The start of a new year is a perfect opportunity to take stock of your financial situation and set yourself up for success in 2025. With the chaos of the festive holidays behind you, January offers a clean slate to align and consolidate your financial goals and ensure you’re on the right track.

This checklist is designed to help you focus on six essential steps to get ahead of your finances this year. 

1. How Will The New Inheritance Tax Rules Impact You and Your Loved Ones?

The change in Inheritance Tax (IHT) rules can have a significant impact on your estate and your family’s future financial well-being. With the current IHT threshold frozen, more estates are being caught in the tax net. Labour’s new policy of bringing pensions into the taxable estate also potentially reduces the total amount you can pass down without paying tax. It’s a minefield and a source of stress for a number of our clients. 

What would be the financial implications if you were hit by a bus tomorrow? It’s a morbid thought exercise but very important to do. 

Tip: Speak to a financial planner to help understand your IHT liability and ensure your loved ones are protected. Regularly review your Will to ensure it reflects your wishes and incorporates any new planning measures. 

2. Direct Debit Audit

Simply reviewing your bank statement can help you identify potential errors or overcharges. For example, utility companies or service providers may increase fees without clear communication. Evaluating your statements ensures you’re not paying more than necessary. 

Take a closer look at your bank statements to identify any recurring payments you no longer need. Subscriptions and direct debits, such as streaming services or memberships, can easily pile up unnoticed, quietly draining your finances over time. Cancel unused services and ensure every outgoing payment aligns with your priorities and financial goals. 

Tip: Use banking apps or tools that categorize your spending to make this process easier. Set a reminder to review your direct debits every quarter to stay on top of unnecessary expenses. 

3. Pensions Check – Are You Being Lifestyled?

Many workplace pensions automatically move your investments into lower-risk options as you approach retirement age, a process called “lifestyling.” While this strategy may suit some, particularly those nearing retirement, it’s not ideal for everyone. If you have a longer investment horizon or higher risk tolerance, lifestyling could unnecessarily limit your growth potential. 

Review your pension statements to see if lifestyling is active. If so, evaluate whether it aligns with your current retirement plans. For those further from retirement, staying invested in higher-growth assets might be more beneficial. Additionally, check the fees associated with your pension plan, as high costs can erode returns over time. 

To find out more about the problem of ‘lifestyling’, read Claer Barrett’s article in the Financial Times ‘Lifestyling: A hidden danger lurking in your pension pot’, in which I contributed my thoughts on what I mildly called this ‘weapon of wealth destruction’. 

Tip: Speak with your pension provider or a financial adviser to better understand your investment strategy and make adjustments if needed. Consider consolidating pensions from previous jobs to simplify management and potentially reduce fees. 

4. Understand What Non-Monetary Benefits Your Workplace Offers You.

Review your workplace benefits package to see if there are opportunities to boost your savings or improve your overall financial health. Many employers offer to match increased pension contributions. Find out the maximum your employer will match and aim to take full advantage of it. 

Beyond pensions, explore other benefits such as healthcare plans, stock options, or employee discounts.  

Tip: Even a small increase in your contributions can have a substantial impact over time, especially when employer matching is involved. 

5. Are You Going to Be Caught in the 60% Tax Bracket?

If your total earnings fall between £100,000 and £125,000, you could be subject to an effective tax rate of 60% due to the gradual loss of your personal allowance. This is a costly bracket that catches many high earners off guard. 

Take proactive steps to reduce taxable income, such as making additional pension contributions, which not only lower your taxable income but also boost your retirement savings. Charitable donations can also provide tax relief while supporting causes you care about. If you’re self-employed or run a business, explore tax-efficient strategies such as deferring income or claiming allowable expenses. 

Tip: A financial planner can help you identify tax-efficient strategies tailored to your circumstances, ensuring you retain as much of your income as possible. 

6. How Are You Invested?

The markets had a strong performance in 2024, but it’s essential to assess whether your portfolio is positioned well for 2025. How is your pension invested? What about your ISAs? Take the time to review your asset allocation – are you overexposed to certain sectors or regions? Ensure your investments reflect your risk tolerance, financial goals, and time horizon. I’m sure they do. Don’t they?? 

Rebalancing your portfolio annually can help you stay on track. For example, if certain assets performed exceptionally well last year, they might now represent a larger proportion of your portfolio than intended, increasing your risk exposure. Selling high-performing assets and reinvesting in underweighted ones can restore balance. 

Tip: Consider seeking professional advice to optimise your investment strategy and take advantage of opportunities in emerging markets or other growth areas. Regular reviews can ensure your portfolio adapts to changing market conditions. 

Conclusion

Starting the year with a proactive approach to your finances can help you feel more in control and set the stage for achieving your goals. By following this six-step checklist, you’ll be well on your way to financial success in 2025. Remember, consistency and small, thoughtful adjustments throughout the year can make a big difference. 

If you have any questions about these steps or need personalized advice to achieve your financial goals, we are here to help. Book a call with me or my colleague Adrian Johnson today to discuss your financial situation and establish a tailored plan for 2025. Let’s make this year your most successful yet! 

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Adam Walkom