Many people make resolutions when a new year begins. One of the most common resolutions is related to finances: sticking to a budget, getting out of debt, or saving more for the future. Perhaps you went a little overboard during the holiday season and need to get back on track or you just want to do a little better with money management this year. If you’re looking for 2025 to be your best financial year yet, you’re in the right place!
Identify Your Financial Goals
Identifying your financial goals for the year and creating a plan for how to achieve those goals is step one. This can include short and long-term goals. A short-term goal may be to stop buying a coffee each morning and making it at home instead. A long-term goalcould be choosing an amount you want to save by the end of the year and working toward it. Make sure your goals are SMART – specific, measurable, achievable, relevant and time-bound.
No-Spend January
During this month, commit to only buying the essentials – groceries, utilities, housing, insurance, etc. Skip things like eating out, movies, new clothes or any other unnecessary shopping. The money saved can be used to pay down debt from the holidays or put in a fund to save for the future – maybe even the next holiday season!
Build a Budget
A budget should include all of your expenses and income after taxes. Compare how much you’re making to how much you’re spending. If you’re spending more than you’re making, it’s time to look at what’s in the budget and make adjustments. Consider things like eating out, getting a new phone when it comes out, streaming services and other entertainment as items that can be adjusted to bring down your expenses. To keep your budget simple, consider using the 50-30-20 rule where 50% of your budget is spent on needs, 30% on wants, and 20% on saving. Don’t neglect needs or saving to fulfill your wants!
Manage Your Debt
As you eliminate unnecessary spending from your budget, use that extra money to pay down any debt. There are two main systems people use to pay down debt: debt snowball and debt avalanche. The debt snowball method means prioritizing your balances. Using this method, individuals pay off the smallest debt first then move to the next. This method is often motivating to people because they can more quickly see the impact of their payments. Debt avalanche prioritizes interest rates. Using this method, individuals focus on the highest interest rate debt first then move to the next one. People often use this method to save money on interest. You can choose the method that best suits your personality or use an online debt calculator to determine what is best for your situation.
Save for the Future
Unexpected expenses can happen at any time whether it be medical, a home repair, car repair, etc. Having money saved means not having to get a loan and pay unnecessary interest when expenses come up. Most experts recommend having enough in savings for at least three to six months of expenses. In addition to a rainy-day fund, consider putting a few dollars away each month for upcoming vacations, special events and the next holiday season.
Although managing finances can be daunting, there are many ways to make it more manageable to ensure your financial future. As the new year kicks off, let’s make better financial decisions together and make 2025 our best financial year yet!
Lesley Sears, WVU Extension Agent, Summers County
Financial Literacy Education Team