As 2025 begins, the economy is in relatively strong shape, characterized by low unemployment, modest inflation, declining interest rates, and robust corporate profits that have bolstered the stock market. This promising economic environment provides a great opportunity to focus on improving your personal finances. Here are some key trends, issues, and tips to consider in the coming weeks:
Commit to a Savings Goal and Stick to It
New Year’s resolutions are a great way to jumpstart improvements in your financial health. You might focus on boosting your retirement savings, reviewing your insurance coverage, or creating or updating an estate plan.
For many Americans, the priority is clear: build up emergency savings. This involves setting aside funds in easily accessible accounts, such as money-market mutual funds or laddered certificates of deposit, to cover unexpected expenses while earning some interest.
A recent Fidelity Investments survey revealed that 72% of respondents experienced significant financial setbacks in 2024, with nearly half relying on their emergency funds to cover costs. Unsurprisingly, 79% aim to rebuild their cash reserves, and 38% are concerned about unplanned expenses in 2025. Women, in particular, reported having lower emergency savings but are motivated to address this in the year ahead.
Benefit from New Rules on Overdraft Fees
A recent federal banking regulation aims to ease financial pressure on consumers by significantly reducing overdraft fees. The Consumer Financial Protection Bureau finalized a rule in December to lower typical overdraft fees from $35 per transaction to $5. This change could save households paying these fees an average of $225 annually.
Overdraft fees often impact lower-income families disproportionately, leading critics to call them unfair. Some banks, including Capital One, Citibank, and Ally Bank, have already eliminated these fees. While consumer advocates celebrate this progress, they warn that Congress could potentially overturn the rule with a simple majority vote.
Prepare for Tax Season Early
The IRS recommends several steps to streamline the 2024 tax filing process. Start by organizing your tax documents, making any necessary estimated payments by January 15, 2025, and setting up an IRS Online Account. Note that adjustments to tax brackets and deductions due to inflation may affect your filing.
The IRS is also expanding its free Direct File pilot program, initially tested in 12 states, to include 12 more states this year. This service is ideal for those with straightforward tax situations, although not all taxpayers will have access.
Monitor Corporate Profit Trends
The stock market is on track to close 2024 with a second consecutive year of gains exceeding 20%, driven by rising corporate profits. Earnings for S&P 500 companies are projected to grow steadily in 2025, with double-digit increases anticipated in the first three quarters.
Technology companies, especially leaders like Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, are driving much of this growth, fueled by innovations in artificial intelligence, advanced computing, and robotics. Experts suggest this upward trend in tech profits is likely to continue into 2025.
Simplify Your Finances and Cut Unnecessary Expenses
With inflation still a concern, this is a good time to review your spending habits. Identify recurring expenses, such as streaming subscriptions, gym memberships, or delivery services, that might no longer align with your needs or budget.
“Audit your spending habits,” advises John Pharr, a certified public accountant in Florida. Often, we spend without much thought, even on services that no longer provide value. For larger expenses like auto or home insurance, review your coverage to ensure it matches your needs and compare rates for potential savings.
By adopting these strategies, you can position yourself for greater financial stability and success in 2025.
