Christmas can often leave you feeling like you’ve lost control of your finances. The presents. The socialising. It can all wreak havoc on your bank account.
The New Year offers a fresh start. A chance for financial salvation – to take stock and regain some semblance of control.
In the same way that adopting an exercise routine, or eating healthier food are popular New Year’s resolutions, ‘saving or investing more’ will likely be high up on people’s list of priorities.
However, to do so you must first get a grip on budgeting. Failure to budget will almost certainly make consistently saving or investing nigh on impossible.
With the help of saving and investing app Plum, we look at how to make the most of your money in 2025.
Goals: those wanting to make most of their money might want to consider putting savings and investing on their new year’s resolution list
Get a grip on budgeting
At its most basic level, budgeting is understanding your income and outgoings. From there, you can work out what you can afford to cut back on each month and how much you can set aside for savings or investments.
For most people, income is relatively simple, as it will be their salary, but for those who are self-employed or contracting it may be harder. They will need to average out the past three or six months, allowing for any outliers.
Outgoings will include assessing essential regular spending, such as mortgage or rent, utility bills, groceries, medication, commuting and travel, as well as allowing for one-off lump sum payments such as home and car insurance.
A budget will also include working out how much is being spent on things that are not essential but regular, such as gym subscriptions, food deliveries and streaming services.
Typically this will involve some admin. Do it the old school way, and reviewing your bank or credit card statements with a spreadsheet or paper and pen will enable you to better understand your financial situation.
But nowadays, there are a host of money management apps and websites specifically designed to simplify the process for people.
Once signed up, they will link up your bank account and credit cards, allowing you to review your spending and compare household bills and savings all in one place.
Budget: In order to kickstart a saving or investing habit, you’ll first need to establish what your incomings and outgoings are and where you can cut back on certain expenses
Get into the savings habit
The best way to keep a financial habit is to ensure that money is regularly being set aside each month.
A monthly direct debit into a separate savings account is a great way to start. It will become like another bill – just one that will benefit you in the future.
There are also money apps that can help you kickstart a savings habit and having the information and ability to control accounts at your fingertips can make a real difference.
Some savings apps can help you automatically save by rounding up your spare change when you spend on your bank card. They can calculate how much you can afford to put aside and squirrel it away automatically or set yourself quirky savings challenges.
> Find out how Plum’s Auto Savers can help you
Little and often: Paying into a savings account each month is a way to get the habit
Get your savings onto a better rate
Savings is pretty rewarding at the moment because you can make reasonable returns thanks to higher interest rates.
While some of the standard savings accounts being offered by some of the big banks continue to pay a pittance, there are many banks and savings providers paying much more.
It can seem like a faff upping sticks and moving your cash to a new provider, but in truth this can be a mere 10 minute exercise in some cases.
Some of the best paying easy-access savings accounts and cash Isa deals currently pay close to 5 per cent.*
For example, as of 7 January 2025, Plum is offering a 5.01 per cent cash Isa deal, for your first 12 consecutive months, albeit if you make more than three withdrawals, the rate will drop to 2.5 per cent.
Those using a cash Isa get the added bonus of protecting any interest they earn from the taxman.
For those setting aside money each month, a regular savings account could also be a great way to secure a top rate with the best deals paying as much 7 or 8 per cent.
The other incentive that should encourage you to move to a better rate is that you want your money to be outperforming the rising cost of living – i.e. the rate of inflation.
At the moment it’s easy to get a savings rate that beats the 2.6 per cent rate of inflation. This means you’ll be getting richer in real terms. Essentially your savings interest is outpacing the rising cost of living.
Play the market: Don’t settle for the rate your bank is paying – if you shop around you may find you can get a much higher savings rate
Start investing
Before you start investing, make sure you have enough of a buffer held in savings to cater for any emergencies.
Most financial experts agree that enough to cover three to six months of basic living expenses should be sufficient.
If you need funds for upcoming events such as a wedding, some holidays or a house purchase, then you should also keep this in a savings account.
However, any excess money you are able to put away for five years or more without needing to rely on it, should arguably be invested.
History has shown us the best way to grow your capital over the long run and best protect your wealth from the eroding power of inflation is to invest in the stock market.
Just like with savings, you can use your £20,000 Isa allowance towards investing as well. This means any gains or income will be protected from the taxman.
You will need to be ready for the occasional drop along the way. A market downturn can see investments drop significantly over a short period of time. The key is not to panic when that happens.
Regular investing can also help avoid the risk of putting in a big lump sum and falling foul of a market drop – and, in fact, something known as pound-cost averaging means that share price dips can work in a regular investor’s favour, as they get to buy more.
It also means the specific time you invest over is less important as you’re spreading your investments over a longer period.
Risk and reward: Investing could be an option for you if you understand the risks, and are prepared to take a long-term view and invest with at least a five or 10-year timeframe in mind
You also benefit from earning returns on top of returns in what is known as compounding.
By keeping money invested, the dividends or capital growth an investor makes can snowball overtime as they earn a return on top of the gains they have already made.
For example, if a person’s £1,000 investment grew by 5 per cent over a year, that would mean its value has increased by £50.
If they make a 5 per cent return on what is now £1,050 in the following year, the value then rises by £52.50 and they end up with £1,102.50. This continues over time and the longer it does the greater the effect.
For example, someone investing £1,000 in the stock market over two decades, earning an average of 5 per cent a year, would end up with £2,653 after 20 years, of which more than £1,600 would be compounded returns.
Investing can seem rather daunting, but getting started has never been more accessible.
There are a host of DIY investing platforms and apps that make investing cheap and relatively simple. They can help you choose investments that are right for you and you can sit back and allow your returns to build. Plum, for example, offers 36 mutual funds picked by experts, which can let you invest around the world at low cost.
Note that investing in funds on Plum requires a subscription plan.
> Find out more about investing with Plum
Keep in mind, as with all investing, you may get back less than what you put in and therefore your capital is at risk.
Tax treatment depends on your individual circumstances and may change in the future. Always do your own research.
This is not financial advice. Plum does not provide financial or any other form of advice.
https://www.thisismoney.co.uk/money/article-1621507/Best-savings-rates-Fixed-rate-accounts.html