of advice, but it’s one Hanft said people often avoid doing.
“A budget is just simply a tool to help you track how much money you’re making, but probably most importantly, how much money you’re spending,” he said.
When you finally break it down and look at your money, you may be surprised by how you’re spending, Hanft said. “Guilty areas might be eating out a lot or maybe a lot of it’s on the discretionary side of things,” he said, especially as many of these expenses may be incurred in small chunks.
That said, tracking your general expenditures is probably good enough, Hanft said. You don’t need to build an “elaborate, custom-built Excel spreadsheet,” he offered.
“I’m not that detailed about it. It’s really about understanding exactly how you’re actually spending your money.”
Review Your Subscriptions
Another way to make sure you’re not bleeding money in the new year is to review your subscriptions and track your cash flow.
“We live now in a kind of a la carte subscription-based economy. We’re paying subscriptions for streaming, we’re paying for the software we’re using on our computers, we’re paying for them for our phones and the tools with communication, and subscriptions for shopping,” Hanft said.
These subscription fees are easy to lose track of, sometimes difficult to cancel, and they add up quickly. “So wrap your head back around to look at what your subscriptions actually are and then say, OK, how much am I actually using this thing? You may even be surprised to find out that they recently raised the cost of that subscription.” Cancel the ones you don’t need and see your savings add up.
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If you need help, Hanft recommended a website called Rocket Money, which has a tool to help you monitor credit cards and bank accounts to identify subscriptions.
“They also have budgeting tools that are helpful for someone looking to automate the process.”
Shop For New Insurance Policies
The next thing Hanft encouraged people who own a vehicle or a home to do is to shop around for cheaper insurance policies.
“It’s always been true that you should revisit these from time to time, but I would definitely point out that over the last 12 months, if not more, the cost of these premiums have gone up dramatically. They’re actually a much bigger piece of the overall inflation rate than we would realize,” he said.
The new year is a good time to interview other insurance companies to see what their costs are.
“You would often be surprised at the opportunities to save some money, which can be very impactful without sacrificing the coverage that you obviously need.”
Revisit Retirement Contributions
Everyone who is employed and contributing to retirement accounts should review and potentially increase the amount of money they are adding to their retirement accounts, Hanft said. He said it’s easy to fall into “autopilot” with retirement accounts.
“Social Security is only likely to replace 35% to 40% of your pre-retirement income. For almost everybody, that’s not going to be enough.”
If you have a personal retirement account like an IRA or a Roth IRA, remember that every year they tend to raise the amount that you’re allowed to put into these accounts, he said.
“It’s a great time to say, OK, I’m going to take a little bit of this extra income that I now have and I’m going to commit it to my retirement account.”
People ages 50 and older can also make catch-up contributions, which enables them to put even more money away in a lump sum.
Look For Opportunities To Save
The new year is also an important time to look for ways to save more money generally. Hanft sympathized with the challenges of that: “We don’t want to pretend that it’s not tough to juggle the expenses and the unknowns of life in the here and now and instead redirect that money to the future.”
However, he stressed that every little bit of savings helps. “That’s why I started with the idea of understanding where your money is going first.”
Make Specific Financial Goals for 2025
What will help focus your savings efforts for 2025 is setting “a very specific financial goal,” Hanft said. Whether that’s paying down a high-interest credit card, or building an emergency fund, having that target can direct your actions.
“If you give yourself a specific goal, you can actually track your progress and it allows you to keep yourself accountable. It also gives you a sense of accomplishment because you will start to see those baby steps towards the goal, and it feels good to actually see yourself making progress,” he said.
It can also be motivating to achieve a goal, such as paying off debt, increasing the likelihood of achieving the next goal.
Consider a Roth Conversion
There’s a very good chance that by 2026 your tax bracket will change due to tax code changes and expiring tax cuts that came out of the Tax Cut and Jobs Act of 2017. If those cuts play out and are not rescued by Congress, you could be facing higher taxes all around.
A way to get ahead of that is to consider a Roth IRA conversion, which is where you move money from a traditional IRA into a Roth IRA.
“Then that money will be tax-free moving forward, especially in retirement.”
While you do want to consult with an accountant or financial planner to be sure it makes sense for you, it’s a strategy that could save people a lot in taxes.
One or more of these steps is likely to help you be in a better financial position come 2025.
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