As we bid farewell to 2024 and welcome 2025, it's the perfect time to reflect on our "Life Goals" and set new resolutions that could enhance our overall sense of well being. Most people think of weight loss resolutions when it comes to changes in the new year, but how about something that could heighten you're awareness, energy, financial status, and overall health. At Monarch Wealth Management, LLC, we believe that a well-planned routine that can significantly enhance your quality of life and who couldn't use less stress in their life! Here are some tips to help you manage your income, spending, and savings effectively in the coming year:
1. Create a Budget: Bla, bla, bla. Basic and obvious, right? Of course budgeting makes this list like it does for just about every new Year's resolution blog, but it's on here for a reason. Start by tracking your income and expenses. A detailed budget helps you understand where your money is going and identify areas where you can cut back.
Track every dollar you earn and spend. Use budgeting apps like Mint or YNAB (You Need A Budget) to categorize expenses and identify spending patterns. Those are some ideas but even a good ole fashioned pen and paper method works just as well.
If you notice you're spending $200 a month on dining out, set a goal to reduce it to $100 and allocate the savings to your emergency fund. A lot of little purchases add up. Not to pick on Starbucks, but paying $5 - $6 for a cup of coffee is a small buy on the surface but add that up twice or three times a week and you could be spending thousands a year on a cup of Joe. Yikes!
Review your budget monthly and adjust as needed. Set realistic spending limits and stick to them. You don't need to resort to a peanut butter and Jelly diet to be successful.
2. Build an Emergency Fund: A basic principal but one that some people like to overlook. Having cash stashed in the side for a "rainy day" helps you avoid selling investments at an inopportune time.
Aim to save three to six months' worth of living expenses. Start small if necessary, but be consistent.
If your monthly expenses are $3,000, your emergency fund should be between $9,000 and $18,000.
Automate your savings by setting up a direct deposit from your paycheck into a high-yield savings account.
3. Invest Wisely: Taking undue risk to hopefully hit the jackpot. 99% of these go to zero and hurt you big time in the long run.
Diversify your investments across different asset classes like stocks, bonds, and real estate to spread risk. There is such a thing as over diversified but you often encounter portfolios with one or two stocks making up the bulk of an account. That can be a scary situation when a stock plummets overnight.
If you have $10,000 to invest above and beyond your emergency fund, you'll want to make sure you have time and patience to get things started.
Rebalance your portfolio annually to maintain your desired asset allocation. Consider things like tax implications, risk makeup, market outlook, comfort and the specific sector and stock you're invested in.
4. Reduce Debt: The more debt you have, the more you limit yourself on investment opportunities.
Focus on paying off high-interest debt first, such as credit card balances. Consider balance transfers or consolidation loans.
If you have a credit card with a 20% interest rate and a $5,000 balance, prioritize paying it off before lower-interest debts.
Use the debt snowball method (paying off smallest debts first) or the debt avalanche method (paying off highest interest debts first) to stay motivated and save on interest. Paying off the highest rate cards seems logical but there is a mental component to this because you don't want to lose steam in your efforts and just give up. People like seeing progress.
5. Maximize Tax Benefits: Pay less taxes and keep more in your wallet. We use huge mistakes here. Think Penny Wise and Pound foolish when people avoid paying fees to a professional but end up paying more in taxes
Contribute to tax-advantaged accounts like IRAs, 401(k)s, and HSAs to reduce your taxable income. Hear more about the triple benefits of how powerful HSA's can be in my PennyWise Financial Podcast.
If you're in the 24% tax bracket and contribute $6,000 to a traditional IRA, you could save $1,440 in taxes. It's not that easy though. You'll want to seek the help of a professional like a financial advisor and your CPA to help you decide between pre-tax, post-tax or a combination.
Take advantage of employer matching contributions in your 401(k) plan. If you don't, you're saying "no" to free money! Review your tax situation annually to ensure you're maximizing deductions and credits.
6. Plan for Retirement: Plain and simple but too many don't start until just a few months before they hang up they're hat. No, that's not a typo - months.
Estimate your retirement needs and adjust your savings rate accordingly. Often overlooked but an integral first step to helping you sold the biggest challenge you'll face in retirement, outliving your money. Use retirement calculators to project future needs as a start but have lengthy discussions with your planner to make adjustments and carefully craft a plan that will help with your specific needs.
If you plan to retire at 65 and expect to need $50,000 annually, you might need a nest egg of $1.25 million (assuming a 4% withdrawal rate). We commonly get asked, how much do I need? That's a great question, but how much income do you need to live on and when will you die. These are guesses at best and no matter how detailed the plan, things can change on the drop of a dime. It's best to have an outline but don't expect to live and die by it.
Increase your retirement contributions each year, especially if you receive raises or bonuses. The most effective way to do this is to choose a percentage versus fixed dollar amount as a way to save. Consider both traditional and Roth retirement accounts for tax diversification. It's not binary, both can play a role in generating a desirable outcome when you retire.
7. Review Your Insurance: It's all about protecting your loved ones and the things you want taken care of after death. Although insurance can be an instrument used to transfer wealth effectively and privately, it's primary use is to protect your family.
Ensure you have adequate coverage for health, home, auto, and life insurance. Review policies annually to adjust coverage as needed. Talk to your broker, agent or HR and ask questions. Attend the annual enrollment meetings and any education available to you.
If you recently bought a home, make sure your homeowner's insurance covers the full replacement cost of your property. Florida has been plagued with devastating storms that have left families homeless. It becomes more and more challenging to get the coverage you need at an affordable price. Unfortunately you can't afford to not carry homeowners insurance, especially when your home is paid for and you're retired.
Shop around for insurance quotes to ensure you're getting the best rates. Consider bundling policies for discounts. It's like the old cable strategy, every couple of years it's time to go shopping again. Don't only look at the cost though, make sure the insurer is reliable and check on their claims process. You'll want them to make things easy for you when you actually have a claim.
8. Stay Informed: Meet with your advisor regularly, read articles, talk to friends and be sure to be engaged at your planning sessions.
Keep up with financial news and trends to make informed decisions. Follow reputable financial blogs, podcasts, and news outlets. My blog and podcast is just one of those outlets.
Subscribe to newsletters from sources like CNBC, Bloomberg, The Wall Street Journal or my blog.
Set aside time each week to read financial news and educate yourself on personal finance topics. Join online communities or forums to discuss and learn from others. This one might be a stretch for those without the time or interest, but it's a way that could earn you extra credit in your planning.
Remember, small steps can lead to significant changes over time. Let's make 2025 a year of financial growth and stability!
If you haven't checked out my PennyWise Financial Podcast, watch a clip from an episode with one of our advisors, Charlie Forte Jr. MBA. You'll see topics that cover all sorts of things that tie into financial decisions or goals we plan for every day with our clients.
Scroll down a little past the clip to watch the entire episode. It's available on all major podcast platforms like Apple Podcasts, YouTube Music, Spotify, Amazon Music, and YouTube.
👇Or click below to watch the full Episode
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