What try to be doing together with your cash in 2025… in response to monetary advisers

A new year is upon us and many will be setting their money goals for 2025.

With purse strings remaining tight and inflation once again on the rise, it is 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 advisers about how to set your financial priorities for the new year. 

From moving your emergency fund to getting to grips with your pension, this is what they recommend. 

Create a budget

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

But perhaps it would be more accurate to say they want to spend less on day-to-day expenses, and put more towards their longer-term money goals. 

That could be allocating more towards your savings or investments, or saving up for home improvements or a special holiday. 

Daniel Hough, financial planner at RBC Brewin Dolphin says: ‘The festive season invariably brings added expenses, whether it is socialising, present buying, or getting away for New Year celebrations. 

‘Having a solid budgeting plan for the year is crucial, and sticking to it will help keep you on track with savings and avoid unnecessary expenses.’

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

One area experts suggest targeting is subscriptions. If you find yourself getting most of your exercise outdoors, it might be time to cut your rarely-used gym membership. 

The same goes for other subscriptions you are signed up to. From TV and music streaming to meal kits, it is easy to get caught up in plans you don’t make the most of.

Thomas Lambert, financial planner at Quilter, tells This is Money: ‘Take a close look at your spending habits. Small changes, like cancelling a subscription service or cutting back on extra coffee runs, can free up money towards your longer-term goals.

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

Creating a budget can help you to track your incomings and outgoings to make sure that you aren’t overspending.

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

Know what you’re saving – or investing – for 

With a budget set out, you should work out what you are hoping to do with the extra money you save. 

Not only does this give you purpose for your budgeting, it can also ensure that you divert your money to the right thing. 

There is no use 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 put towards unexpected costs is ‘essential’. This should be kept in an easy-access savings account so that you can access it as soon as it is required.

> Best easy-access savings rates 

While recommendations for how big this fund should be vary, Hough says: ‘It’s generally advisable to have around six months’ worth of essential expenditure in an easy-access savings account.’

Once that is covered, you could consider putting away some of your money for longer in order to get a better interest rate. 

That might mean opting for an account where the rate is fixed for between six months and five years – though you should only do this if you are certain you won’t need to access it in that time. 

Nicola Crosbie, chartered financial planner at Moran Wealth Management says: ‘Once you have prioritised your own goals, you can then build a plan to ensure that your funds are allocated towards the things that matter to you, allowing money to then become a vehicle to help you achieve these things.

‘Once these goals are determined, it’s important to then ensure the way you 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 pot, Lambert says it is vital to check whether you are keeping it in the best interest-paying account possible.  

‘Interest rates are constantly changing, and if you have stuck with the same bank for a while, it is likely that you aren’t getting the best deal, especially with some of the more established players,’ he says. 

‘Look into high-yield savings accounts and consider whether it’s worth fixing your savings for a longer term to take advantage of today’s favourable rates,’ Lambert said.

> Best fixed-rate savings accounts 

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

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

Lambert adds: ‘With interest rates expected to fall, regularly checking your cash is on a competitive rate is good practice. Locking your money away for a period usually generates better interest returns than instant access, so consider the trade-offs. 

‘If you already have a rainy day 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 in on your pension

For many, longer term financial goals will include ensuring that their pension is in good shape ahead of their retirement.

‘Understanding how much money you’ve saved helps gauge whether you’re on track to achieve your retirement ambitions and whether any adjustments are needed,’ Hough says.

For example, you could consider increasing your pension contributions if you are expecting it 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 won’t make up for steady contributions for a number of years.

Hough said: ‘Pensions offer a tax-efficient way of saving for the future because of the 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 don’t fully utilise their allowances and benefits offered by employers.

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

Make the most of your tax allowances

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

The most basic of these is the Isa allowance, which enables savers to tuck away up to £20,000 each year tax-free.  

With savings rates expected to fall in 2025 due to reducing interest rates, more might be tempted to consider investing a portion of their cash. 

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

‘Diversify your investments across stocks, bonds, and other assets to cushion against market fluctuations,’ he suggests. 

 With these allowances resetting with the new tax year in April, it is wise to make sure you have used them to their fullest extent.

As Lambert told This is Money: ‘Use them or lose them’.