John Wells of Morris & Wells Wealth Management shared some tips with us on starting the year out right when it comes to financial health.
What are some of the things you recommend people do to assess their financial health as they head into the New Year?
Heading into the New Year everyone should assess their savings goals versus whether they are on track. Our younger clients are generally saving toward specific purchases (like a house down payment) and/or a balance number that will give them the financial flexibility to retire or focus on whatever they want. So, does the savings plan need to be adjusted accordingly going into the New Year?
We also ask people to assess their debt. Are there high-interest rate debts that deserve more focus than other debts that might be lower interest? This could be in the form of credit card debt versus mortgage debt.
Are you contributing as much as you can to workplace retirement accounts or other tax-advantaged vehicles like ROTH IRAs? If not, we adjust for that to the degree the person can.
Do they have a “rainy day” fund that the person/people can access in case of job loss, injury, or something else? Depending on spending habits, 6 months is typically enough.
If there are children or grandchildren, does the person/people want to contribute to education in the future? Are those accounts funded or in the process of being funded?
What are some financial goals that everyone should consider setting at the start of the year?
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Is my workplace retirement account set up to save the maximum annual dollar value allowed by the government? In 2025 that is $23,500 for people under 50 years old and $31,000 for people over 50 years old.
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Have I paid down or am I in the process of paying down higher interest rate debt?
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Am I on track to save money in an annual amount in a taxable account that puts me on track to bridge the gap between my expenditures and the amount my retirement accounts can provide in retirement?
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Is every avenue I have set up for saving in 2025 automated to the degree possible?
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What are my various investment accounts invested in? Check for clear concerns. For example, am I a 30-year-old who has half his/her 401k invested in cash or fixed income? Make the changes necessary. If you do not know what those may be, contact a Financial Advisor.
What’s your best advice for someone wanting to prioritize debt reduction in the New Year?
Focus on the highest interest rate debt first. Then check to see if consolidation options exist for you at lower rates.
Sometimes individuals prefer to feel a sense of accomplishment by paying off accounts with smaller balances first. That is fine as long as there is not a large percentage point difference between the interest rates on small accounts or accounts with the highest interest rate debt. Do what feels best, just do it!
How do you advise people to approach saving in the current economic climate?
Interest rates are higher now than they have been for most of the last decade and a half. Save as much as you can afford and make sure that you are earning at least a market rate of interest.
Many options exist for easy-to-access high-yield savings accounts or money market funds within brokerage accounts that pay higher than bank rates of interest. Any economic climate is a time to keep focus on your savings goals.
Just be sure you are not being charged a fee for investing in a higher-yielding product. For example, your bank offers a high-yield CD at 5.5% however the bank fee is 1%. Remember that the yield is then 4.5% net the fee.
What steps should people take at the start of the year to check in on their retirement goals?
Look at balances and determine whether they are on track to the balance they desire upon retirement. If they do not know that balance, look for an online calculator and/or consult a Financial Advisor. If the savings rate is not aligned with retirement goals, that savings rate may need to be adjusted. For example, if you are 55 and want to retire at 65, know what that retirement balance needs to be to cover your expenses in retirement and do everything you can to reach that balance.
For those who haven’t started saving for retirement yet, what’s a good way to begin?
First, open a workplace retirement account and save as much money as you can within that. If you do not have access to a workplace retirement account, open a ROTH IRA (or potentially another form of IRA) at a low-cost broker (e.g., Schwab, Fidelity, Vanguard) and start automatically moving money each pay period in order to hit the annual maximum of dollars allowed in that account type.
How much should people aim to keep in an emergency fund, and what’s the best way to build it up?
We suggest three to six months of expenses. We view this money as money not to take much investment risk with, so regularly depositing it into some form of high-yield savings account makes sense.
Are there certain types of investments you think are particularly good for new investors?
Low-cost index funds make a lot of sense for new investors starting out with a small amount of money. Automate your deposits into the account and select the reinvest dividend option on your investments.
Our strategy is to pick individual stocks, which provide a low-cost and tax-efficient way to manage money. However, for lower dollar portfolios, the index fund approach makes sense.
Are there often-overlooked deductions or credits that people should look into?
The most overlooked benefit is not paying tax on workplace retirement account contributions. Take advantage of it!
Similarly, the ROTH IRA wrapper can be overlooked. If you have access to a ROTH IRA, either through your 401k or otherwise, take advantage of it.
Also, in taxable accounts, I find that people stick with losers too long. The tax code is written so that you can take advantage of unrealized losses for tax purposes once you realize them. Do not forget that benefit when reviewing your portfolio. Likewise, the tax hit from realizing an unrealized gain is often outweighed by the opportunity cost of sitting on a stock or investment that does not go anywhere for the next decade.
Do you have any final tips or words of encouragement for anyone starting their financial journey this year?
The American capitalistic system is an amazing system that allows us as individual citizens to hold minority interests in companies whose managements are incentivized to increase the value of their companies’ share prices. It is incredible that we get to participate alongside these management teams and in many cases founders. Be excited about the ability to take advantage of this and participate alongside the companies that are attempting to navigate, regardless of the sometimes treacherous landscape, and grow their valuations.
If you still have questions about how to achieve financial health in 2025, contact Morris & Wells Wealth Management.
Mr. Wells graduated from UVA and has worked in the investment industry for 23 years. His experience includes working at forensic accounting research firm CFRA and two hedge funds. Mr. Wells is a CFA Charterholder.
"Save as much as you can afford and make sure that you are earning at least a market rate of interest."
"The American capitalistic system is an amazing system... It is incredible that we get to participate alongside these management teams and in many cases founders."