YouGov used AI to analyse the top resolutions Brits have pledged as we welcome the 2025 New Year. Top of the list was improving finances with 21% of respondents stating this would be a priority for them. Our finances are so intertwined with our security and happiness that it’s easy to see why so many people are making this their focus for the year ahead.
Here are five key tips that will get you well on your way to financial peace.
Make a budget and stick to it
The foundation of any good financial plan starts with a realistic budget that you can stick to. Knowing where your money is going will provide the clarity required to strategically allocate your resources to build a better financial future for yourself. You’ll be able to see if your over-spending in certain areas and what you could potentially redirect to creating wealth and financial security.
At EQ Investors, we offer a service called cashflow modelling whereby we use software to analyse your financial stability over your lifetime based on a range of assumptions.
Save for emergencies
Once your budget is set and you have a good idea of your surplus income, it’s time to turn your attention to future proofing. Financial emergencies can come out of the blue and often at the worst of times. Being prepared for an unplanned expense takes a significant amount of stress out of life and keeps your financial goals on track preventing the need to go into debt or dip into investments.
A good rule of thumb is to keep 3-6 months of expenditure in an instant access savings account, preferably with a good interest rate to help offset the effects of inflation.
Maximise your allowances
There are a number of allowances available to help you on your financial wellness journey. Some of the key ones are as follows:
Personal Allowance: The majority of people can have income of £12,570 per tax year without the need to pay Income Tax. Ensure you are making the best use of this with strategic withdrawals from drawdown pensions if you are retired. If you or your spouse/civil partner are not making full use of their Personal Allowance, 10% of this can be transferred between you.
If you earn greater than £100,000, you lose your Personal Allowance at a rate of £1 for every £2 over this threshold. This means that once your adjusted income reaches £125,140 you lose your full Personal Allowance. This can be mitigated, in full or part, by making pension contributions which effectively extend your basic rate Income Tax band.
Pension Allowance: Most individuals can contribute up to £60,000 into UK registered pensions. Pension contributions attract tax relief at the persons marginal rate of Income Tax (20% for non-taxpayers). Additionally, assets invested in pensions grow free of Income and Capital Taxes. If an individual has no earnings, they can still contribute £2,880 per annum and receive tax relief at 20%.
People earning over £260,000 have slightly different limits for pension funding. We can help you calculate your personalised allowance for you.
ISA Allowance: UK individuals can contribute up to £20,000 per annum into ISAs. ISAs are particularly tax efficient as not only do they grow free of Income and Capital Taxes, there is no tax to pay upon withdrawal of the ISA assets either. You can invest £20,000 into a cash ISA, Stocks and shares ISA or combination of the two.
There is also the option of a Lifetime ISA (LISA) which has a limit of £4,000 per annum (accounted for within the overall £20,000 annual subscription) and receives a bonus payment of 25% from the government. Unlike traditional ISAs, the LISA is specifically designed for first home purchases and retirement.
Capital Gains Tax Allowance: The current Capital Gains Tax Allowance is £3,000. This means you can take investment gains of up to £3,000 per tax year without the need to pay Capital Gains Tax which is currently 18% for investments of basic rate taxpayers or 24% for higher and additional rate tax payers.
If you have investments chargeable to Capital Gains Tax talk to us about realising gains to make use of your available Capital Gains Tax Allowance.
Dividend Tax: The Dividend Allowance for tax year 2024/25 is £500. Any dividends received above this will be chargeable to Dividend Income Tax. Basic rate tax payers pay 8.75% on dividends, higher rate tax payers pay 33.75% and additional rate taxpayers pay 39.35%.
Ensure your investments are structured to account for this and use the Dividend Allowance efficiently.
Review your protection needs
Protecting your future against financial loss on death, diagnosis of a critical illness, or loss of income in the event of sickness can be done with the use of protection policies. These can be set up to pay an income or lump sum at the time you and your family need it most ensuring that misfortune does not lead to financial hardship.
If you have protection in place already, make sure it still meets your needs. Life moves fast and our circumstances change rapidly. Ensuring your cover is in tune with your life at every stage is key to ensuring the financial security of you and your family.
Create or update your Will and Power of Attorney
The rules of intestacy can lead to your wealth being distributed in a manner outside of your wishes. To ensure your wealth passes onto the right people you need to have a Will in place. Additionally, Wills can be used to give instructions for who will take care of young children should you pre-deceased their adulthood and can even tell your family what kind of funeral you would like.
In addition to a Will, the other key legal document everyone should have is a Lasting Power of Attorney. This elects someone you trust to make decisions for you in the event of you losing mental capacity. There are two types of Lasting Power of Attorney, one for finances and the other for medical care. Without having these in place, it can take upwards of six months for a loved one to attain such permissions causing unnecessary suffering at an already difficult time.
Ethical financial advice
It is our philosophy to build trusted and long-lasting relationships with our clients. Book a free financial planning discussion and we’ll look at your circumstances, identify any gaps and suggest the way forward. From inheritance to investing, pensions to protection, we’ll cover everything that matters to you.
Please remember, this content is provided for information purposes only. Investment involves risk. Past performance is not a guarantee or indication of future results. Investment return and the principal value of an investment may go up or down and may result in the loss of the amount originally invested. All investors should seek professional advice prior to any investment decision, to determine the risks associated with the investment and its suitability.
