Nearly three in ten Americans report that they’ve made a New Years Resolution, but of that group, only 6% actually follow through for an entire year. Change is hard, especially when we set lofty goals like losing 10 pounds, cutting out sugar, or canceling subscriptions. When goals are unrealistic, they have a very low probability of becoming habits, which is what ultimately makes a resolution stick. As we head into 2025, let’s explore some achievable financial resolutions that can make a real difference without requiring drastic lifestyle changes. Below are four practical steps that could greatly impact your financial situation over the next year.
1. Reflect on the previous 12 months
The first step to improving your financial situation in 2025 is to take a step back and reflect on 2024. What went well? What didn’t? What has changed in your life, and what remains the same as it was in 2023? Financial plans should align with your personal goals, so if your circumstances have changed, it might be time to re-evaluate your spending, saving, and investing strategies.
Life changes aren’t always as dramatic as buying a house or having a child. Perhaps you decided to travel more, gift more generously, or were frustrated by high taxes or disappointing investment returns. These may not be what we typically consider “life changes,” but they are mindset shifts that can significantly impact your financial plan.
2. Build a Budget
Once you’ve assessed what has changed, the next step is to understand where you stand financially. It’s likely not the first time someone has advised you to build a budget, but many people still don’t have one. Remember what we discussed about setting realistic goals? Building an itemized budget can seem overwhelming. For some, the idea of tracking every penny spent is daunting.
Your initial budget doesn’t need to be complex. Start with the basics: write down your major expenses (rent, mortgage, groceries, utilities). If you’re unsure of these numbers, review your spending from last month—historical data is a reliable predictor of future expenses. Once you know your total expenses, subtract them from your income to see what’s left over. You’ll likely find a sizable “miscellaneous” spending category that could include shopping, dining out, or entertainment. These are areas where you can make adjustments to increase your savings rate.
3. Evaluate Your Savings Strategy
With your budget in place, you’ll have a clearer picture of what you’re currently saving and how much you’d like to save in the future. Whether you save a set amount or a percentage of your income, take the time to ask yourself: Why are you saving in this specific way?
For example, you might be saving 5% of your income in your 401(k), $250 per month in savings, and $100 per month in a Roth IRA. But why these specific amounts? Could increasing your 401(k) contribution at the expense of savings or shifting funds to a Roth make more sense for your current situation?
Over time, it’s easy to fall into a routine where you continue saving the same amounts without reassessing whether they’re going to the right places. Keep in mind that your financial situation is dynamic—income, tax rates, goals, and timelines change over time. Regularly reevaluate whether your savings strategy is still aligned with your evolving needs and priorities.
4. Evaluate Your Investment Strategy
By now, you should have a solid understanding of your budget and savings plan. The next step is to take a close look at your investments. If you’re contributing to a 401(k), Roth IRA, or other retirement account, you likely have several investment options to choose from. It’s easy to fall into a routine of contributing to the same funds or stocks without revisiting whether they’re still the best fit for your current goals.
Consider this: Just as your income, taxes, and goals change over time, so should your investment strategy. Your initial investment choices might have made sense when you first opened the account, but it’s important to ask yourself whether those same choices are still optimal given where you are today.
Next Steps
Your financial plan is constantly evolving. We like to joke with our clients that developing your financial plan is like buying a new car: the moment you drive it off the lot, it’s now a used car. While periodic check-ins are essential, it’s equally important to update your plan whenever there’s a change in your financial picture.
Since your financial plan should be based on your goals, it’s important that every action you take is moving you closer to achieving those goals. Saving just to save or investing just to grow wealth isn’t enough to put you in the best position going forward.
As we move into 2025, take the time to reflect on where you’ve been, where you stand now, and where you’d like to be in the future. And as always, we’re here to help you along the way.
Happy New Year!
Matt J Black,CFP®,AAMS®
mblack@larsonfs.com
913-428-2233
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