Friday, 29 November 2024

A GUIDE TO FINANCIAL MANAGEMENT IN 2025

Another year has gone by in a flash.Yet a whole list of financial problems needs to be addressed. If you are carrying your previous years’ financial problems again into the new year, this blog post is for you. 



Before we get into it though, answer this question -

In the previous year (s), did you have unique financial dreams and aspirations that were hard to realistically attain?

If you answered yes, then before you get ready to usher in 2025, it’s time to reconsider and rework your financial resolutions. Whether you want to reduce your expenses this year and buy your dream car, or save up for retirement, your personal goals determine how you manage your finances. 

The path to attaining your financial goals may not be as straightforward as you think. So it’s best to lean on financial management to embrace the new year, but without carrying the burden of old financial problems forward.

If you’re looking to revamp your finances, this article highlights a financial management outline that serves as the perfect starting point for 2025.

Set Realistic Personal and Financial Goals

Financial goals are never one-size-fits-all; it varies from person to person. That said, a financial goal without an aim and direction is a mere wish. It’s crucial to understand why you’re making a certain financial decision. Whether you’re saving for retirement or aiming to purchase a property, each goal needs to have a spelt-out aim and direction. 

Once you’ve defined your goals, proceed to fix a monetary value and a timeline to achieve them. The key lies in spelling out and attributing your personal and financial objectives, no matter how trivial they are.

Your goals need to be realistic to keep you motivated and on track to achieving them. Lofty goals are seldom attainable, so strategising and categorising your goals into short, medium and long-term, sets the stage for success.

Define Your Savings and Investment Strategy

Financial goals due within five years are short-term, while medium-term span anywhere from five to ten years, and long-term goals extend beyond ten years. Setting a savings and investment strategy for all these three types of goals makes them more tangible and realistic.

Since financial goals are set in the future, ensure you consider and account for the impact of inflation on your savings strategy. Accounting for the rate of inflation will help you determine the profitability of investments.

Understand the Rule of 72

The Rule of 72 is a financial tool used in estimating the time it takes for your money to lose half its purchasing power at a given inflation rate. Calculate the interest rate needed for your money to double in a given period by dividing 72 by the number of years.

This rule throws light on the impact of inflation or compound interest on your financial situation. Use this tool to determine the desired impact and outcome of your financial goals.

Manage Financial Risks

No financial management plan is complete without a risk management strategy. Risk protection measures protect you and your family from unforeseen events.

Plan and invest in an emergency fund to take care of money matters in such unexpected circumstances. A lump sum amount collected by depositing small amounts regularly can come in handy during times of financial crisis, whether it’s for a major car repair or an accident.

Emergency funds can cover expected expenses that you would’ve otherwise used a credit card or personal loan for.

Navigate the Complex UK Tax System

UK’s tax system is complex and difficult to comprehend, especially when rules keep changing. The last thing you want to do is end up paying more tax than what is necessary as per your designated tax bracket.

Carefully plan and seek advice from financial advisors and tax planners to build a comprehensive financial plan to prevent the repetition of old problems. They can help you with measures to protect your income from tax liabilities. 

Plan Your Retirement Early

If you’re young and are just a couple of years into earning an income, you may question the importance of early retirement planning. Planning your retirement early is a great way to maintain your finances for your lifestyle in the future.

At first, the multiple sources of income and pensions along with your savings may seem enough to last your retirement days. However, it’s important to consider the frequent changes in legislation that have brought about multiple options for retirees, including annuities and tax-free cash. 

 

Stay tuned in with the updates in the UK financial sector when planning your retirement; the earlier the better.

To Sum Up

Financial planning and management involve a multi-pronged approach. 

It includes setting clear and realistic personal finance goals, defining your savings and investment strategy, understanding inflation and compound interest rates by the rule of 72, navigating taxes in the UK, and planning an early retirement.

 

A regular annual review of your financial goals is a must to ensure you’re on track to meet your set objectives. So before you begin 2025, give yourself time to work on a good financial plan that prevents old problems from carrying forward.

6 comments:

  1. 2025 is going to be a HUGE year for us financially as we're current renovating and extending a house 220 miles away that we will be relocating to in the summer. Building costs can quickly get out of control, so it's very important to plan everything that's happening

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  2. This is our goal -- to start planning our retirement. We can both gifting ourselves with a new insurance policy this Christmas.

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  3. Financial education is needed at any life stage. We need to research new rules, laws, developments. Always be on the front edge of the financial waves.

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  4. Thanks for these practical tips on managing our finances. So valuable for 2025 and beyond in my opinion!

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  5. Planning retirement, so that you can retire, is so important. If you've not got your finances together, 2025 is the year to do it!

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  6. Planning for retirement early does matter. It gets here before you know it.

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