One Financial Task for January 2025

Managing your investments gets complicated. Sometimes it seems overwhelming. My recommendation for 2025 is to simplify your finances.

The most important step is to calculate your net worth based on 12-31-2024 values.

I have found that very few investors complete this task. In my view, every financial advisor should provide this service for each of their clients, but they often do not.? Follow the simple steps below—and the illustration provided—and you will be ahead of most investors.

This is timely, because 2024 just ended, and during January you should be receiving monthly statements for your brokerage, retirement, and bank accounts that reflect 12-31-24 values. As they arrive in the mail, set them aside in a pile. If your statements are online, print them. You want to have a year-end statement for every investment account, retirement account, annuity, bank account, mortgage or car loan, and credit card. If you have a student loan, have a document showing your current balance.

You can use an electronic spreadsheet, or you can use a pad of paper and a pencil. As in the illustration, create at least three columns across the top, and label them 12-31-24, 12-31-25, and 12-31-26. I recommend you update your net worth in January 2026 and 2027 to see how your net worth changes each year. This should become an annual ritual each January.

On the left, write down your assets, including the estimated value of your home, the 12-31-24 value of each of your investment accounts, your retirement accounts, annuity, and bank or credit union accounts (checking, savings, CDs, etc.). After you have completed the list of your assets, calculate the total.

Next, write down your debts (also called liabilities). This often includes the mortgage balance on your home or car loan, student loans, and credit cards that are not paid off in full each month. After you have listed all your debts, calculate the total.

At the bottom of the net worth statement, list your total assets, subtract your total liabilities, and the result is your net worth on 12-31-24.

Why is it important to compile your Net Worth Statement?

Compiling a net worth statement reveals good—and sometimes less obvious—information about your finances. Here are a few issues that you may decide to address in 2025:

• If you listed several 401(k) accounts or several IRA accounts, I recommend you consolidate them. Old 401(k) accounts (from prior employers) can be rolled into an IRA without triggering taxes. If you see multiple bank accounts or credit union accounts, these can be consolidated to make managing your money easier going forward. It is common that investors open new accounts and do not close old accounts, which often leads to a complicated mess. If you have investment accounts at three or four different brokerage firms, decide which is your favorite, and consolidate redundant accounts into that brokerage firm.
• Perhaps you find you have some very small traditional IRAs that could be converted to a Roth IRA. This article will not go into the many rules about Roth IRAs, but I am a fan of getting money into a Roth—which is tax-free going forward— rather than traditional IRAs, which are tax-deferred until you withdraw the money. At that point, the withdrawals (from a traditional IRA) are fully taxable. Unfortunately, converting to a Roth IRA requires that you pay taxes on the amount converted in the year you convert.
• When compiling your net worth statement you may find you have cash in various banks or accounts that is paying a miniscule return. Consider moving cash to a money market fund, or asking your bank or credit union what alternatives they provide that will pay you a higher return.
• You may find you have very little cash, and compiling your net worth statement may lead you to start saving an emergency fund that would cover four to six months of your expenses.
• You may realize you have too much credit card debt, and paying it off can become your focus for 2025.
• You may find you are not contributing to your employer’s retirement plan, and you decide to set up the automatic contributions to begin in January. It is recommended that you contribute at least as much as your employer is willing to contribute for you (often called the “match”), assuming your employer will contribute.
• If you do not have a Roth IRA, you may decide 2025 is the year you open one and start funding it. If your income is too high to contribute (or you are retired and do not have “earned income”), you can consider doing a Roth conversion, which has no income requirements. Or, fund the Roth portion of your 401(k) through your employer.

Your net worth statement may reveal strategies for 2025 that will strengthen your finances. However, for now, just complete your net worth statement. That alone will put you far ahead of most investors.

Happy New Year!

Donna Skeels Cygan, CFP?, MBA is the author of?The Joy of Financial Security,?and her upcoming book?Becoming Enriched.?She owned a fee-only financial planning firm in Albuquerque for over 20 years before recently retiring. She welcomes emails from readers at [email protected].

I invite you to sign up for my digital newsletter “Becoming Enriched.” The newsletter is free to all subscribers, and you can unsubscribe at any time. It does not contain ads, and I do not share email addresses with anyone. When you sign up, you will receive the “Master Financial and Estate Planning Binder” document, which simplifies estate management for your loved ones in the event or your death or disability. To sign up, please go to my website at donnaskeelscygan.com and provide your email address. Or, email me directly at [email protected].