With Donald Trump winning the recent 2024 election, many Americans are wondering how Trump’s economy will impact their personal finances. These types of government changes always come with shifts in taxes, inflation, and even financial savings. And while policies may not change overnight, it’s important to consider what may happen under a new administration.
Preparing for new leadership in the White House can be overwhelming – no matter which party you voted for in November. Because the Republicans won both divisions of Congress as well as the White House, many conservative economic policies are likely to pass. Still, keep in mind that the economy can be unpredictable and is subject to events politicians can’t control (take, for example, the COVID-19 pandemic and the resulting economic downturn). No matter what, though, it’s important that you’re prepared for predictable and potential changes under the new administration.
How Trump’s Economy Could Affect Your Budget
Tax Policy Adjustments
One of Trump’s main promises during his campaign trail was to extend the Tax Cuts and Jobs Act (TCJA). Although he signed this bill into law during his first term as president in 2017, it’s currently scheduled to end in 2025. It currently lowers tax rates by changing the income level for individual tax brackets and increasing standardized deductions.
If enacted again in his second term, it will be the country’s 6th largest tax cut since the 1940s.
Extending the TCJA may also come with new benefits that could impact your future financial situation. His proposal includes tax breaks for retirees and tipped workers. However, there will also be significant tax breaks for high-income earners.
What does this mean for you? Essentially, lower income tax rates mean more disposable income. Therefore, you’ll have more cash that you can use for savings or day-to-day spending.
Inflation Rates
A large part of Trump’s 2024 campaign was focused on ending inflation. This can have a positive impact on many Americans who have been struggling with rising prices on everyday essentials. While inflation rates are currently low, prices for things like food have remained relatively high since the pandemic. In fact, grocery prices are nearly 30% higher than they were five years ago.
But will a Trump presidency actually lower the inflation rate? That can be hard to say, as he has proposed to implement higher tariffs on goods (10% on all imports and 60% on Chinese goods). These types of tariffs are generally paid for by American consumers, which can causes prices of goods to rise. One study found that these new tariffs will cost the average American family an additional $2,600 a year.
As a result, the inflation rate is also expected to increase by as much as 1%. Not only will this make things like food and gas more expensive, but it may also impact the borrowing rates. So if you’re planning on taking out a loan or mortgage, you’ll likely have higher interest payments to pay back.
Healthcare and Health Insurance
As an American citizen, you might also see changes in health insurance policies and costs. Trump is known for his critical view of Obamacare (the Affordable Care Act), which he made significant changes to during his first term. It is expected that he will make similar changes once he returns to the office.
Cutting the federal premium tax credit for the ACA will save taxpayers money, but it will increase the price of insurance premiums. Without this funding, around 7 million people may drop out because they cannot afford healthcare.
Trump has also floated the idea of making drastic budget adjustments to the Medicaid program. By capping federal spending and implementing longer work requirements, many American may have less access to Medicaid. This is especially true for low-income earners who rely on these types of benefits.
401(k) Plans
During Trump’s first time in office, he passed the SECURE Act (Setting Every Community Up for Retirement Enhancement). This cut costs for small businesses to offer retirement plans and made it easier for part-time employees to contribute to their 401(k).
For 2025, Trump has continued to show support for the 401(k) system. He has expressed that he would expand the pre-tax saving opportunities by either increasing contribution rates or offering incentives. This could be good news for individuals as well as small business owners.
Unauthorized Immigrant Deportation
There will be significant economic consequences if Trump follows through on his proposal for deporting unauthorized immigrants. For one, there will be fewer labor workers which would increase costs for small businesses. Not only does it impact the company, but the additional costs may also be passed down to the consumer (aka higher prices).
Undocumented immigrants also make up a large portion of the construction market. Deporting the labor force would slow the housing construction market and possibly worsen the country’s current housing shortage.
Financial Budgeting Tips for 2025
Reassess Your Investments
To safeguard your savings, it’s a good idea to diversify your financial portfolio. Spread your investments across different platforms (crypto, stocks, NFTs, real estate, etc.). If you’re new to stocks, you can also work with an advisor for tips and insights.
Save More and as Early as Possible
Although Trump is likely to increase his support for 401(k) plans, you should start saving for retirement on your own. Set up an IRA matching account and contribute funds regularly to grow your savings over time.
Reduce Your Current Debt
Higher interest rates can result in larger debt, especially if you own a house or car. Ideally, you should try to pay off your debt while the interest rates are currently low.
Improve Spending Habits
The price of everyday essential has the possibility to increase with the new administration. By changing your spending habits, you can put more money towards necessities like food and gas.
Improving Your Finances
Regardless of how you voted in the election, Trump’s economy will impact your finances. So, it’s important to stay ahead of the game in terms of financial planning. Stay informed by keeping tabs on the policy changes and tax shifts that are likely to come with the new administration. That way, you can be prepared for whatever the new leadership and the next four years may bring.
