As we enter 2025, it’s time to start fresh with a more organised and proactive approach to your finances. Taking control early in the year can help set the tone for the months ahead. Here’s a checklist to help you ensure that your financial planning is on track for the year ahead. By focusing on these tasks, you can set yourself up for a successful financial year.
1. Contribute to Your ISA
Maximising your ISA allowance is one of the easiest ways to grow your wealth tax-free. For the 2024/25 tax year, you can contribute up to £20,000 into an ISA, and this amount is non-transferable to the next year. Whether you prefer a Cash ISA for a safer option, a Stocks and Shares ISA for long-term growth, or an Innovative Finance ISA for peer-to-peer lending, ISAs offer tax-free benefits on both income and capital gains. If you have a flexible ISA, you can even replace any withdrawn funds within the same tax year without affecting your limit. Don’t forget, you and your partner can both utilise the £20,000 allowance, potentially doubling your tax-free savings.
2. Set Up or Review Your Will
Having a valid Will in place ensures that your estate will be distributed according to your wishes when you pass away. Without a Will, your estate will be subject to intestacy rules, which can lead to complications and disputes. It’s a good idea to review your Will periodically to ensure that it reflects any changes in your circumstances, like marriage, children, or new assets.
3. Set Up Your Lasting Powers of Attorney (LPA)
An LPA allows you to appoint someone you trust to manage your affairs if you become incapacitated. Without an LPA, your loved ones may have to go through a lengthy and expensive process to gain control of your assets. Setting up an LPA early ensures that you can choose your attorney and avoid complications down the road.
4. Review Your Insurance Coverage
Life insurance, critical illness cover, and income protection are essential for safeguarding your family’s financial well-being. Take time to review your current policies and determine if they provide enough coverage to protect against potential risks like illness or loss of income. Consider whether additional insurance might be needed, particularly if you’ve experienced life changes such as marriage, children, or a new job.
5. Review Your Share Portfolio
Many people inherit or are gifted shares, but holding individual shares can expose you to unnecessary risk. It might be time to assess the performance of these shares and consider diversifying into a more balanced investment strategy, such as mutual funds or ETFs. A review with a financial adviser can also help you understand the potential tax implications of selling these shares and the benefits of transferring them into a tax-efficient account like an ISA.
6. Nominate a Pension Beneficiary
Ensure that you have updated your pension’s beneficiary nomination, specifying who should receive the benefits in the event of your death. This can prevent confusion and ensure your pension is passed on according to your wishes.
7. Top Up Your Pension Contributions
If you’ve had a financially successful year, consider making additional contributions to your pension before the end of the tax year. You can take advantage of tax relief on contributions, and doing this early allows ample time for your contributions to be processed. For those who are self-employed, contributing through a limited company can also reduce your corporation tax liability.
8. Leverage Compound Interest
Increasing your monthly pension contributions, even by small amounts, can have a significant impact over time. By contributing regularly, you benefit from compound interest, where your investment earnings are reinvested and generate further returns. Over time, this growth can significantly increase your retirement savings, so be sure to review your contribution levels and adjust them as needed.
9. Build an Emergency Fund
Many people neglect to set aside a sufficient emergency fund, but it’s crucial for financial security. An emergency fund acts as a safety net for unexpected expenses, like car repairs or medical bills, without having to dip into long-term investments. Determine how much you need for your emergency fund based on your income, expenses, and financial situation, and set it aside in an easily accessible account.
10. Review Your Financial Goals
Now is the perfect time to evaluate your financial objectives. Have your priorities shifted? Do you want to retire earlier, increase your savings, or prepare for future inheritance tax liabilities? Regularly reviewing your financial goals ensures you stay on track and adapt your plans as circumstances change. Discuss any changes with your financial adviser to keep your strategy aligned with your evolving goals.
By tackling these ten tasks before the end of January, you’ll set yourself up for a financially secure and organised year. Take control of your finances early, and the rest of the year will follow suit.
