While certain big ticket financial goals—like buying a car or a house—might require a specific plan, financial fitness is also about building good habits into your daily life. Here are five steps to consider.
5 Ways to Improve Your Financial Fitness
Financial fitness comes down to three things. First, clearly articulated goals. Second, a strategy or plan to achieve those goals. And finally, the discipline to follow through.
1. Increase Your Retirement Savings
Consider maxing out your retirement-plan contributions. For 2025, you can add as much as $23,500 in savings to a workplace retirement plan, such as a 401(k) or 403(b) plan. Workers over 50 years old can save an additional $7,500 in "catch-up" contributions. If you can’t save the maximum, be sure to contribute at least enough money to take advantage of any matching funds from your company. Because workplace retirement plans are tax-deferred accounts, you generally don’t pay income taxes on any earnings from your investments until you withdraw funds.
For individual retirement accounts (IRAs), the contribution limit remains unchanged from 2024 at $7,000. You have until April 15, 2025 to make contributions for 2024. Keep in mind that if you have maxed out your contributions to your 401(k) or 403(b), you also have the option of contributing to an IRA.
2. Make Financial Gifts
With the costs of college tuition and housing both rising, you may decide to help family members with those or other large expenses. For 2025, the annual gift tax exclusion is $19,000. In other words, you can gift up to $19,000 to any single beneficiary without paying gift tax on that amount.
A 529 college savings plan is a tax-advantaged way to save for higher education and allows you to gift savings to your children, grandchildren or other family members. With a 529, you can gift a lump sum—up to $95,000 in one year ($190,000 for married couples)—and then treat the gift as if it were given evenly over a five-year period. This assumes that there are no gifts made by the gift giver to the beneficiary in the prior five years. Any gifts made in the five years prior to or the four years after an accelerated gift is made may result in a taxable event.
3. Revisit Your Asset Allocation
Consider revisiting your asset allocation, or how your investments are divided among equities versus fixed income versus cash. Your asset allocation should reflect your savings goals and stage in life. For example, as you get closer to retirement age, you might consider moving some savings to a more conservative asset allocation, with a greater percentage of your assets invested in fixed income.
A Financial Advisor can help you determine how your assets and overall financial plan can be aligned with your goals.
4. Consider Estate Planning and Insurance
Make sure that you have updated all of the information for the beneficiaries named in your various estate planning and insurance documents, such as wills, retirement plans and life insurance policies.
If you don’t have an estate plan, with a will, durable power of attorney or health care proxy in place, you may want to make this the year to do so.
Ensure that you have sufficient insurance coverage for your family. If your employer doesn’t offer disability insurance, you may want to consider buying a policy. Also, nearly 70% of adults will need some type of long-term care service after the age of 65.1 If you tend to procrastinate, remember that the older you get, the more expensive the cost of some insurance premiums will be.
Don’t forget to create a plan for your digital assets as well. Can your family members find the usernames, passwords and other necessary information to access your online accounts if needed?
If you have aging parents, consider having a conversation with them about their estate planning so you’re prepared if they become ill or incapacitated.
5. Give to Charity
Determine how much of your income and time you want to devote to charitable efforts. If you have a more substantial amount of money to donate, consider a donor-advisor fund to potentially limit your long-term tax liabilities. A donor-advised fund is a charitable-giving instrument that provides a simple and effective way for you to direct gifts, year-round, to your favorite charity from a single account.
Stay on Track
Discipline is key to achieving financial fitness. But, if you take the time to create a solid strategy, you can potentially reduce the amount of effort going forward.
Footnotes:
1 Administration for Community Living, "How Much Care Will You Need?" Available here: https://acl.gov/ltc/basic-needs/how-much-care-will-you-need(opens in a new tab). Accessed August 10, 2024.
While we believe that donor advised funds provide a valuable philanthropic opportunity, contributions to donor advised funds are not appropriate for everyone. Other forms of charitable giving may be more appropriate depending on a donor’s specific situation. Of critical importance to any person considering making a donation to donor advised fund is the fact that any such donation is an irrevocable contribution. Although donors will have certain rights to make recommendations to donor advised funds as described in the Donor Circular & Disclosure Statement, contributions become the legal property of donor advised fund when donated.
The Donor Circular & Disclosure Statement describes the risks, fees and expenses associated with establishing and maintaining a donor advised fund account. Read it carefully before contributing.
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Asset Allocation does not assure a profit or protect against loss in declining financial markets. Investors should carefully read the Program Disclosure statement, which contains more information on investment options, risk factors, fees and expenses, and possible tax consequences before purchasing a 529 plan. You can obtain a copy of the Program Disclosure Statement from the 529 plan sponsor or your Financial Advisor.
Investments are subject to market risk and may fluctuate in value. Before investing, investors should consider whether tax or other benefits are only available for investments in the investor’s home-state 529 college savings plan. Assets can accumulate and be withdrawn federally tax-free only if they are used to pay for qualified expenses. Earnings on nonqualified distributions will be subject to income tax and a 10% federal income tax penalty. Some states offer favorable tax treatment and other benefits to their residents only if they invest in the state’s own Qualified Tuition Program. Investors should consult with their financial and tax advisor before investing in any 529 plan, contact their state tax division for more information.
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