2025 Financial Roadmap: Your Guide to Your Budget, Debt and Investment Checkpoints

The start of a new year tends to bring about a fresh sense of purpose, making it the perfect time to get a handle on your finances. While you can’t control factors like interest rates or market performance, you can take charge of what matters most — your spending, borrowing, savings and investments. Creating a solid financial plan is the key to reaching your goals and building a more secure future.

This guide will walk you through five key steps to assess your financial health and set yourself up for success in 2025 and beyond.

Step 1. Take stock: Review your progress, adjust as needed, and plan next steps

You can’t move forward until you know where you stand. That’s why it’s crucial to take a close look at your current financial situation. Here’s how to get started:

Gather the facts 

First, get the basics sorted so you know what you’re working with:  

• What is your income? 

• What are your expenses? 

• How do the two compare?  

“One of the simplest ways to budget is to keep two accounts – one for bills and one for spending,” says Stacey Markowsky, RBC Financial Planner. “For example, if your monthly bills add up to $2,000 and your income is $2,500, $2,000 goes into the account that your bills get paid from and $500 goes into your spending account. That way you don’t need to track anything – you always know what you have left to spend for the month and you also know that your bills are properly covered.” 

Celebrate the wins

Next, reflect on what went well in 2024. What goals did you achieve? Which longer term goals did you make progress towards? Which saving or spending strategies paid off? Celebrate those wins and take note of what worked to make them happen.

Address the curveballs

Life is unpredictable, and even the best laid plans can be derailed. What unexpected challenges did you face in 2024, and how might you have better prepared for them? If you fell short of any goals, what do you think held you back?

Identify the way forward

What’s next for you in 2025? Do any major life changes need to be factored into your financial plans? Whether it’s a big purchase, career shift or a family milestone like a wedding, a new baby or sending a child to university, life changes often mean a shift in your financial priorities. Identifying these changes now will help you reset and plan accordingly. Plus, exploring new financial strategies can help you achieve your goals more quickly.

Step 2. Get compounding working for you – not against you

Compounding has been called “magical” and even the “eighth wonder of the world” — and for good reason. It helps your savings and investments grow faster. By reinvesting returns, including interest, dividends and capital gains, compounding can supercharge your wealth.

How compounding works on your savings

When you earn and reinvest investment returns (such as interest, dividends or capital gains), your money grows exponentially. For example, a $10,000 investment at 5% interest will grow to $10,500 after one year, and $11,025 after the second year. Over 25 years, it could reach $33,863.

“I like to think of compounding like building a snowman,” Markowsky says, offering a simple way to break down this concept. “You start with a snowball, and keep rolling it – over time, it grows larger. Your money can do the same thing with compounding. You start small, and every year your investment returns continue to accumulate – or compound – just like the snowball does. The longer your time horizon, the more significant the impact.”

How compounding works on your debt

Unfortunately, compound interest works against you when it comes to debt. A $10,000 loan at 10% interest compounded annually will cost you more over time. For example, after the first year, you’ll owe $1,000 in interest. If you don’t pay that off, that $1,000 adds to your debt. In the second year, you’ll owe 10% no only on the original $10,000 but also on the $1,000 in interest – that’s another $100 in interest on top of the new $1000. So if your debt is not paid down, it can “snowball” quickly.  

Step 3. Pay down that debt and create an emergency fund 

If you’re starting the year with debt, you’re not alone. Research shows that half of Canadians carry credit card debt,¹ which can lead to financial stress. But the good news is you can pay down your debt, step by step.

Debt repayment strategies:

• Prioritize high-interest rate balances first

• Incorporate debt repayment into your budget — every payment reduces your debt and the interest charged

• Always make at least the minimum payments on all debts

• Consider consolidating debt into a lower-interest rate option to pay it off sooner

While paying off debt is crucial, it’s equally vital to stay focused on your key objectives, including your financial goals. For instance, continue building your emergency fund, aiming to save three to six months’ worth of expenses to cover unexpected costs, like job loss or health issues. While doing both can feel challenging, Markowsky offers this advice:

“The best way to pay off debt and save for an emergency fund would be to set up both automated debt payments and automated contributions to a savings account, directly out of your account – because you want to remove this from your to-do list. Setting a budget is important when it comes to allocating these funds, but I would always do both, in tandem.”

Markowsky emphasizes that after establishing a comfortable emergency fund, striking a balance between paying off debt and saving for long-term goals is essential for securing a strong financial future. “Once you have the peace of mind knowing you’re covered in case of an emergency situation, you can start saving for the longer term.”

Step 4. Save for your future retirement

While it might not be a priority now, saving early makes a big difference to your future retirement. The sooner you start, the more time your money has to grow — especially with compounding.

Tax-advantaged accounts for retirement

• Registered Retirement Savings Plan (RRSP): Contributions lower your taxable income now, and you’ll likely pay taxes at a reduced rate when withdrawing funds in retirement, as your taxable income is typically lower then.

• Tax-Free Savings Account (TFSA): A TFSA is a great complement to your RRSP. Contributions aren’t tax-deductible, but all withdrawals and growth are tax-free. Plus, contribution limits are not dependent on the income you earn, so you can contribute whether you are employed or not.

Scheduling regular contributions to retirement savings accounts will make a huge impact over time. A Pre-Authorized Contribution (PAC) plan is an easy way to save consistently, allowing you to “set it and forget it.” The more you save today, the less you’ll need to save later.

A common rule of thumb is to set aside 20% of your earnings for retirement savings, but that’s not feasible for everyone. Keep in mind, as your income grows, it’s worth increasing this amount to catch up. Be sure to also take advantage of employer matching programs for RRSPs. As Markowsky suggests, this is free money that boosts your retirement savings.

“One of the simplest ways to save for retirement is to participate in a company RRSP matching savings plan or pension fund. These funds are contributed directly from your paycheque to your RRSP or pension and then, if applicable, you may benefit from additional contributions from an employer. You wouldn’t pass up free money you find on the street – why pass it up when it’s offered by your company?”

Step 5. Get your money working harder for you by investing 

Saving money is important, but investing can accelerate your wealth. And consider this: You don’t need to be rich to start investing — even small amounts can grow over time, especially as your debt decreases and your income grows.

Investing considerations as you get started:

• Align your investments with your goals and timeline. For instance, your retirement savings strategy will differ from your plan to save for a down payment to buy a home. One goal may be 30+ years away, while the other might be something you want to achieve in the next few years.

• Match investments to your risk tolerance so you can feel comfortable with your choices

• Diversify your investments to manage risk and capture opportunities

Whatever your objectives, creating a well-structured investment plan can keep you confident in your financial decisions during market fluctuations, allowing you to reach your long-term goals.

Start 2025 with a financial reset

As 2025 begins, take this opportunity to reassess your financial goals and challenges. Use the strategies outlined here to tackle debt, save effectively, and invest for your future.

Ready to get started? Book an appointment with an advisor today.

1 – https://www.bankofcanada.ca/2024/07/staff-analytical-note-2024-18/