Four Personal Finance Trends to Watch

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We present four key categories that may impact many of you, along with the decisions you must make in the years ahead. A lot will certainly change as our new federal government takes control in January, but we won’t delve deeply into these until we see more specifics and the real and hard proposals. Today, we will focus only on the following four personal finance trends that bear watching.

1) Inflation

The Consumer Price Index (CPI) covers a wide range of consumer goods and services, and some of the prices have swung more than others. Shelter costs (rents and owners’ equivalent rent of residences), for example, are up 4.9 percent. Transportation services are much higher, at 8.5 percent. The good news is that gasoline prices have dropped by 15.3 percent, and used vehicle prices are 5.1 percent less compared to last year.

The CPI rose by 2.4 percent for the month of September, which was the smallest change going all the way back to February 2021. The core CPI, which excludes volatile food and energy costs, remains, however, stubbornly high at 3.3 percent. The downward trend is improving as we close in on the Federal Reserve’s inflation target of 2 percent.

Most economists believe the country can avoid recession. The Federal Reserve slashed its federal funds short-term interest rate, for the first time in four years, in September, and on Nov. 7 Fed Chair Jerome Powell announced another rate cut of 25 basis points.

Even as inflation measures have eased, the high price of goods and services across the U.S. economy continues to pose a burden for individuals, businesses, and policymakers. Since prices started spiking in early 2021, food inflation has surged 22 percent.

2) Mortgage Rates

After nearing 6 percent in February 2023, mortgage rates are rising. Mortgage buyer Freddie Mac reports that the average rate for a 30-year fixed-rate mortgage hit 6.54 percent toward the end of October. Since the election, long-term rates—which includes mortgages—have been going up. The average rate on a 30-year mortgage in the United States rose for the sixth straight week, returning to its highest level since early July. The rate grew to 6.79 percent from 6.72 percent last week, according to Freddie Mac, although that’s still down from a year ago when the rate averaged 7.5 percent; we may, however, see soon a rate of 7 percent the way it’s going.

The reason given for increasing rates is a resurgence in concerns that we may be facing an economic downturn. This view is incongruous and inconsistent with the views of most economists, for as we noted earlier, the economic data seem to indicate continued strength. Either the long-term bond investors will turn out to be correct or the majority of the economists, only time will tell.

The fed funds rate is a short-term rate that can directly affect other short-term loan rates. But longer-term rates, such as that of the 10-year U.S. Treasury, and the mortgage rates are not directly controlled by Fed’s interest-rate policy. If the 10-year Treasury rate is increasing because of perceived investor risk, that rate is more directly tied to—and influencing—mortgage loan rates.

Mortgage interest rates have been high and expensive for more than two years. Combined with sky-high housing prices, it is not surprising that the average homeowner today is 56 years old. That, though, is an unfortunate predicament for Gen Z young adults who dream of home ownership, but find it out of their reach today.

3) Social Security Benefits in 2025

The Social Security Administration (SSA) has calculated the cost-of-living adjustment (COLA) will increase 2.5 percent in 2025. This means that more than 72 million Americans who receive Social Security benefits can plan on an average of an extra $50 beginning January 2025 reflected in their monthly benefit checks.

The SSA calculates the annual adjustment based upon the CPI for urban wage earners. However, depending upon where you live and how you spend your money, this adjustment may range from barely adequate to falling far short of your own price increase experiences.

4) IRS: Tax Brackets and the Standard Deduction

For the 2025 tax year, the new Internal Revenue Service tax brackets have increased the standard deduction to $15,000 for single taxpayers (and married couples filing separately), $22,500 for those claiming head of household, and to $30,000 for married couples that file jointly. The changes are pegged largely to update the tax code to keep up with inflation. Bear in mind that these changes won’t affect your 2024 tax return, due to be filed in early 2025; these new limits are for your taxes filed for 2025 income in early 2026.

Below are the new federal income tax brackets for 2025:

Source: Internal Revenue Service

Summary

While these four personal finance categories involve changes you want to be aware of, there will be many more changes that result from a new government administration and Congress in January.

In 2025, we can expect to pay more for imports, the result of new and higher tariffs. We may also see taxes on tips and Social Security go away, and a lot of changes aimed at streamlining government and making it more efficient.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.