Households must watch every penny as Chancellor Rachel Reeves stumbles from one disaster after another. The following 12 New Year’s resolutions can help.
1. Set a monthly budget. This may sound like a boring way to start the year, but the savings make it worth it, says Joe Lytwyn, personal finance expert at Vivamoney.
Add up all your sources of income and then add up your expenses, including food, utilities, broadband, mobile internet, insurance and any debt payments.
Identify ways to earn more or spend less. “The key is to stick with it,” Lytwyn said.
2. Save money. Try to set a “specific and measurable savings target” by 2025, says Christie Cook, head of retail at Hodge Bank. “Whether you’re saving for a vacation, a new home or a rainy day, setting goals can help.”
Setting up a regular monthly direct debit into a savings account makes saving effortless, she added.
3. Know the rule. An old rule of thumb for financial advice, the 50/30/20 rule, suggests that you should spend 50% of your income on essential needs, 30% on having fun, and 20% on saving and paying off debt. “This simple framework allows consumers to strike a balance between spending and saving,” Christie said.
4. Shop around. Compare prices on broadband, energy, insurance and other household expenses and switch if it will save money, says Ryan McGrath, second sales director at Pepper Money. “Tools like Uswitch and MoneySavingExpert can help you find better deals. Bargaining with providers.”
5. Cancel unused subscriptions. Check your subscriptions to make sure you only pay for what you use. McGrath said. “Many streaming services, gyms and memberships work on an automatic renewal basis. Don’t just let them continue.”
6. Target Debt. Deal with your Christmas debt hangover by paying off your most expensive one first (while meeting the minimum repayments on the rest). “If there are serious problems, free services such as StepChange or Citizens Advice can provide guidance,” McGrath said.
7. Check pensions. More than three million pension pots are inactive or lost, with an average value of £9,470. Check that you know where yours are, how much they are worth and that they are invested in the right place.
While you’re at it, consider who will get your pension when you die, says Emma Sterland of asset manager Evelyn Partners. “Please check that you have completed your workplace pension nomination form and update it if circumstances change.”
Labor will impose inheritance tax on unspent pensions from 2027, Sterland warned. “Some leave their pensions to children, but if this change happens it may be more tax efficient to leave it to a spouse or civil partner.”
8. Save for children. Small regular savings can add up to significant sums over the years, says Emma Sterland of asset managers Evelyn Partners. “Paying into a Junior Isa can give a child or grandchild a real financial advantage.”
If a parent or grandparent invested £100 per month in a Junior stocks and shares Isa at birth, the child would have £35,000 at age 18, assuming growth of 5% per year.
You can even invest in a pension on behalf of a child and claim a 20% tax reduction. This increases the maximum annual pension contribution from £2,880 to £3,600.
9. Invest tax-free. Tax papers like Isas and pensions are more important than ever these days, so make the most of yours if you can.
Investments kept outside the ISA wrapper now attract even more capital gains tax (CGT) and dividend tax, Sterland said. “The annual CGT exempt amount is only £3,000, but it could be worth taking some tax-free profits each year to clear this up.”
The Personal Savings Allowance (PSA) allows 20% taxpayers to receive £1,000 of interest tax-free, or £500 for higher rate taxpayers.
If you are a couple and one partner has exceeded their PSA, consider transferring the savings to the lower taxpayer’s name.
10. Receive gifts. Every year, HMRC costs more inheritance tax. Time to fight back.
Donating is a great way to reduce your exposure, with everything tax-free if you live for another seven years.
Sterland said: Decide if now is the right time to start the clock ticking. The 40% IHT levy gradually drops to just 8% in year seven. “Some may want to give their pensions a tax-free lump sum to defeat Labour’s proposed IHT raid on pensions.”
Also consider taking advantage of the IHT ‘normal expenses from excess income’ exemption. This allows you to donate as much as you want from a normal income, provided you have enough to provide for your own living. Keep detailed records.
11. Update your will. No one wants to think about dying, but writing a will can make it easier for loved ones when it happens.
It is especially important for unmarried couples and so-called blended families, where who gets what is complicated.
Also consider creating a lasting power of attorney, which will allow someone to make important health and financial decisions on your behalf if you lose mental faculties due to illness, Alzheimer’s disease or dementia.
12. Check state benefits. Confirm that you are receiving all your government benefits, including pension credit, Attendance allowance and informal care allowance. This is even more important after Labour Winter fuel payment raid. Check the right to gov.uk/benefits-calculatorsyour local Citizens Advice or charities such as Age UK.