Daunted by the idea of putting your household finances in order for the year ahead? Don’t be, says personal finance journalist David Prosser – just take a step-by-step approach
Are you planning for a wealthier 2025? Research from YouGov suggests almost a third of Britons plan to make New Year’s resolutions for the year ahead; health goals such as losing weight and getting fitter top the to-do list, but many people have also promised themselves 2025 will be the year they get to grips with their finances.
The good news is that managing your money better isn’t as daunting a task as you might imagine. Many simple steps will have a dramatic impact – both right now and over the longer term. Here are just six ideas to get you started.
#1. Get every last pound of value from your savings
When was the last time you moved your cash savings into the most competitive account you could find? One study published last year found savers were missing out on as much as £327 a year by leaving their cash in accounts paying poor rates of interest. And with the Bank of England now moving into interest rate reduction mode, it is even more important to make sure your savings are working hard.
Moneyfacts, the personal finance savings analyst, says the average easy access account paid 3.03% at the end of November, with the average rate on accounts where you give notice of withdrawals at 4.20%. The average one-year fixed-rate account offered 4.24%.
It’s often possible to do much better by moving your money. For example, United Trust Bank currently offers a range of competitive products for both notice accounts and bonds.
Whether or not you fix your savings rate depends on the extent to which you expect interest rates to fall next year. While some providers offer variable rates that are higher than their fixed rates today, the former will likely come down as the Bank of England reduces rates. A fixed-rate bond offers more certainty, but you must be prepared to lock your money up until the end of its term.
#2. Steer clear of the taxman
Paying tax on your savings and investments reduces your returns. And with a series of cuts to dividend and capital gains allowances in recent years – as well as several tax rate increases – this can make a big dent. That’s why it’s important to take advantage of the tax-efficient options that successive governments have offered to encourage people to save and invest.
In particular, you have until 5 April to use your individual savings account (Isa) allowance for the 2024-25 tax year. Isas aren’t investments in their own right; rather, they’re shelters in which you can hold a huge range of assets, with no income or capital gains tax to pay on the returns you earn from them.
Each year, you get a £20,000 Isa allowance that you can use to hold cash, bonds, shares, investment funds and many other assets. It makes sense to use Isas to hold the assets on which your tax liability is likely to be highest – but you can split your holdings. Remember that Isa allowances can’t be carried over from one tax year to the next – come 6 April, any unused Isa allowance from 2024-25 is gone for good.
Once you’ve used your Isa allowance, there are other schemes to consider. Venture capital trusts and the enterprise investment scheme, for example, are aimed at investors willing to risk their money on small, early-stage companies and offer generous tax breaks. But take advice before investing.
#3. Get your energy bills down
The bad news is that gas and electricity bills are set to rise with Ofgem, the industry regulator having raised the price cap that limits the amount providers can charge households in England, Wales and Scotland. More positively, there are steps you can take to lower your bills.
First, consult a price comparison service such as Moneysavingexpert.com to see if you could save money by switching deals on gas and electricity, either with your current provider or a new supplier. Some households will be better off with suppliers’ standard variable tariffs – effectively, Ofgem sets the price you pay – but others will save by fixing their energy rates for an extended period.
Next, think about ways to reduce your energy consumption. The Energy Savings Trust offers a range of simple tips to help you use less gas and electricity. Some will require you to spend money in order to save over the medium to longer term – for example, by investing in better insulation, a new boiler or solar panels. But other tips cost nothing – such as turning down your thermostat or using appliances at certain times of the day, when charges are lower.
It’s also important to claim any help you’re due with fuel bills. The Government’s controversial abolition of the Winter Fuel Allowance for older people does not apply to those claiming Pension Credit, so check whether you’re eligible for this. And many local authorities offer grants to help with the cost of home improvements; check with yours for details.
#4. Keep shopping around
Energy bills aren’t the only regular outgoing where it may be possible for you to save money by moving to a cheaper provider. The same applies to all your household bills, from your mobile phone and broadband supply to your car and home insurance, as well as your mortgage.
Financial regulators recognise there’s a problem here. In the financial services industry, providers are now required to remind you that you could save money by shopping around. Take that advice seriously – and extend it to all your utilities.
Price comparison services can save you thousands of pounds here. It’s worth using more than one of these sites to make sure you’re covering the whole market.
#5. Stop wasting money on stuff you don’t use
Make it a New Year’s resolution to go through your last monthly bank statement with a highlighter pen. Identify every single subscription that you’re currently paying for – from your gym membership to the book club you signed up to but forgot all about. If you’re not using a subscription, cancel it now.
People who do this are amazed by how much money they’re wasting. A survey published recently by Citizen’s Advice found Britons had spent a staggering £688m on subscriptions they never use over the previous 12 months.
Every penny you save – both on subscriptions and on other household bills – is valuable. It will help ease your financial pressures each month and potentially enable you to increase the amount you’re saving. If the latter, don’t forget tip #1 above.
#6. Protect yourself and your family
Finally, while you’re putting your finances in order, take the opportunity to think about protection products. These include life insurance, income protection and critical illness insurance, all of which people often overlook. One study found 10 million young adults have no life insurance.
These products cost money, of course, but they also protect you and your loved ones from unexpected life events. In which case, the money is well spent.
Although this email and article may contain helpful information and tips, these are not personal advice. If you are unsure what’s best for your own personal circumstances, you should seek advice from an independent financial adviser (IFA).