After a tough few years of uncertainty, 2024 has taken many investors by surprise. It has been an eventful year, with historic elections in the US and the UK, a highly anticipated Autumn Budget and the first interest rate cut since 2020.

Yet markets have performed better than anticipated and the economic outlook looks positive, with growth expected to pick up and interest rates falling around the globe.

However, the recent Autumn Budget brought tax hikes for investors, making it more important than ever to ensure you’re investing tax efficiently.

With that in mind, here are some tips which you may wish to consider to get your finances in order for the new year and make sure your investment plans are still fit for purpose.

1. Reassess your emergency cash fund

Despite interest rates coming down, many are still burdened by the cost-of-living crisis and high domestic energy prices being ‘the new normal’¹. At times like this, it’s important to reassess whether you still have enough cash set aside to cover an unexpected major expenditure or dip in income. A rule of thumb is to keep the greater of £2,000 or half a month’s expenses in a bank account.

It’s also worth having 3-6 months’ expenses in an easily accessible account in case of an income shock, caused by illness or unemployment, for example. You can read more here about preparing for the unexpected.

2. Make a budget

It may seem obvious, but it’s important to understand your day-to-day spending. How you manage your finances will affect your ability to save and invest. Setting a budget can help in this regard. 

An effective budget is one you can stick to and which helps you to see where you’re spending money. List all your essential monthly costs; everything from your mortgage, food and utility bills to your council tax, home/car insurance and childcare.

This helps to identify where you can save money, even if it’s only a small amount like cancelling a subscription that you don’t really need or cutting back on social events.

When you subtract all your outgoings from your salary, you’ll be left with your disposable income – that is the money left over after all necessities. Many people will be able to save some of this income, but others may need to control their spending first.

Once you know your day-to-day needs, you can see whether you have capacity to achieve other financial goals.

3. Check you’re on track to meet your goals

If you haven’t recently done so, it might be worth reassessing if your goals are still the same. Do you have any new priorities? Are you still on track to reach them? Could you consider investing a little more money each month to ensure you do get there?

For long-term goals, the earlier you start investing the better. This is principally due to the power of compounding, where you earn a return on your return.

Another way to leverage the power of compounding, particularly if you feel you may not be on track to meet your goals, is to increase your contributions. This can make a huge difference to how much you eventually end up with. Read our article on making progress towards your long term goals here.

4. Make the most of your tax allowances

On that note, are you making the most of the tax breaks available to you? This has become even more important since the Autumn Budget in October, because the chancellor increased the rate of capital gains tax (CGT) that investors may have to pay when selling certain investments that have risen in value.

These investments include shares, certain types of bonds² and funds. The CGT rate has risen from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher-rate taxpayers.

Everyone has a CGT allowance – which is the amount of profits you can make before you start paying CGT – but this has been cut in recent years and is currently just £3,000 per tax year.

A simple way to save for your future while limiting your potential CGT bill is to invest through an individual savings account (ISA) or pension. Both ISAs and pensions shield your investments from CGT. They differ from a general account, where you pay tax on any profits, dividends or interest that exceed your tax-free allowances.

You can invest up to £20,000 in ISAs in the 2024-25 tax year, which ends on 5 April 2025. You can also invest up to the lower of £60,000 or 100% of your gross relevant earnings³ in pensions.

Another way to potentially reduce your CGT liability is through ‘bed and ISA’ or ‘bed and pension’. This is when you move investments from your general account to a more tax-efficient ISA or pension. Read more about bed and ISA and bed and pension.

5. Save regularly

How do you pay into your SIPP and/or ISA – via irregular lump sums or monthly direct debt? If you’re lucky enough to find yourself with a lump sum and have no other immediate need for it, then you may want to consider investing it to give your portfolio a boost.

But a direct debit is a great way to get into good investing habits by contributing regularly. Even a seemingly small amount can make a huge difference over the long-term. An extra £50 a month invested could be worth an extra £20,000-plus⁴ after 20 years.

6. Rebalance your investments

If your goals change, rebalancing your investments is an option. This is where you change the mix of investments – or asset allocation – in your portfolio if they move out of line with your attitude to risk (you can read more on risk here). This mix is a key driver of portfolio returns and should be shaped by your goals. But even if your goals haven’t changed, some adjustments may still be needed.

If you’re targeting a mix of 80% shares and 20% bonds, for example, and your shares perform better than your bonds over the year, your portfolio may contain more higher-risk assets than you initially intended.

Rebalancing can help you stay disciplined and avoid making costly mistakes. The most successful investors are often those with discipline – those who stick to an investment plan and revaluate it regularly to ensure it stays aligned to any changes in their goals or stage in life.

Those who don’t have the time or experience to reassess their portfolio regularly may want to consider our managed ISA or our all-in-one multi-asset funds, such as our LifeStrategy funds, which automatically rebalance for you. But if you select funds yourself, you may wish to rebalance manually every so often.

7. Eliminate any cash drag

Do you have an excess of cash building in your investment account? This may be because of the income paid by some funds or it may be because you were sometimes unable to buy an exact number of fund units each time you funded your account. Holding cash can end up being costly.

Perhaps now is a good time to check if you have any cash in your account and to make sure this money is fully invested. After all, it’s time in the market and not timing the market that counts most in the long run and every little helps.

8. Get up to date with your paperwork

Are your contact details with your investment provider up to date? Does your pension have named beneficiaries? Under current rules, pensions do not form part of your estate and, as such, they are not covered by your will. So make sure your pension provider knows who your beneficiaries are. There is currently a government consultation on pensions with a proposal that would result in them forming part of your estate and subject to inheritance tax from April 2027.

Do you have a will in place? It’s not something that people like to think about but it’s worth considering, especially if you have children, as no one knows what the future will bring. Similarly, you may want to consider making a power of attorney to ensure that a loved or trusted person is able to make decisions on your behalf if needed in future.

¹ Cornwall Insight January price cap forecast. 18 November, 2024.

² Bonds are a type of loan issued by governments or companies, which typically pay a fixed amount of interest and return the capital at the end of the term.

³ For more on what counts as ‘relevant earnings’ that can earn tax relief when used to fund a pension, see the HMRC Pensions Tax Manual. Your annual allowance might be lower than £60,000 if you have a high income or you’ve already flexibly accessed your pension pot. To work out if you have a reduced (tapered) annual allowance, see HMRC’s website. If you’ve flexibly accessed your pension, you can work out what your alternative annual allowance is here.

⁴ Vanguard calculations assuming a hypothetical investment return of 5% per year after costs. These projections should be regarded as hypothetical in nature and do not reflect or guarantee future results.