Financial Planning in the New Year

What do you want to accomplish in 2025? When it comes to financial planning, I like to start with the end in mind and work backward. The “end” can be short-term (within the year), medium-term (5–10 years), or long-term (like retirement goals).

In the spirit of New Year’s resolutions, let’s focus on short-term goals. For any financial goal—short or long-term—budgeting is absolutely essential. While putting together a budget can feel tedious at first, it’s an invaluable tool for self-reflection. If spreadsheets aren’t your strength, don’t worry—there are plenty of online tools to help, such as Mint, YNAB, or PocketGuard.

Step 1: Know Your Income

The first step in budgeting is understanding how much money you’re bringing in. If you’re a regular W-2 employee, this should be straightforward. For contractors or those in commission-based roles, it’s best to project conservatively. If your actual income exceeds your estimate, even better!

Step 2: Identify Non-Discretionary Expenses

Next, list all your essential expenses—the ones you must pay no matter what. This typically includes:

Rent or mortgage payments
Loan payments
Utilities
Groceries

Step 3: Prioritize Savings

How much should you save? A good rule of thumb is to set aside at least 10% of your gross income, with 20% being better and 30% being excellent. Of course, this depends on your financial situation and ability to save.

If you’re just getting started, here’s a simple strategy:

Choose a percentage of your gross income to save each month—say, 10%.
When you get a raise, split it between savings and spending. For example, if you receive a 4% raise, increase your savings rate by 2%, bringing it to 12%, and use the other 2% for discretionary spending.

Savings can include contributions to retirement accounts, emergency funds, or specific short-term goals, such as saving for a car down payment by year-end.

Step 4: Build Your Budget

Now that you know your income, expenses, and savings goals, it’s time to finalize your budget. Here’s a breakdown:

Start with your income.
Deduct non-discretionary expenses.
Allocate a portion for savings.
Whatever remains is for discretionary spending (e.g., dining out, subscriptions, or hobbies).

Step 5: Track and Adjust

Use tools like Mint or YNAB to track your spending and make adjustments as needed. The key is consistency and flexibility—life happens, and budgets should adapt to changes.

Pro Tip: Celebrate Wins

Each time you hit a savings milestone—whether it’s $1,000 in your emergency fund or reaching 12% savings from your income—celebrate! Acknowledging progress keeps you motivated.

Budgeting is the foundation of effective financial planning. If you’d like help creating a budget or setting goals, reach out anytime—we’re here to support you!