Financial Wellness: How to Recover From the Holidays & Plan for the Future
Start the year off with some financial planning.
As we wind down from the chaos of Christmas and the holidays, a large number of parents and families alike struggle with the same thing in the new year: finances.
“Many people will find themselves in a financial bind after the holidays because they may have overspent. We have all done it,” says Jennifer Streaks, Senior Personal Finance Reporter at INSIDER. “The holidays are a time for family, and many want to make it a special time, but that can also lead to blowing the budget, and when the bills come in January, there may be a bit of stress around paying off the debt.”
Ahead, we break down key methods to practicing financial wellness so you can start 2025 on the right foot and practice financial stability.
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Pay Off Credit Card Debt
The holidays typically cause an uptick in credit card spending as everyone rushes to buy appealing gifts and surprises for their loved ones. However, digging themselves out of the hole is not as easy.
According to data from the Federal Reserve Bank of New York, Americans’ total credit card balance was $1.166 trillion in the third quarter of 2024, and the average household owes $7,951 in credit card debt.
“It is very easy to be looking at those same bills this time next year if you are not determined to pay it off now,” Streaks warns.
The average credit card interest rate is a whopping 25 percent, according to CBS News, further snowballing the amount due. On average it can take months to years for an individual to pay off credit cards, with the majority of the money going towards high interest. Streaks suggests looking at the money spent and making a game plan from there.
“Once the holidays are over, gather all the bills, assess the damage, and devise a plan to pay it off quickly,” she says.
Some popular credit card pay-down methods include the snowball method, which consists of paying down your smallest debt balance before moving on to larger ones. Another includes a balance transfer, where your largest or most interest-heavy credit card balance is transferred to a card with zero percent or low interest. Balance transfers allow you to save money on interest and get the debt down quicker. Finally, there’s the avalanche method, which consists of paying off the debt with the highest interest rate first.
Create a Budget
Creating a budget is key to practicing financial wellness. According to Investopedia, the majority of Americans say that they spend beyond their means and 66 percent say that they live paycheck to paycheck. Nearly 74 percent of Americans have a budget, but the effectiveness of that budget can vary significantly by generation and family composition. Experts suggest tightening the budget at the beginning of the year can help prepare for better financial wellness in the future.
“Revisiting and tightening the family budget in the first few months of the year can also create space to recover from holiday expenses,” says Deepak Shukla, CEO of Pearl Lemon Accountants. “Temporarily cutting back on non-essential spending, such as dining out or unused subscriptions, can significantly impact.”
A good rule of thumb for budgeting is the three P’s and the 50-30-20 Rule. The three P’s refer to prioritizing your budget: Paycheck, Prioritize, and Plan, while the 50-30-20 rule refers to designating the funds: 50 percent of income gets allocated to needs such as rent and groceries, 30 to wants, and 20 to save for retirement and other goals.
“The number one way to relieve financial distress is to make a budget and stick to it. Make a list of gifts, parties/get-togethers, trips, and food, and set a budget that you can afford. Stick to that amount no matter what,” suggests Streaks. “Instead of making a list of everything you want to buy and do and trying to make your budget fit that, set your budget, stick to it, and let that budget dictate your purchases and activities.”
Build an Emergency Fund
Finally, building an emergency fund is imperative to financial wellness. Emergency funds provide a cushion for emergencies and can help ease financial burdens. However, only 63 percent of adults said they could cover a hypothetical $400 emergency expense with cash on hand, according to the Federal Reserve survey.
Building savings can be difficult, especially when living paycheck to paycheck, like 50 percent of Americans have reported. According to the Bureau of Labor Statistics, in the first quarter of 2024, the median weekly wage for workers in the US was only $1,139, which roughly works out to 52,000 yearly. Despite low wages, an emergency fund can still be built, if you start small and stay determined.
“You can start with $20.00 or $50.00. Just start. Have money automatically deposited into your emergency fund so that you can set it and forget it,” says Streaks. “You don’t need to start with a large sum of money. Be consistent and keep saving, and it will grow.”
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