The economy is entering 2025 in fairly good shape, with a low unemployment rate, modest inflation, a trend toward falling interest rates and strong corporate earnings growth that has boosted the stock market.
So it’s not a bad backdrop for a fresh start in improving your finances. Here are some trends, issues and tips to keep in mind in the coming weeks:
New Year’s resolutions can be the motivation to improve your financial situation in many ways, such as building your retirement plan, reviewing your insurance policies, or getting started (or updating) an estate plan.
However, the resolution most Americans are focused on heading into 2025 is more fundamental: put more money into emergency savings. You can hold money in different forms, from a money market fund to bank certificates of deposit (which mature at intervals, such as every three months).
The idea is to have enough liquid assets to cover large unexpected expenses while earning at least a modest return.
In a Fidelity Investments survey72% of respondents said they had suffered a significant financial setback this year, with almost half having to dip into their emergency fund to pay for it. It’s no surprise that 79% of respondents hope to build up their cash reserves, 38% worry about unexpected expenses and 20% say another surprise could slow them down in 2025. Women, more than men, said they did not have an emergency. fund to dive into, but 80% of them decided to build one by 2025.
A new rule that could help some of the most hard-pressed consumers is one that mandates lower overdraft fees at banks.
The federal Consumer Financial Protection Bureau issued a final rule in December saying overdraft fees will be reduced from $35 per transaction to $5, saving an average of $225 a year for the roughly 23 million households that pay such fees.
Bank critics say the charges hit lower-income people hard.
Overdrafts are “a form of predatory lending that exacerbates wealth and racial inequality,” Carla Sanchez-Adams, senior attorney at the National Consumer Law Center, said in a statement.
Some banks, including Capital One, Citibank and Ally Bank, have already eliminated these fees.
Consumer advocates applaud the new rule but warn it risks being overturned by Congress. According to them, this could be done with a simple majority vote in the Senate and the House of Representatives, with limited debate.
The IRS is suggesting several steps that can be taken soon for people looking to get a jump on the 2024 tax filing season. These include gathering and organizing tax information, making an estimated quarterly payment in the fourth quarter (if necessary) before January 15, 2025, and opening an IRS Online Account. Income groups, deductions and other tax aspects have changed slightly due to inflation adjustments.