How should you budget in 2025?

As consumers enter the new year and make decisions about what to do with their money, certified financial planners say it’s important to consider possible economic changes when setting goals.

The Federal Reserve is expected to continue cutting interest rates in the new year, albeit at a slower pace. Additionally, a new administration takes office in January whose fiscal policies could impact the economy and Americans’ personal finances.

Investopedia spoke with certified financial planners about what the new year could bring for consumers’ finances and how they should prepare for 2025. Quotes have been edited for brevity and clarity.

How should consumers prepare their budget for the new year?

“Although inflation has moderated in 2024, it is still prudent to plan for possible increases in essential expenses such as food, utilities and healthcare. Track your spending in these categories and consider including a 3-5% buffer in your 2025 budget to account for unexpected cost increases.”

-Nicky Amore, certified financial planner in Chicago

“Use these final weeks of the year to hone your financial fundamentals. Revisit your contributions to tax-deferred accounts (like 401(k)s, HSAs, or IRAs), make sure you’re on track to meet your financial goals, and plan for possible tax changes or opportunities in the new year year in advance. Small adjustments can lead to big savings later.”

-Akeiva Ellis, certified financial planner in Boston

“It’s extremely important to make a resolution, especially a financial resolution, before the new year actually begins because then you’re already laying the foundation. As soon as this calendar turns, I’ll be ready to start these new habits… Log in to credit card billing. Most credit cards now give you a summary: “Hey, here’s how much you spent this year.” Here are your biggest categories.’

Schedule check-ins. Habits take time to form. Be kind to yourself, but make an effort to actually shape them. So many resolutions are discarded within the first month and a half; Don’t let yourself do it. Set yourself up for success.”

-Sarah Paulson, Certified Financial Planner in Wisconsin

How Could Federal Reserve Rate Cuts Affect Personal Finances?

“The Federal Reserve has hinted at lowering interest rates, which could lower borrowing costs for mortgages, auto loans and corporate finance. However, interest rate reductions can also lead to lower interest rates on savings accounts and fixed income investments. If you plan to refinance debt or make large purchases, 2025 could be a good time.”

-Chad Olivier, Certified Financial Planner in Louisiana

“I know a lot of people think that if the Fed cuts rates, mortgage rates will go down. They are not so closely linked that there would be a complete connection between a rate cut and a mortgage rate. So if you’re waiting for that before you buy a home, you’re ready to pull the trigger, and you’re just waiting for the Fed to cut rates, I don’t recommend you get involved in that situation.”

-Paulson

“While it is true that interest rate cuts have begun, that does not mean we will see immediate relief in borrowing costs or day-to-day expenses. Refinancing debt or making big financial moves that come with lower interest rates may not prove fruitful until later in the year. For now, focus on keeping your budget tight and creating a buffer for unexpected expenses. Inflation is cooling, but prices for essential goods remain high, so a sound spending plan remains crucial.”

-Ellis

How might the new government affect people’s finances and how should they prepare?

“Looking at the new administration, we think there’s a chance that the tax cuts won’t be repealed next year… But the tariffs (on) incoming goods could hinder some of that growth that we might want to achieve. If that’s the case, it could push us into a recession.”

-Olivier

“The new government and economic optimism have already led to an increase in job availability. If you’ve been thinking about a career change, now might be a good time to dust off your resume and explore higher-paying or more fulfilling opportunities. However, don’t neglect your emergency fund. Even in a strong job market, saving three to six months of expenses provides invaluable peace of mind.”

-Ellis

“If (the new government) goes as big and dramatic in the election campaign as they said they would, we will see huge price shocks in everything we buy. Anything coming from China could easily double in price, which would be really difficult. My hope and guess is that we won’t see anything quite as dramatic, but other countries we import things from will still be paying attention and watching. They could preemptively raise some prices to ensure they are operational and do not reduce their own profits from sales to American consumers.”

-Paulson

What should savers pay attention to in 2025?

“Unfortunately, higher interest rates on CDs, money markets and savings accounts will likely be the first decline you’ll see. They’ve gotten pretty good interest rates on these types of investments, and those are the ones that I will say are probably going to be hit first (by the Fed’s rate cuts).”

-Olivier

“Given the uncertain economic climate, it is important to reevaluate your emergency fund. Try to save three to six months of living expenses. For other savings, it’s worth looking into alternatives like CDs or Treasury bonds to maintain returns in a lower interest rate environment.”

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