The new year is a good time to review your finances. Just as you may want to boost your mental and physical health in 2025, it may also be worth getting financially fit.
That may feel like a challenge with bills on the rise and taxes remaining high, but there are steps you can take to ensure your money goes further.
That doesn’t necessarily mean taking on a second job or working extra hours. Changing your spending and savings habits can go a long way to ensuring you have a financially healthy 2025. Here are some steps you can take.
Build a budget
It has likely been an expensive few weeks with plenty of spending during the festive period so the new year is an ideal opportunity to start budgeting and understand your income and expenses.
Joshua Gerstler, chartered financial planner at The Orchard Practice, says it is important to get a good grip on your expenditure and know where your money is going. He explains: “You need an income that is higher than your outgoings.
“Take a look at all your direct debits and standing orders to see if there are any services such as gym memberships or streaming subscriptions that you don’t use.
Wesley Harrison, head of financial planning at wealth manager Benchmark, advises: “Writing down your regular expenses can reveal potential savings, such as cutting unused services and subscriptions or reducing spending in certain areas.
“Getting into the habit of tracking your spending can prevent overspending and ensure you transfer money to savings. Some banking apps can automate this process for added convenience.”
Build an emergency fund
Unexpected events such as a burst pipe or even losing your job can make a dent in your bank balance. Having money set aside to cover emergencies can help reduce the stress of covering these costs.
Experts recommend holding six months of expenses in a savings account that you can access.
Philip Dragoumis, director at Thera Wealth Management, says: “Do you have enough cash on hand for emergencies? This can be anything from the boiler breaking down to you losing your job. Having six months of expenses is a good start – more if you work in a volatile business sector.”
Beyond an emergency pot, saving regularly can also ensure you have money set aside for holidays or major milestones such as a mortgage deposit, wedding fund or a car.
Harrison says it is important to set savings goals so you can decide where best to put your money. Some savings goals may require locking your money away or investing for a few years to boost your returns, while short-term targets could require a different type of product.
Your money can be put into a general savings account or you can earn interest tax-free in a cash ISA. If you are prepared to take more risk, you could also boost your returns tax-free with a stocks and shares ISA.
Harrison adds: “Understanding your goals helps you select the right savings account – whether you need easy access or can lock your funds away for better interest rates.
“Consider how saving monthly could enable a dream holiday or allow for early retirement to enjoy life’s next chapter. Focusing on how these financial steps improve your life can help give you the motivation to stay on track with your goals.”
Get protected
Insurance products such as income protection and critical illness can provide cover if you lose your job or are unable to work.
Income protection makes monthly payments to cover your salary if you are unable to work for a short period. Additionally, critical illness will provide a payout if you have a medical condition that stops you from working, which can mean avoiding having to dip into your savings.
Another important protection product is life insurance. This can provide a payout to your loved ones to cover bills such as the mortgage if you die. Gerstler adds: “Having protection in place means that if something happens to you or your health, you can maintain your standard of living.”
Boost your pension contributions
Your retirement may seem far away, especially if you are young, but the earlier you start putting money into a pension, the larger your pot could be when you come to retire, plus you have more chance of overcoming losses in your portfolio.
The government also provides tax relief on pension contributions, boosting how much you save each month. That is all the more important with data from the Pensions and Lifetime Savings Association showing the typical cost of a moderate retirement is £43,100 per year. Could you still cover this in your golden years if you have stopped working?
Wealth manager Quilter suggests a saver would need a pension pot worth £700,000 to achieve this level of income.
Take control of your debts
Interest rates may be falling but it is important to check if you are paying too much for debts such as on loans and credit cards.
It may be worth considering a balance transfer card if you want to combine and payoff debts as many will give you interest-free periods. Make sure you pay your full credit card bill each month to avoid interest charges though.
A mortgage will be many people’s largest debt. Mortgage rates are higher than in previous years but have been dropping in recent months. It is worth shopping around to see if you can save money on your monthly repayments, especially if you are on your lender’s pricey standard variable rate (SVR).
Fixed rate mortgages tend to be cheaper, giving you certainty each month, while a tracker or variable-rate mortgage can change during the term if interest rates change.
For example, the average pricing on a five-year fixed rate mortgage is currently 5.23%, according to Moneyfacts. The monthly repayments on a 25-year term £200,000 mortgage would be £1,196, but they would rise to £1,523 on a typical SVR of 7.85%, costing you an extra £327 a month or almost £4,000 per year.
Harrison says: “Even a small change in interest rates can have a big impact on how much you pay over the term of your mortgage.”
Don’t leave it late to get advice
It is easy to set up your own savings accounts and there are plenty of investment platforms that will let you open an ISA or pension and you can arrange a mortgage directly with a bank, but it is important to shop around and seek support if you are not comfortable with managing your finances.
Emma Sterland, chief financial planning director at wealth manager Evelyn Partners, says: “Many people only turn to financial advice late in life by which time most crucial decisions around retirement saving, investments or pension access have already been made.
“Many middle-aged and older women only seek advice when their partner dies, leaving the survivor assets that they are just not sure what to do with. A surviving partner will often come to us to ‘sort out their financial affairs’ in such a way that it will provide them with security and an income into old age.
“Ensuring a comfortable retirement is a lot easier if someone has a trusted adviser already, before these things happen.”
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
