The good news is that the start of a new year is an opportunity to review your finances. Think of 2025 as a new chance to re-evaluate how much you want to earn, spend, and save and focus on your next life goals, including retirement, big vacations, or buying a home. 

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The challenge is that a new year could mean new money mistakes for many people. As much as you may want to think of 2025 as a new opportunity, old money habits can be hard to break. Easy things like not following your budget are just one of many financial pitfalls you’ll want to avoid in the new year. 

Neglecting Emergency Savings

The first pitfall you will want to avoid in 2025 is choosing a savings resolution and ignoring it. This is the most common financial resolution for people of all ages, as they want to put more money into an emergency savings account. 

One of the biggest mistakes anyone could make in 2025 is overlooking the need for an emergency fund. While we’d like to understand the economy is moving more and more toward a recovery with inflation lowering, there is still uncertainty ahead. 

The biggest consideration and mistake you can make is not being prepared for unexpected expenses. A large car expense, medical bill, or home repair can throw your path toward financial stability off track. 

What the Experts Say

Most financial experts say you should have 6-12 months of expenses in a savings account. A good financial advisor would tell you to put this money into a high-yield savings account to earn interest. Just make sure you are avoiding dipping into the savings for non-emergency expenses. 

Overspending On New Year’s Resolutions 

One of the most common New Year’s resolutions is to get in shape, so people often overspend to get fit. This might include buying a Peloton, something I can speak from personal experience. 

At the start of 2021, while still in the middle of a pandemic, my wife and I bought a Peloton, thinking it would be a great way to get into shape. Unfortunately, it was more fun to watch than to do, so off the Peloton went, at a slight loss, a few months later. 

The better option here is to start small by taking advantage of some low-cost options like walking, running, or using online workout videos you can find on YouTube. Try a free gym membership for a week and see if it’s something you think you will commit to before signing on the dotted line. 

Ignoring Debt Repayments 

A common mistake people make in the new year is to commit to paying off debt, specifically high-interest debt, but continue only to make minimum payments. The problem is that interest rates aren’t decreasing, so everything about your debt is becoming more expensive. 

Snowball Method

Financial expert Dave Ramsey offers great insight here with his “debt snowball method,” which can be great advice for starting in 2025. To look at your debt, list it in descending order from the smallest balance to the largest. 

Start by committing to make the minimum payment on each individual debt while looking to see where you have extra money to apply to the smallest debt. Once the smallest debt is paid off, you’ll move this extra cash toward the next smallest debt until you’re left with no debt. 

The hope with Ramsey’s method is that by the time you reach your largest debt, you’ll have created a budget that enables you to make significant extra payments and pay this largest debt off quickly. 

Buying Too Much House

One major money mistake someone can make in 2025 is buying too much house. Money expert Clark Howard indicates that “many people have big eyes when it comes to purchasing a home.” The challenge is that people take on too much overhead between mortgages, taxes, insurance, and any costly repairs that can raise money and quickly find out they are in bad financial straits. 

Clark suggests that instead of focusing on how much house you can afford, focus on the size of your mortgage. He recommends taking the amount you’re currently paying for rent and then adding in any expected monthly and yearly overhead costs you might also take on. This could include additional bills like water and electricity and then determine the right home for you and your family. 

Whatever this number amounts to is where your focus should be on a new house, as you know you can handle this level of expenses and payment already. 

Ignoring Retirement Savings

Any scenario in 2025 that has you making the financial mistake of not carefully planning for retirement may be the biggest mistake. You should start by making sure that in 2025, you are increasing or maxing out your 401(k) contributions. Even if you boost your 401(k) by 1%, that can lead to substantial gains over time. 

Additionally, try to take advantage of the higher IRA and 401(k) contribution limits that will take effect in 2025. The limit jumps another $500 to $23,500 in 2025 from 2024, so ensure you invest another $500 annually. 

Separately, you might want to ensure you are not ignoring employer matching. It’s a missed opportunity in 2025 if you are not taking every advantage of 401(k) employer matching. This is an all too common mistake people make, and by doing so, they are essentially leaving free money on the table. 

Not Planning for Taxes

While tax day might not be until the middle of April, it’s a very bad financial mistake to ignore tax planning until the start of April. Instead, financial experts indicate that you should already be thinking about what you want to do if you have an HSA or 529. You also need to make sure you are keeping a strong record of any charitable donations, medical bills, or any work from home you are doing. 

Did you buy an electric vehicle in 2025 or make an energy-efficient home upgrade? This might be something you want to discuss with your accountant and something you should do well ahead of time. The bottom line is that leaving tax planning for the last minute will lead to mistakes that can become unnecessarily costly. 

Shopping Insurance Policies 

Drawing from my experience here, one of the smartest money moves you can make in 2025 is shopping around insurance policies. This is everything from home, auto, and even health insurance. For home and auto insurance, in particular, if you leave this bill set to auto-renew, you could be leaving hundreds, if not thousands, on the table. 

I know that when we shopped around for insurance and combined our home and auto insurance in Florida, it saved us quite a bit more money than taking two individual plans. This is something that everyone needs to consider in 2025 and not just accept their current insurance as the status quo. 

Overlooking Small Expenses 

One final common mistake to watch is the power of small expenses and how quickly they can add up. This means tracking how many streaming services you are currently a subscriber to or how frequently you are grabbing Starbucks on your way to work. Truthfully, you don’t need 10 different streaming services. 

These small and repeated costs can add up, reducing the savings you might have to put toward debt. The best advice is to limit your discretionary spending every month and stick to it. You might find the money to be substantial. 

 

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