If you resolved this year to do a better job managing your personal finances, now is the time to commit and make your financial health a priority.
According to WalletHub, at the end of 2024, 52% of Americans planned to make finance-related New Year’s resolutions. And 41% said they want to save more, 21% want to spend less, and 20% want to make more money.
Regardless of your New Year’s resolution, finances should be top of mind. According to the Federal Reserve, household debt increased by $147 billion in the third quarter of 2024, and 3.5% of outstanding debt is in some form of delinquency. While growth in income has continued to outpace debt, this increase reveals significant financial stress for many households.
Managing your financial stress and well-being is just as important as physical and mental health are maintaining a desirable quality of life. To help you stay on track and focused on your goals, begin the new year with an evaluation of your financial health. In other words: conduct a personal audit.
Take time to review the following:
Net worth
Your net worth is a measure of your financial health, providing a snapshot of your current financial position. Whether your net worth is high or low, it is important to know so that you can plan appropriately for the future. Your net worth is the basis for all retirement and estate planning and will help you understand where to focus your financial efforts.
Calculating your net worth sounds complicated, but for most people, it is not. Make a list of your assets (what you own). Then, subtract the liabilities (what you owe) from the assets. The result of this simple math problem is your net worth. Is your net worth positive or negative? Ask yourself why.
To stay focused on your goals, calculate and review your net worth at least once a year, then compare the data to the prior year. This will help you quickly determine whether you are making headway or not. It will also help you decide what financial goal to set next. For instance, you may find that you need to prioritize eliminating credit card debt or increasing your savings.
Budget
Most people know how much they are paying for fixed expenses, such as a mortgage or car payment, but few people really pay attention to where the rest of their money is going. Budgeting will help you understand how and where you are spending your money.
It begins with tracking your income and expenses for one month, including the amount you are saving and spending on credit cards. At the end of the month, subtract your expenses from your income. Are you running out of money, or do you have a positive balance remaining at the end of the month?
After a little while, you will see patterns emerge. Identify categories that can be changed, such as reducing the amount you spend on groceries, limiting how often you eat at restaurants or to attend events, or cancelling unused subscriptions. Then, focus on implementing changes to improve your habits by spending less and saving more.
Big-ticket expenses
As you plan your budget, don’t forget to include large expenses that you will need to pay for in the future. Are you planning to go on a big summer vacation, buy a car, replace your roof, or buy holiday gifts for friends and family? Do you know how much these expenses will cost, and have you thought about how you will pay for them?
If the money is not already available in your bank account, sketch a timeline, break the expense into monthly costs, and then plug this expense into your budget.
The unexpected
Life can change quickly and unexpectedly. Are you prepared for an unexpected event, such as a job loss, illness, or natural disaster? Do you have funds saved for an emergency and a contingency plan in place?
Insurance and savings can help protect you against unforeseen events. But you may also incur unexpected expenses. In addition to being adequately insured, keep at least six months of expenses saved in an easily accessible account for unforeseen financial burdens. Also, store birth certificates, passports, trusts, wills, trust documents, records of home improvements, and insurance policies in a secure location that that is quickly accessible in an emergency.
Retirement and investment accounts
Annually review your current investment strategies and asset allocation in all your investment accounts, including retirement and brokerage accounts. Does this allocation still align with your personal risk tolerance and time horizon? Are you saving enough to meet your retirement goals? As you move through life, your investment objectives and portfolio allocation should change.
If you can contribute to an employer-sponsored retirement plan, such as a 401(k) or 403(b) plan, take advantage of the increased employee 2025 plan contribution limits. In addition to increasing your savings, the amount contributed to a retirement plan will reduce your taxable earnings.
This year’s contribution limits, released in Internal Revenue Service (IRS) Notice IR-2024-285, are:
—Regular contribution: $23,500
—Catch-up contribution (ages 50+): $7,500
—Super-catch-up contribution (ages 60-63): $11,250
New in 2025 is the super-catch-up contribution and the retirement student loan matching program.
Super-catch-up contribution: Employees who are ages 60, 61, 62, or 63 at the end of 2025 can increase their contribution above the catch-up contribution limits. However, their 401(k), 403(b), or 457(b) plan must offer the catch-up contribution feature. If it does, the employee can increase contributions to their retirement plan by an additional $11,250 this year. This super-catch-up contribution will reset back to the regular catch-up contribution limit the year the employee turns 64.
Student loan matching: This is an optional employer program that allows employers to match the payments their employees are making on qualified student loans with employer contributions to a retirement plan. The student loan match is calculated using the same formula as retirement contributions from a paycheck. If an employee chooses to pay down their student loan instead of contributing to their 401(k), they can still receive the employer match as if they made the contribution to their retirement plan. Through this program, the employee can take advantage of paying off student loans while also building their retirement savings.
Estate planning
Without proper beneficiary designations, a trust, a will, and other basic documents, the fate of your assets and minor children may be decided by attorneys and tax agencies. Probate fees, taxes, and attorneys’ fees can erode your estate and delay the distribution of assets when your heirs need them the most. If your estate planning does not exist or hasn’t been reviewed for many years, 2025 is the year to complete this task.
If your estate planning is already complete, note that many current tax laws are expected to change at the end of 2025. This includes laws applicable to both income and estate tax. Ask your financial advisor or tax professional how the laws that are sunsetting this year may affect your personal circumstances.
By performing this annual personal financial audit, you will be better equipped to identify your financial strengths and weaknesses. This will allow you to implement changes to help you reach your financial goals. Don’t let your New Year’s resolutions fall by the wayside. Instead, make managing your finances a predictable part of your daily life and you can reap the long-term benefits of a sound financial future.
Teri Parker is a certified financial planner and vice president for the Riverside office of CAPTRUST Financial Advisors. She has practiced financial planning and investment management since 2000. Contact her via email at Teri.parker@captrust.com.
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