As we step into 2025, it’s time to prioritize not just our physical health but our financial fitness as well by setting new year's financial resolutions.
After experiencing two years of strong market returns and evolving economic conditions, setting clear financial resolutions can help guide you toward a more secure future.
Here are five key financial resolutions to consider for the new year.
Key Takeaways
Starting early with investments can significantly impact long-term wealth building through compound returns
The shift from pension plans to defined contribution accounts requires more active retirement planning
Increased life expectancy means retirement savings need to last longer and continue growing
Emergency funds, debt management, and comprehensive financial planning are crucial components of financial stability
Regular review and adjustment of financial strategies is essential for long-term financial wellness
Here are the detailed resolutions to help you achieve these goals.
1. Start Investing Now to Build Long-Term Wealth
There’s a timeless proverb that reminds us: “The best time to plant a tree was 20 years ago. The second best time is now.”
This wisdom perfectly applies to investing, where time in the market is one of your most powerful allies. Through the magic of compound returns, even modest investments can grow substantially over decades as returns generate their own returns.
Consider this: an investor who begins at age 30 with a $1,000 investment earning 7% annual returns could see their investment grow to $10,677 by retirement. However, waiting just five years reduces that final amount to $7,612.
This pattern holds true regardless of whether returns average 3%, 5%, or 10%. However, it's important to remember that investing involves risk, and understanding these risks is crucial for making informed decisions.
While market highs might make some hesitant to invest, remember that successful long-term investors are rewarded precisely because staying invested during uncertain times is challenging.
Market volatility creates opportunities for disciplined investors to buy at attractive prices, potentially leading to higher future returns.
2. Conduct a Comprehensive Retirement Account Review
The retirement landscape has transformed dramatically, shifting from traditional pension plans to defined contribution accounts like 401(k)s and 403(b)s.
This evolution means the responsibility for retirement planning now falls primarily on individual workers rather than employers.
In 2025, take time to evaluate critical aspects of your retirement strategy, including:
Whether you’re maximizing employer matching contributions
The tax efficiency of your investment allocations across accounts
The appropriate mix of traditional and Roth accounts
Your overall contribution rates and investment choices
Reviewing the performance and contributions to your individual retirement account (IRA)
With uncertainty surrounding the future of Social Security and Medicare, taking control of your retirement planning becomes even more crucial.
3. Plan for a Longer Retirement Horizon
One of the most significant financial challenges today is planning for increased longevity. According to Social Security Administration data, today’s 40-year-old men and women are expected to live to 79 and 83 respectively, with one in ten potentially living to 93 and 96 or beyond.
This extended lifespan means retirement savings need to last longer and continue growing to combat inflation.
A comprehensive retirement strategy should account for:
Healthcare costs that typically increase with age
The impact of inflation on purchasing power
Sustainable withdrawal rates that won’t deplete savings too quickly
Investment strategies that balance growth with income needs
Ensuring your life insurance policies have updated beneficiary designations to reflect your current intentions
4. Build and Maintain an Emergency Fund
Creating a robust emergency fund is crucial in today’s dynamic economic environment.
Aim to set aside 3-6 months of living expenses in an easily accessible savings account. If you are a duel income couple, three months should be adequate. However, if you are a single income couple or just and individual, lean toward six months of expenses.
Retired? Lean toward having 1-2 years of expenses in cash or cash equivalent instruments.
This financial buffer can help you avoid taking on high-interest debt or making premature withdrawals from retirement accounts during unexpected circumstances.
Consider setting up automatic transfers to your emergency fund and exploring high-yield savings accounts to ensure your safety net keeps pace with inflation.
Remember that your emergency fund should be separate from your regular savings and investment accounts to resist the temptation to use it for non-emergencies.
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5. Develop a Debt Reduction Strategy
Make 2025 the year you take control of your credit card debt and other financial obligations. Start by categorizing your debts by interest rate and creating a structured repayment plan.
This chart shows the household and consumer debt service payments as a percent of disposable personal income. The household debt service is on the left axis and consumer debt service is on the right axis. The dotted blue line denotes the average household debt service percentage.
Household debt has increased since 2020 but is not at levels seen during the housing bubble of 2007.
Lower interest and mortgage rates could help to keep household debt levels manageable.
While making minimum payments on all debts, consider either:
The avalanche method: Focusing extra payments on the highest-interest debt first
The snowball method: Paying off smaller debts first for psychological wins
Additionally, explore opportunities to reduce interest costs through balance transfers or debt consolidation, but be sure to read the fine print and understand any associated fees.
FAQs
Q: How much should I invest each month to reach my retirement goals?
A: The ideal monthly investment amount varies based on your age, retirement goals, and current savings. A common recommendation is to save 15-20% of your gross income for retirement, including any employer matches. However, it's best to consult with a financial advisor to create a personalized plan.
Q: Should I prioritize emergency savings or retirement contributions?
A: Ideally, you should work on both simultaneously. If your employer offers retirement matching, contribute enough to get the full match while building your emergency fund. This ensures you don't leave "free money" on the table while creating a financial safety net.
Q: How do I know if my investment portfolio is properly diversified?
A: A well-diversified portfolio typically includes a mix of stocks, bonds, and other assets across different sectors and geographical regions. The specific allocation should align with your risk tolerance, age, and financial goals. Regular portfolio reviews, at least annually, can help ensure your investments remain appropriately diversified.
Q: What's the best approach to paying off multiple debts?
A: Both the avalanche method (focusing on highest interest debt first) and snowball method (paying off smallest debts first) can be effective. The avalanche method saves more money in interest, while the snowball method provides psychological wins that can help maintain motivation. Choose the method that better aligns with your personal style of money management.
Q: How can I protect my retirement savings from inflation?
A: Consider diversifying your retirement portfolio to include investments that typically perform well during inflationary periods, such as stocks, Treasury Inflation-Protected Securities (TIPS), and real estate investment trusts (REITs). Regular portfolio rebalancing and adjusting withdrawal rates can also help protect against inflation's impact.
Conclusion
The start of 2025 presents an ideal opportunity to set meaningful financial resolutions and secure your financial life. Whether you’re just beginning your investment journey, planning for retirement, or working to strengthen your financial foundation, having a clear financial plan makes these goals more achievable.
Remember that financial fitness, like physical fitness, requires consistent effort and regular monitoring to achieve lasting results.
Want to get on track for your investment and retirement goals? Contact us for a free assessment.
About the author:
Financial Advisor
Megan Waters is a CERTIFIED FINANCIAL PLANNER™ professional and Financial Advisor at Covenant Wealth Advisors. Megan has over 14 years of experience in the financial services industry. Raised in Williamsburg, VA, Megan graduated from the Honors College at the College of Charleston with a BS in Economics and a minor in Environmental Studies.
Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER™ professional with the assistance of AI. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.