What you should do with your money in 2025… according to financial advisors

A new year is approaching and many will set their financial goals for 2025.

With budgets still tight and inflation rising again, it’s as important as ever to take a hands-on role with your finances.

However, knowing where to start is easier said than done.

This is Money spoke to three financial advisors about setting your financial priorities for the new year.

From moving your emergency fund to taking charge of your pension, here’s what they recommend.

Create a budget

When asked about their money resolutions, many will say that they want to spend less money.

But perhaps it would be more accurate to say that they want to spend less on daily expenses and allocate more to their long-term monetary goals.

That could mean putting more into your savings or investments, or saving for home improvements or a special vacation.

Daniel Hough, financial planner at RBC Brewin Dolphin, says: “The holiday season invariably brings with it extra spending, whether it’s socializing, buying gifts or getting away for New Year’s celebrations.”

“Having a solid budget plan for the year is essential, and sticking to it will help you stay on track with your savings and avoid unnecessary spending.”

Having a spectacular Christmas is likely to have some effect on how people perceive your attitude towards money in the new year. Taking the time to re-evaluate your spending can help you eliminate things you don’t need or use.

One area that experts suggest focusing on is subscriptions. If you do most of your exercise outdoors, it might be time to ditch your rarely-used gym membership.

The same goes for other subscriptions you are subscribed to. From TV and streaming music to meal kits, it’s easy to get caught up in plans that you don’t take full advantage of.

Thomas Lambert, financial planner at Quilter, tells This is Money: ‘Take a close look at your spending habits. Small changes, like canceling a subscription service or reducing extra coffee orders, can free up money to reach your long-term goals.

‘When it comes to debt, be strategic. Prioritize paying off credit cards or other high-interest debt first and think carefully before taking on new debt.

Creating a budget can help you track your income and expenses to make sure you don’t spend too much.

You can use This is Money’s budgeting tool to help you do this.

Know what you are saving (or investing) for

With a budget in place, you need to determine what you hope to do with the extra money you save.

Not only will this give you a purpose for your budget, but it can also ensure that you divert your money towards the right things.

There’s no point in building your investment portfolio if you don’t have an emergency fund to fall back on first, for example.

Lambert says having a fund to cover unexpected costs is “essential.” This should be kept in an easy-to-access savings account so you can access it as soon as needed.

> Best savings rates easily accessible

While recommendations for how big this fund should be vary, Hough says, “In general, it’s wise to have about six months of essential expenses in an easy-to-access savings account.”

Once this is covered, you might consider keeping some of your money for longer to get a better interest rate.

That could mean opting for an account whose rate is fixed for between six months and five years, although you should only do this if you’re sure you won’t need to access it in that time.

Nicola Crosbie, chartered financial planner at Moran Wealth Management, says: “Once you’ve prioritized your own goals, you can put together a plan to ensure your funds are allocated to the things that matter to you, allowing money to become a vehicle. to help you achieve these things.

“Once these objectives are determined, it is important to ensure that the way to save is clearly defined for those short, medium and long-term plans.”

Make sure your money is working hard

If you already have a savings fund, Lambert says it’s vital to check if you’re keeping it in the account that pays the best interest possible.

“Interest rates are constantly changing and if you stay with the same bank for a while, you may not get the best deal, especially with some of the more established players,” he says.

“Look for high-yield savings accounts and consider whether it’s worth locking in your savings for the long term to take advantage of today’s favorable rates,” Lambert said.

> The best fixed rate savings accounts

As mentioned above, fixing your savings can give you a better rate, while building an investment portfolio also offers potential for long-term returns.

It is recommended that you only invest where you can afford not to touch the funds in the short to medium term, for at least five years.

Lambert adds: ‘With interest rates expected to fall, it is good practice to regularly check that your cash is at a competitive interest rate. Saving your money for a period generally generates better interest returns than instant access, so consider the pros and cons.

“If you already have an emergency fund and are saving for events that are at least five years away, consider the stock market, which has tended to outperform cash over the long term.”

Check your pension

For many, longer-term financial goals will include ensuring your pension is in good shape before you retire.

“Understanding how much money you’ve saved helps you assess whether you’re on track to achieve your retirement ambitions and whether any adjustments need to be made,” Hough says.

For example, you might consider increasing your pension contributions if you expect them to fall short of what you need in retirement.

It is also important to consider that your pension will benefit from compounding, so adding a large sum later in life will not offset ongoing contributions over several years.

Hough said: ‘Pensions offer a tax-efficient way to save for the future due to tax relief on personal pension contributions. A £100 pension contribution costs just £80 for a basic rate taxpayer, £60 for a higher rate taxpayer or £55 for an additional rate taxpayer.’

Lambert also warns that many people do not fully utilize the subsidies and benefits offered to them by employers.

Many employers will increase your pension contributions to match yours, while others offer salary sacrifice plans that allow you to top up your pension by reducing your total salary, but therefore also reducing your national insurance payments.

Make the most of your tax breaks

For those investing, or looking to invest, the new year presents an opportunity to start investing and, most importantly, make the most of your tax-free allowances.

The most basic of these is the Isa benefit, which allows savers to save up to £20,000 each year tax-free.

With savings rates expected to fall in 2025 due to lower interest rates, more people could be tempted to consider investing some of their cash.

For those who are, Lambert points out that investors can benefit from both a £20,000 tax-free allocation into stocks and shares Isas and a £60,000 allocation if they save into a self-invested personal pension or Sipp.

“Diversify your investments across stocks, bonds and other assets to protect yourself from market fluctuations,” he suggests.

Since these allowances reset with the new financial year in April, it is wise to ensure you have used them to their full extent.

As Lambert told This is Money: “Use ’em or lose ’em.”