Get Ahead: Reset Your Finances for 2025’s Surprises & Certainties!
As we stand on the brink of 2025, there’s no denying that the economic landscape could shift dramatically, impacting millions of wallets across the nation.
The stock market has recently seen a wave of gains, providing a boost to retirement savings, while devastating storm damage is racking up hefty repair bills and leaving countless homes almost impossible to insure. On the political front, the incoming Trump administration is eyeing deeper tax cuts and a rollback of recent consumer finance protections.
In these uncertain times, Kevin Mahoney, founder of Illumint, a leading financial planning firm in Washington, D.C., emphasizes the power of control: “People can empower themselves by focusing on what they can manage—those aspects that will hold value, no matter what the world throws our way.”
So, how can you position yourself for success in the upcoming year? Here are some strategic moves to consider.
Seek High Returns as Interest Rates Drop
With interest rates on the decline, this shift could spell good news for anyone with savings, loans, or credit cards. Borrowers may finally find relief from the burdensome costs of debt. However, savers might need to brace for lower returns.
High-yield savings accounts are still offering rates around 4.5%, comfortably outpacing the 2.7% inflation rate reported in November. But as banks adjust their interest payouts, it’s essential to ensure that your account remains competitive, warns Malik Lee, managing principal at Felton and Peel Wealth Management in Atlanta.
“It’s crucial to keep an eye on those money market accounts,” Lee advises. “You might think you’re earning 4 or 5% because that was the rate during the highs, but now it could be as low as 3%.”
Many banks notify their customers of rate changes, but those alerts can lag—or worse, they might be off. A recent Bankrate survey found that approximately two-thirds of Americans were earning less than optimal interest on their savings accounts.
With the Federal Reserve poised to continue lowering rates, but at a slower pace than anticipated, and potential inflation risks looming due to Trump’s proposed economic strategies, the future of interest rates remains unpredictable.
Now could be the perfect time to consider certificates of deposit (CDs), which can lock in attractive yields for a set duration. Think about your cash flow needs in the coming months and how much you can tie up without penalties.
CD rates range from 4.25% to 4.65%, according to Bankrate, and can secure your earnings for periods ranging from a few months to five years, allowing you to avoid the anxiety of fluctuating savings account rates.
Strengthen Your Emergency Fund
The economic climate has been a rollercoaster since the pandemic, and it’s unlikely to stabilize anytime soon as President-elect Trump rolls out his sweeping agenda, which includes new tariffs and potential mass deportations that could impact prices of everyday goods, from groceries to housing.
Building a financial cushion for unexpected events remains a timeless piece of advice. Samuel Deane, CEO of Deane Wealth Management, suggests having enough set aside to cover three to six months of living expenses. But if you’re in a volatile industry, consider stashing away even more.
Many financial professionals have noted increasing anxiety among clients regarding their economic stability over the past year, especially as consumers become more budget-conscious during the holiday shopping season.
In times of crisis, individuals often rely on family, friends, and even strangers for support—as seen after recent hurricanes. Even if you manage to weather any storms in the next year, consider setting aside funds to help those around you who may be struggling. This way, you can support others without compromising your financial goals.
Reevaluate Your Retirement Plan
Retirement savers have likely enjoyed seeing their account balances rise thanks to a bull market, and despite some recent downturns, investor optimism remains high regarding the new administration’s potential effects.
However, one thing is certain: the maximum contribution limits for 401(k)s will increase next year, allowing for an additional $500, bringing the total to $23,500 in annual pre-tax contributions. Notably, the catch-up contribution limit for those aged 60 to 63 is also rising, enabling older workers to increase their contributions by up to 14% from 2024.
As the Republicans’ Tax Cuts and Jobs Act nears expiration at the end of next year, retirement planning is shifting. Fidelity Investments noted a staggering 45% year-over-year surge in Roth conversions as account holders strive to sidestep potentially steeper tax rates.
During the election campaign, many advisors urged clients to consider Roth conversions now to capitalize on today’s tax rates before they inevitably climb. A Roth IRA allows individuals to enjoy tax-free withdrawals later on, provided they pay taxes on those contributions upfront.
Yet, the political landscape may shift this time around. “There’s significant momentum to extend those tax rates,” Euretig observes, suggesting investors discuss long-term strategies with their advisors.
Lee also emphasizes the importance of reconsidering government bonds, which had experienced declines due to the Fed’s interest rate hikes. With rates beginning to drop, it may be time to give these traditionally safe investments another look.
As rate cuts could enhance the yields of long-term bonds, savvy investors might find themselves reaping the rewards of higher appreciation as rates continue to fall.
