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

A new year is just around the corner and many will be setting their financial goals for 2025.

With pockets remaining tight and inflation rising again, it’s as important as ever to put your finances into practice.

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 arranging your pension, here’s what they recommend.

Make 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 that they want to spend less on everyday expenses and more on their longer-term money goals.

For example, you can spend more on your savings or investments, or save for home improvements or a special holiday.

Daniel Hough, financial planner at RBC Brewin Dolphin says: ‘The holidays always come with extra costs, whether it’s socialising, buying presents or going away for New Year’s celebrations.

“Having a solid budget plan for the entire year is critical, and sticking to it can help you stay on track with savings and avoid unnecessary expenses.”

Having a great Christmas is likely to have some effect on how people perceive their attitudes towards money in the new year. By taking the time to reevaluate your spending, you can cut out things you don’t need or use.

One area expert suggests subscriptions are the targeting. If you find yourself doing most of your exercise outdoors, it may be time to cancel your rarely used gym membership.

The same applies to other subscriptions you have signed up for. From TV and music streaming to meal kits, it’s easy to get caught up in plans that aren’t getting the most out of you.

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

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

Creating a budget helps you track your incoming and outgoing expenses to ensure you don’t overspend.

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

Know what you are saving (or investing) for.

With a set budget, you need to consider what you hope to do with the extra money you save.

Not only does this give you a goal for your budgeting, it can also ensure that you’re spending your money on the right things.

There is no point in building your investment portfolio if, for example, you do not first have an emergency fund to fall back on.

Lambert says having a fund for unexpected costs is “essential.” This should be kept in an easily accessible savings account so that you can access it as soon as you need it.

> Best, easily accessible savings rates

While recommendations on how large this fund should be vary, Hough says, “It is generally advisable to put about six months’ worth of essential expenses into an easily accessible savings account.”

Once that’s covered, consider putting some of your money aside for longer to get a better interest rate.

This may mean that you opt for an account with a fixed interest rate for six months to five years. However, only do this if you are sure you will not need to access it during that time.

Nicola Crosbie, financial planner at Moran Wealth Management says: ‘Once you’ve prioritized your own goals, you can put a plan in place to ensure your money is spent on the things that matter to you, making money a resource can be to help you achieve these things.

‘Once these 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 works hard

If you already have a savings pot, Lambert says it’s essential to check you’re keeping it in the best possible interest-paying account.

“Interest rates are constantly changing, and if you’ve been with the same bank for a while, there’s a good chance you’re not getting the best deal, especially with some of the more established players,” he says.

“Look at high-yield savings accounts and consider whether it’s worth tying up your savings for a longer term to take advantage of today’s favorable interest rates,” Lambert said.

> Best fixed rate savings accounts

As mentioned above, tying up your savings can give you better returns, while building an investment portfolio also offers returns in the long term.

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

Lambert added: ‘With interest rates expected to fall, it’s good practice to regularly check that your money is at a competitive rate. Storing your money for a period of time usually yields better interest returns than immediate access, so keep the tradeoffs in mind.

“If you already have a rainy day fund and are saving for events that happen at least five years from now, consider the stock market, which tends to outperform cash in the long run.”

Check your pension

For many, longer-term financial goals will include ensuring their pension is in good standing before retirement.

“Understanding how much money you have saved can help you determine whether you are on track to achieve your retirement ambitions and whether any adjustments are needed,” says Hough.

For example, you may consider increasing your pension contributions if you expect that they will not exceed what you need after retirement.

It is also important to remember that your pension benefits from the compound contribution, so adding a large amount later in life will not offset the fixed contributions for a number of years.

Hough said: ‘Pensions provide a tax-efficient way to save for the future due to 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 a supplementary rate taxpayer.”

Lambert also warns that many people are not taking full advantage of the allowances and benefits offered by employers.

Many employers will increase their pension contributions to match yours, while other employers offer a salary sacrifice scheme that allows you to top up your pension by reducing your overall wages, but also your national insurance contributions.

Make the most of your tax benefits

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

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

With savings rates expected to fall by 2025 due to falling interest rates, more people may be tempted to invest some of their money.

For those who 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 ride out market fluctuations,” he suggests.

With these allowances being reinstated with the new tax year in April, it’s wise to make sure you’ve taken full advantage of them.

As Lambert told This is Money, “Use them or lose them.”