This past year was an amazing one for me and my family. My wife and I welcomed our first child, so 2024 will be a year we never forget. We were also to able accomplish a lot this year outside of our growing family.
Each year, sometime between Christmas and MLK Day, we sit down to think about what we want to accomplish for the upcoming year. The goals can be personal or professional. They can be milestones we want to reach or habits we want to be intentional about.
We then write them down and put them on the fridge (or our new family calendar board), and they serve as a constant reminder of what we want to work toward. Some goals from years past have been certain designations I wanted to complete at work, fitness targets (original, I know), or personal enrichment (like reading more).
We also try to set financial goals for ourselves. Year end is a great time to reflect on where your hard-earned dollars went and set goals for what you want to accomplish. It also presents an opportunity to be more deliberate with your dollars in the year ahead.
Here are some helpful tips to make 2025 a successful financial planning year:
By now, you should have an idea of any potential raises and bonus in 2025. You’ll want to consider all of your income sources: wages, part-time or gig work, rental income and passive income. Knowing this can help you plan for taxes throughout the year.
This is often the hardest step. Look back on last year as a baseline for your expenses and see what you spent. What expenses do you think will be higher? What expenses might not be there? What new expenses might you have? What expenditures are living expenses, i.e. what do you need to keep the lights on? What would you like to be able to purchase in the upcoming year?
If you haven’t done so already, make sure you have enough assets set aside in an emergency fund. We say you usually want to target 6 months’ worth of living expenses, but I would also add any major expenses you anticipate coming up in the next 12-18 months. Those assets should be liquid, first and foremost. This is what I would consider not investable. These assets should also be held in a separate account from the ones you use day to day.
You might consider a savings account, or potentially a high-yield savings account if you want more interest. Just make sure you will have access to it in the event you need it.
Once you’ve set aside enough for an emergency fund, I would consider the rest of your savings investable. Setting clear, specific goals for yourself is the first step toward achieving them. How much will you need to accomplish these goals? When do you want to accomplish them by? How you invest it will depend on what you’re trying to accomplish and how long you have before you intend to fund those goals.
Longer-term goals allow you to be more aggressive with your investments (i.e. 10 years or more) because if the market takes a downturn, you can afford to wait for your investment to rebound and potentially start growing again. If you have a shorter-time horizon (i.e. three years or less), you’ll likely want to be more conservative or potentially hold cash.
Once you’ve determined your income and expenses, you will know how much of your earnings you can put toward different goals. With multiple savings goals and limited dollars to put toward them, you will want to be thoughtful about how you allocate your savings.
Shorter-term goals (like saving for a down payment on a home or a child’s education) need to be weighed against longer-term goals (like saving for retirement). Sometimes, shorter-term goals command more of our savings. However, you’ll also want to consider other factors (tax benefits for saving to certain qualified accounts, matching contributions from your employer in your company’s retirement plan, etc.).
I look at each new year as a clean slate. Putting in the time now to organize your finances will help ensure you start 2025 off on the right track and provide some clarity to your financial plan.
Happy planning!
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