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

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

With wallets still tight and inflation on the rise 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 how to set your financial priorities for the new year.

From moving your emergency fund to tackling your retirement, here’s what they recommend.

Make a budget

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

But it might be more accurate to say that they want to spend less on day-to-day expenses and put more toward their longer-term money goals.

It could be setting aside more for 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 inevitably brings extra expenses, whether it’s socialising, buying presents or getting away to celebrate the New Year.

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

A stunning Christmas is likely to have some impact on how people perceive their attitude to money in the new year. Taking the time to reassess your spending can help you weed out things you don’t need or use.

Experts in one area suggest targeting subscriptions. If you do most of your exercise outdoors, it may be time to cancel your gym membership that you rarely use.

The same applies to other subscriptions you are signed up for. From TV and music to meal plans, it’s easy to get caught up in plans that 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 canceling a subscription service or cutting back on extra coffee points, can free up money towards your long-term goals.

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

Creating a budget can help you keep track of your comings and goings to make sure you don’t overspend.

You can use This is Money’s budgeting tool for this.

Know what you are saving for – or investing

With a budget in place, you should work out what you hope to do with the extra money you save.

Not only does this give you a purpose for your budget, it can also ensure that you’re channeling your money towards the right things.

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

Lambert says it’s “crucial” to have a fund to cover unexpected expenses. This should be kept in an easily accessible savings account so you can access it when needed.

> Best savings rates for easy access

Although recommendations on how big this fund should be vary, Hough says, ‘It’s generally recommended to have about six months’ worth of essential expenses in a savings account that’s easily accessible.’

Once that’s covered, you can consider putting some of your money away for a longer period of time to get a better interest rate.

This could mean opting for a fixed-rate account between six months and five years – although you should only do this if you’re sure you won’t need to access it for that period.

Nicola Crosbie, Chartered Financial Planner at Moran Wealth Management says: ‘Once you’ve prioritized your goals, you can create 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 those goals are set, it’s important to make sure 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 savings, Lambert says the key is to make sure you’re keeping it in an account with the best interest rate possible.

‘Interest rates are constantly changing, and if you’ve stayed with the same bank for a while, chances are you’re not getting the best deal, especially with some of the more established players,’ he says.

‘Consider high-yield savings accounts and consider whether it’s worth fixing your savings over the long term to take advantage of today’s favorable rates,’ said Lambert.

> The best fixed rate savings accounts

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

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

Lambert adds: ‘With interest rates expected to fall, it’s good practice to regularly check that your cash is at a competitive rate. Locking up your money for a period usually yields better interest returns than an immediate approach, 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 outperformed cash over the long term.’

Check your pension

For many, long-term financial goals will include ensuring that their pension is in good shape before they 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 are needed,’ says Hough.

For example, you might consider increasing your pension contributions if you expect them to be less than what you need in retirement.

It’s also important to consider that your pension will benefit from compounding, so adding a large amount later in life won’t offset steady contributions over 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 pension contribution of £100 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 take full advantage of their compensation and benefits offered by their employers.

Many employers will increase their pension contributions to match yours, while others offer salary sacrifice schemes which allow you to top up your pension by reducing your overall salary but also reducing your National Insurance payments.

Take advantage of your tax credits

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

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

With savings rates expected to fall in 2025 due to interest rate cuts, more may be tempted to consider investing some of their money.

For those who are, Lambert points out that investors can also benefit from a £20,000 tax-free allowance on stocks and shares Isas and a £60,000 allowance if they are saving in a personal pension or Sipp.

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

As these allowances are reinstated with the new tax year in April, it’s wise to make sure you’ve made the most of them.

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