As of the second quarter of 2024, consumer debt in the United States has reached a historic peak of $17.7 trillion, and by March, many Americans had depleted their pandemic-era savings, as noted in a Deloitte report. With these financial pressures looming, the report suggests that the resilience of U.S. consumers will be tested in 2025. To address these challenges, it is crucial for individuals to assess their financial health and implement strategic measures to ensure they are financially stable as they head into the new year. By focusing on key banking tasks and personal finance management before the year-end, consumers can set themselves on a course for enhanced financial well-being and success in 2025.
A foundational step toward improved financial health is the creation of a flexible budget. While it is vital to outline expected monthly expenditures, individuals should also regularly compare these projections to actual spending. This assessment provides insights into whether spending is aligned with expectations, highlighting areas for potential savings or income increases. If overspending is observed, developing a realistic plan to cut costs or boost income may be necessary. Conversely, if expenditures fall below expectations, individuals should consider reallocating those funds towards increased savings or investment contributions, all while setting priorities that align with their evolving financial situations.
Building and maintaining an emergency fund is another critical step in preparing for financial challenges. Experts recommend saving at least three to six months’ worth of living expenses in accessible funds to avoid reliance on high-interest debts when emergencies occur, such as job loss or unexpected medical expenses. Self-employed individuals, or those with variable incomes, may need even larger safety nets. Assessing current savings and identifying the need for more robust emergency funds can help individuals create a strategic plan for saving. Consistently contributing to a high-yield savings account that is readily accessible during emergencies can provide essential financial security.
Employees can further enhance their financial position by utilizing a flexible spending account (FSA), which allows them to pre-tax contributions for healthcare costs. With a contribution limit of $3,300 per employer per year, FSAs offer tax savings for qualified medical expenses, but generally require that unused funds be utilized within the plan year, risking forfeiture of any remaining amount. Thus, individuals should review their FSA balances and ensure they are capitalizing on all healthcare expenses before the year ends, avoiding potential loss of funds. Engaging with employers about eligible expenses and any grace periods or carry-over allowances can help maximize this benefit.
In addition to monitoring health expenses, consumers should audit their subscription services to identify and eliminate those that are underused. With the average consumer reportedly spending about $219 monthly on subscriptions – significantly higher than their estimates – this subscription creep can accumulate to over $2,500 annually without individuals even realizing it. Thoroughly reviewing bank statements and possibly leveraging services like Rocket Money can help identify recurring but overlooked expenses. By canceling subscriptions that go unused, consumers can redirect these funds into savings or other more impactful financial endeavors.
Finally, addressing existing debt is vital for maintaining financial health as consumers enter 2025. High-interest debt, especially from credit cards, can create a significant burden; thus, making intentional payments beyond the minimum can substantially reduce the duration and total interest owed. Individuals should also reassess loans such as mortgages or car loans against the current interest rates, as recent federal funds rate adjustments may lead to potential savings through refinancing. While refinancing can come with costs and fees, analyzing potential savings against these expenses is crucial in making informed decisions, ultimately fostering greater financial flexibility and security for the upcoming year.