It’s a common New Year’s resolution to look for ways to increase your income. While ringing in the new year with a well-timed raise may or may not be in the cards, there are many money habits you can practice to make the wealth you already have go even further this year.
With money on the mind, we asked Ameriprise Financial Advisor Nathan Daugherty for his advice on how to be financially healthy in 2025. He recommends following three rules of finance: prepare for the unexpected, don’t spend more than you make, and eliminate debt.
His first suggestion for people looking to improve their financial lives is to establish an emergency fund. “This is typically defined as three-six months’ worth of expenses,” Daugherty explains. Without an emergency fund, debt occurs and is often the biggest hurdle to tackle when it comes to getting your finances in line.
Daugherty suggests taking advantage of balance transfer offers on credit cards, and paying off the highest interest rate balances first. He says, “This will ultimately save you the most money over time.” If the highest interest rate is also the highest balance, though, it may make more sense to pay off the smallest balances first. “Then, start using the snowball effect," Daugherty explains. “As soon as you pay off one balance, redirect that monthly payment to the next debt. Never let the freed up cashflow wind up in your discretionary spending.”
Daugherty describes discretionary spending as money spent on entertainment, dining, gifts, travel or hobbies. Limiting this is the next big step in becoming more financially stable. “We generally find that discretionary spending is more than we think. And this is the category we can adjust most significantly in our daily lives,” Daugherty says.
In line with discretionary spending, it’s common to experience "lifestyle creep" where you increase spending as your income increases. Lifestyle creep makes it harder to save for your future because you feel required to save more to maintain the same level of comfort. But how do we avoid it?
Daugherty says to “follow the rule of thirds.” One-third of your raise goes toward taxes, one-third goes to long-term savings, and the final third can be viewed as bonus cash.
Daugherty also encourages his clients to simplify their spending to help spot long-term trends. He suggests putting all fixed expenses on one credit card, discretionary expenses on the other, and to “pay the cards off every month on the same day so you have a running tally of your total spend rate.”
The final step in finding financial freedom is with purposeful savings. Daugherty explains you can start by saving 10 percent of your income for retirement in any tax-advantaged savings options that are available to you, such as in a 401(k) or Roth IRA. “The power of compound interest is phenomenal," he says. "And when you add ‘tax-deferred’ into the equation, that power grows exponentially.”
Daugherty’s top piece of advice, though? Find an accountability buddy when it comes to your accounting.
“There’s something about human nature that forces us to work harder if we know somebody else is watching our progress,” Daugherty says. “If you don’t have someone in your life to help with this, speaking to a financial advisor is the best way to find a partner who will be invested in your long-term financial success.”
"Find an accountability buddy when it comes to your accounting."