As we step into 2025, the U.S. economy shows promising signs with low unemployment rates, controlled inflation, falling interest rates, and robust growth in corporate profits bolstering the stock market.
This favorable economic environment is a great opportunity to reassess and enhance your financial strategies. Here are some key trends, issues, and advice to consider in the upcoming weeks:
Commit to a Financial Goal for the New Year
Setting New Year’s resolutions can be a powerful driver for financial improvement, whether that’s augmenting your retirement savings, reevaluating your insurance coverage, or initiating or updating your estate planning.
The leading resolution for many Americans as we approach 2025 revolves around a basic yet crucial aspect: enhancing their emergency savings. Options for saving include diverse instruments like money-market funds or staggered-term bank CDs, which mature at different intervals such as quarterly.
The goal is to maintain a sufficient amount of readily accessible funds to cover significant unforeseen expenses while still earning a reasonable return.
A survey by Fidelity Investments revealed that 72% of participants experienced a significant financial setback this year, with nearly half needing to tap into their emergency savings to cover these costs. Therefore, it’s not surprising that 79% aim to bolster their savings, with 38% concerned about unexpected expenses and 20% worried that another unforeseen event could derail their financial plans in 2025. Notably, a higher percentage of women than men reported not having an emergency fund, but 80% are determined to establish one this year.
Benefit from New Banking Regulations
Relief may be on the horizon for consumers struggling with bank fees thanks to a new regulation aimed at reducing overdraft charges.
The Consumer Financial Protection Bureau announced a regulation in December that reduces average overdraft fees from $35 per transaction to just $5, potentially saving affected households an average of $225 each year. This fee adjustment could impact around 23 million households that incur these fees.
Advocates argue these fees disproportionately affect lower-income individuals and amplify financial inequality and racial disparities, according to Carla Sanchez-Adams, a senior attorney at the National Consumer Law Center.
Several banks, including Capital One, Citibank, and Ally Bank, have already eliminated these fees. Although consumer advocates welcome the change, there is concern that the new rule could be reversed by Congress, potentially with simple majority votes in both the Senate and the House and limited debate.
Prepare Early for Tax Season with Free Resources
The IRS recommends several steps for those looking to get ahead of the 2024 tax return filing season. Suggestions include organizing tax documents, making estimated tax payments by January 15, 2025, if needed, and setting up an IRS Online Account. Due to inflation adjustments, there have been changes to income brackets and deductions.
Last year, the IRS tested a free, user-friendly Direct File system in 12 states, designed for taxpayers with straightforward tax situations. This year, the service expands to include additional states such as Pennsylvania, New Jersey, Connecticut, North Carolina, and Oregon, potentially creating confusion as only about half the country will have access to this service.
Monitor Continued Growth in Corporate Profits
If current trends hold, the stock market is on track to close out 2024 with another impressive annual gain of over 20%.
The surge in corporate profits has been a major driver of these gains, and the outlook for the next year appears even brighter. For investors, this is a positive indicator. Earnings for companies in the S&P 500 index are expected to have increased by 7.4% in the fourth quarter of 2024 compared to the same period in 2023, with projections suggesting growth could accelerate through 2025, according to Sheraz Mian, research director at Zacks Investment Research.
Technology stocks, led by industry giants like Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, have been significant contributors to these gains, supported by advancements in artificial intelligence, computing, and robotics. The tech sector’s earnings outlook continues to improve, offering a potentially lucrative opportunity for investors.
Simplify Your Financial Life
With inflation continuing as a prominent issue into 2025, it might be wise to audit your spending habits closely. John Pharr, a certified public accountant in Florida, recommends taking a hard look at routine expenses that might not be noticed regularly.
This includes reevaluating necessities such as auto, home, and other insurance policies to ensure appropriate coverage and deductibles. It might also be beneficial to comparison shop for better rates.
Additionally, consider cutting back on expenses that are more wants than needs, such as streaming services, gym memberships, meal delivery services, and telecom packages. “Rates for these services often increase, and we may continue to pay them without exploring other options,” Pharr noted.
Contact the writer at russ.wiles@arizonarepublic.com.
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Passionate about analyzing economic markets, Alice M. Carter joined THE NORTHERN FORUM with a mission: to make financial concepts accessible to everyone. With over 10 years of experience in economic journalism, she specializes in global economic trends and US financial policies. She firmly believes that a better understanding of the economy is the key to a more informed future.
