Managing your finances better can be a real challenge, particularly off the back of high inflation and global unrest we’ve seen in the past few years. The average person may need to be paying closer attention to their money more than ever.
In fact, research suggests that for even people who consider themselves financially literate, 19% of those will still run out of money by the end of each month. And even 27% of people who consider themselves confident with money management, will still run out of money up to every two months [1]. While you may not be in charge of the cost of living, energy prices, or global affairs, you can take control of your own money management. And taking that positive step in 2025 could be the key to your financial makeover.
- Review your finances
- Get budgeting
- Pick a savings strategy
- Strategically tackle debt
- Try investing to beat inflation
- Utilise your tax-free allowances
- Look over your pension contributions
- Make the most of money apps
- Final thoughts
Review your finances
The first step forward is to take a look back at the previous year’s finances; so, get a cuppa and sit down with your account statements or paperwork from last year.
This will give you a clear picture of your budget, expenses, investments, accounts — information you can then use to plan your financial goals.
- What were your biggest expenses?
Mortgage, rent, or regular essential outgoings will inevitably on your list. Make a note of these, but also anything else that was significant; perhaps a holiday or forgotten wine subscription that you definitely meant to cancel. -
If you had a budget last year, how well did you stick to it?
Some people find it easy to spend below their budget and means, while others live month-to-month no matter how high their salary is. What matters here is identifying how you get on with your budget. - Did you find yourself in debt?
If so, was it manageable or have you paid it off now? If not, make a note of the interest rate you’re paying and monthly repayments you need to make (we’ll cover this more later). -
How are your savings accounts and investment portfolios looking?
If your investments are looking healthy and you have an emergency fund in place, you may be on the right track. If you still have some work to do, perhaps your 2025 budget could allow you more money to put towards these goals instead. -
Pension planning and investigating your ISAs.
While you’re reviewing things, this could be a good moment to check your pension scheme(s) and different ISA types, to see if they still align with your financial goals. Perhaps transferring an ISA or consolidating a pension would suit you better now?
Bundle this information together to start building your budget and plans for this year.
Start budgeting
While you may have big goals you’d like to save for (e.g. owning your first property, going on a once in a lifetime holiday, or retiring early), saving towards them and budgeting effectively are two different things.
Saving money is a formula of how to tangibly get something — with a sprinkling of patience for the long-term goals.
Budgeting is more of a tool to achieve it. It tells you how much you can afford to save, invest, or spend on fun stuff after all your essential expenses are covered.
Budgeting gives you options, flexibility, and maps out areas you can cut back on.
The 50/30/20 budgeting rule
This is a simple budgeting method where you’re effectively sectioning off chunks of money based on ‘needs’, ‘wants’, and ‘savings’. In her 2005 book, ‘All Your Worth: The Ultimate Lifetime Money Plan’, Elizabeth Warren introduces the 50/30/20 rule.
Take your income – a monthly wage, for example – and divide the number by 100. Make a note of this.
Essential outgoings = 50% of your income
To work out 50% of your wage, take the number you divided earlier and multiply it by 50.
This figure is for your essential outgoings aka the things you must pay for to get by: food, bills, rent or mortgage, etc.
Most people can’t change this amount, aside from switching to better-value energy suppliers, shopping at cheaper supermarkets, or downsizing their home (and not everyone can do these things or may have already tried).
Your wants = 30% of your income
To figure out how much you can spend on fun things, nice experiences, going out, etc. Take the number you made a note of earlier and multiply it by 30.
Your savings/investments = 20% of your income
Finally, give this part of your budget towards saving or investing. Take the number from earlier and multiply it by 20.
That’s not to say you have to stick to these exactly. Some people’s essential outgoings may be higher than 50%; others may want to pour much more than 20% of their wage into their savings or investing pot. You get to tweak this rule to your individual circumstances when plotting out your budget.
The 80/20 budgeting rule
This is very similar to the 50/30/20 rule, but as soon as you get paid, simply ‘pay yourself first’ by moving 20% straight into the investing/savings pot.
Then merge the 50% for essential outgoings and 30% for your wants/entertainment/fun stuff into one 80% bundle. This money is yours to manage for the rest of the month — but you’re safe knowing you’ve already prioritised your financial future this month.
Again, it doesn’t have to be an exact 80/20 split.
Finding something that works for you – and balances your goals versus actual income – is important, as you want to ensure you have some freedom with your money while being in a good position, financially.
Pick a savings strategy
There are a couple of different strategies for saving money, and chances are you may be using one without knowing it. Some of the most well-known ones include:
- Tracking your spending: This really is as simple as it sounds. Every week or month, you look at what you’ve spent and check that it’s what you expected. You may find you have some rogue Direct Debits, or that you spent £175 on sushi, or your electricity bill has crept up. Tracking and analysing your spending are great ways to see any potential savings you could be making.
- Paying yourself first: People often save whatever is left at the end of the month. Paying yourself first removes the temptation of overspending by putting money aside as soon as it comes in. There are a few more benefits to doing this, including knowing exactly how much you can save and spend each month.
- The 30-day purchase rule: This takes a ‘think and reflect’ approach. So, say you see something in the shop that you really like; instead of buying it then and there, think about it for a month (or at least a day). If you can’t get it out of your mind then get it — but if you forget about it, you’re richer for it!
- Rounding up: Do you spend £4.75 on something, and, in your head, you just call it £5? Well, the rounding up savings strategy is just that: rounding up each purchase to the nearest £1, then tucking that spare money away. There are several banks that automatically do this for you, making it as easy as spending money. And while these amounts are typically 9p or below, you may be surprised by how quickly those pennies become pounds.
- £X a day: We all have sinking funds to pay, what with inevitable spending on things like haircuts, MOTs, attending weddings, and buying gifts. One way to prepare could be to set up a standing order to send a small amount of money directly into your savings account every morning.
Here’s what you’d have after 365 days:
- £1.50 a day = £547.50
- £2 a day = £730
- £2.75 a day = £1003.75
- £3.50 a day = £1,277.50
- £5 a day = £1,825
There are many more savings strategies that you could use, but it’s important to find one that works well for you and your budget.
Strategically tackle debt
Debt happens. And if you’ve found yourself unable to stick to your budget in the past, or an emergency crept up and you now have some debt to pay off, there’s no point beating yourself up about it. In fact, 46% of the UK had some form of consumer debt according to the FCA [2]. Tackling it with a positive outlook is the first step. That said, there are different types of debt and ways to manage it:
Prioritise your minimum monthly repayments
Whether it’s a credit card, loan, hire purchase for a car: the key thing is to meet your minimum monthly commitment.
This helps keep your credit reports in order, as well as paying back the money owed.
Keeping on top of things by having a Direct Debit or standing order to pay off (at least) this minimum amount is really helpful for this. Affording you the peace of mind that everything is ticking over at a minimum, it also helps you figure out the best way to pay the remaining balance.
Find which debt has the highest interest rate
If you have a few things to pay off at once, you could focus on overpaying the debt with the highest interest rate as your next step.
Look at your statements: you may see your credit card has a high APR% (annual percentage rate) of 29.7%, compared to your personal loan’s interest rate of 5% for the next five years.
In this example, the credit card would the one you should focus on paying off first, as it’s your most ‘expensive’ debt (costing you interest payments that you could otherwise use to pay off the debt itself). This leads us nicely into explaining the avalanche method.
Avalanche or snowball method
These are two common ways to pay off debt:
- The avalanche method focuses on throwing all your spare cash at paying off the highest-interest debt first. Picture your debt being swept up by the power of an avalanche, albeit having taken some time to get it going.
- Whereas the snowball method focuses on paying off your smallest debt first (no matter the interest rate). Then moving on to the second smallest debt, and so forth. Imagine a rolling snowball gathering speed, but more slowly when comparing to an avalanche.
Realistically, the avalanche method lets you take back the money you’d otherwise waste on paying a high interest rate.
And once that most expensive debt is paid off, many people use the same monthly payment and redirect it to the second most expensive debt to pay that off quicker, and so on.
The snowball method, on the other hand, doesn’t allow you to take back that extra money, so it typically works out as being more expensive in the long run. However, psychologically, it may feel like you’re making more impact by seeing that debt drop to £0 on your account.
The choice is yours.
Emotionally speaking, it might feel quite challenging to focus on the most expensive one first and ignore the others (aside from their minimum payments, of course).
But once you’ve mastered the climb of the initial expensive debt, the avalanche effect kicks in and it’s downhill from there.
Work on your budget to make additional payments
It’s worth checking the terms and conditions of your borrowing agreement to see if you’d face any charges for paying off your debt early (more applicable to instalment plans, than something like a credit card).
Then take a look at your budget to see where there’s wiggle room.
You may not be able to cut back on your essential outgoings, but there could be some optional luxury items or nice-to-haves that you don’t really need. Redirecting that money as extra payments towards your debt could be a helpful way to tackle a tight budget.
Invest to beat inflation
Rather than saving, you could be focusing on investing instead. Especially if you have long-term goals to build larger sums of wealth and already have an emergency fund/your short-term goals saved for.
Many people have used investing as a tactic to try to beat inflation — comparing this to using savings accounts over a long period of time, which often offer a lower rate of interest.
While the returns of investing are never guaranteed (nobody knows how the markets will perform, exactly), investing is a long-term strategy. The theory being that 10 years of investing could offer you a much higher return of compounded interest and dividends (and make all the money held in it free from capital gains or income tax in a Stocks and Shares ISA).
Compare this to 10 years of savings at a lower interest rate, and your money may not be as powerful if it drops below the line of inflation.
There is risk involved, though; please remember the value of your investments can go down as well as up, and you could get back less than invested.
There are a few different ways you could invest.
There’s the DIY approach, where you research, analyse, buy, sell, and balance your investments yourself. This is great if you have the time and know what you’re doing. But if you’re not confident and haven’t looked into it before, then it can be a daunting experience.
The other option is to use a platform like Wealthify, where you simply:
- Pick the style of investing that’s right for you.
- Choose how much you want to invest.
- Leave the rest to our team of investing experts to manage for you.
Utilise your tax-free allowances
The tax year runs from April 6th to the following April 5th. As it stands, you could deposit up to £20,000 into the ISAs you hold, tax-free — noting that allowance should be spread amongst them all (not that you get £20,000 per ISA!).
For example, you could put £10,000 into a Stocks and Shares ISA, £5,000 into a Cash ISA, £1,000 into an Innovative Finance ISA, and £4,000 into a Lifetime ISA.
Please note that Lifetime ISAs are capped at £4,000 per tax year, but you can still put the remaining £16,000 into the other types.
If you have a child, there’s also £9,000 that you could put into a Junior ISA for them.
Investments or savings held in both adult ISAs and Junior ISAs are not subject to paying capital gains tax and income tax (no matter how much the pots build up to in value). And while there’s an allowance for capital gains tax, it’s only £3,000 per year, or £1,500 for money held in trusts. So, if you think you’d go over this, building your wealth within an ISA instead of a general investing account could help you.
Plus, you could deposit up to £60,000 in a personal pension. This allowance depends on your income and how much the government or your employer is contributing, too; find out more about this pension allowance in detail here.
All of these options allow you to keep more of your money by taking advantage of this tax-efficiency. However, one thing to bear in mind is that these allowances may change in the future.
And of course, not all of these may apply to you, like if you don’t have children, for example. For the pension option, you’d also need to be comfortable not touching your savings until you’re 55 (bearing in mind the national minimum pension age is rising to 57 from 6th April 2028).
Review your pension contributions
This is a big one. And you may need a bit more investigating, if you think there are some lost pensions from past jobs you could do with tracking down.
You may already have a pension scheme through your current workplace, or if you’re self-employed, an existing personal pot like a Self-Invested Personal Pension (SIPP).
If you’re looking at the projections of your pension pots and seeing that it might not be enough for your future retirement (even with the State Pension added on top), this could be the moment to open or transfer your past pots to a new provider.
Start by comparing their:
- Fees (keep an eye on this, especially as your pension’s value grows).
- Investment style (do you want to explore ethical investing or more flexibility than your current provider offers).
- Performance: are they transparent about how and where they invest for you?
- Benefits (or whether you’d lose your current ones by switching).
Pension transfers are quite common nowadays, allowing people to track down old pensions and bring them together into one pot or simply switch to a different provider.
Unless you have any special benefits that you wouldn’t want to give up – such as a defined benefit pension that would offer you a fixed salary after retirement – you’re able to find your old pensions and move them to a better-suited pot.
Self-Invested Personal Pensions are tax-efficient, with the government adding a 20% top-up as a tax relief. These aren’t limited to the self-employed; you can open one as a personal pension pot and contribute up to your annual pension allowance.
If you just need the projected value to improve, simply setting up or amending a regular Direct Debit to put more money into the pot could be a first step this year.
Take some time to research combining pensions to see if it’s right for you.
Make the most of money apps
Technology can be a great way to keep track of your money. And with so many wonderful apps out there designed for just this, it could be a good idea to use one.
You’ll find apps that do almost anything; from showing you where all your money is across a number of banks; savings accounts and financial products; through to investment apps that put a team of qualified professionals in your pocket.
Whether you want to take control of your budget or make savings and investing automatic, using technology could be a good way to do just that.
Final thoughts
Taking charge of your financial situation is an empowering thing.
Even if you feel confident that you have everything on this list checked off, taking time to check things over and tweak your budget to help reach your long-term goals more efficiently will work in your favour.
Knowing how to tackle debt, finesse your budget, and take advantage of tax-efficient accounts you can open, all count towards you feeling more confident and in control.
Wealthify could help you with the savings, investing and pension elements of your financial planning this year. We’re a multi award-winning platform that’s invested in helping you grow your wealth.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
