The economy enters 2025 in fairly good shape, with a low unemployment rate, moderate inflation, a trend towards falling interest rates and strong corporate profit growth which has been boosting the stock market.
So it's not a bad background to get a fresh start on improving your finances. Here are some trends, issues and suggestions to think about over the coming weeks:
New Year's resolutions can be motivation to improve your financial situation in many ways, such as building your retirement plan, reviewing your insurance policies or starting (or updating) an estate plan.
However, the decision most Americans are focused on heading into 2025 is more fundamental: Allocate more money to emergency savings. You can hold money in various forms from a money market mutual fund to school bank certificates of deposit (those that come due at intervals such as every three months).
The idea is to have enough liquid cash to meet unexpected large expenses while earning at least a moderate profit in the meantime.
In and Fidelity Investments survivey, 72% of respondents said they had suffered a significant financial setback this year, with almost half having to use their emergency funds to pay for it. It is therefore not surprising that 79% of respondents hope to build up their cash reserves, 38% worry about unexpected costs and 20% say another surprise could set them back in 2025. Women said, more than men, who didn't have a cash crisis to dip into, but 80% of them decided to build one in 2025.
A new rule that might help some of the most hardened users is one that forces lower overdraft fees at banks.
The federal Consumer Financial Protection Bureau issued a final rule in December that it said will cut typical overdraft fees from $35 per transaction to $5, saving an average of $225 a year for the roughly 23 million households that pay payments from such.
Bank critics argue that the charges have hit lower income people hard.
Overdraft fees are “a form of predatory lending that exacerbates wealth disparities and racial inequalities,” Carla Sanchez-Adams, a senior attorney at the National Consumer Law Center, said in a statement.
Some banks including Capital One, Citibank and Ally Bank have already removed these fees.
Consumer advocates praise the new rule but warn that it faces the risk of being overturned by Congress. That, they say, could come with simple majority votes in both the Senate and the House, with limited debate.
The IRS suggests several steps that can be taken soon for people hoping to get a jump on the filing season for 2024 tax returns. These include collecting and organizing tax records, making an estimated fourth quarterly payment quarter (if required) by January 15, 2025, and open an Online IRS Account. Income brackets, deductions and other tax aspects have changed slightly due to inflation adjustments.