It’s been a difficult 2023 for many people. The UK experienced its most rapid series of interest-rate rises since the 1980s¹, leading to higher borrowing costs for households and businesses.

While our economists think interest rates may need to remain elevated for a while to bring inflation under control, there is a silver lining for investors.

A return to a more ‘normal’ environment for interest rates (where rates are above inflation) should help investors to achieve their financial goals, as we explored in our outlook for 2024.

However, the transition to this new environment may be bumpy. It’s therefore a good time to take stock of your finances and investment goals, to make sure your plans are still fit for purpose.

With that in mind, here are 10 tips from me which you may wish to consider.

1. Reassess your emergency cash fund

Given continued cost-of-living pressures, do 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 accessible account in case of an income shock. Always ensure you have enough of a cash buffer before you consider investing. You can read more here about preparing for the unexpected.

2. Make a budget

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

When you subtract all your outgoings from your salary, you’ll be left with your disposable income. Many people will be able to save some of this income, but others may need to control their spending first. Try going through your bank statements and cancelling any unnecessary direct debits or subscriptions if you need to cut back. 

You can read more here about taking control of your finances.

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

The first step when starting to invest is to think about your financial goals – what are you trying to achieve by investing? And if you have been investing for some time, are your goals 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?

Remember: even small amounts can add up and the more time you give it, the more it will build. Invest another £50 a month and, after 20 years, it could be worth an extra £20,000-plus to you².

This is known as compounding and is a powerful force that can help to grow your wealth in the face of inflation. Make sure it's on your side by thinking about investing more, and sooner.

4. Cut your investment costs

Keep more of your investment returns for yourself by making sure you are not paying over the odds in platform costs and fund charges.

Ask yourself: How much could you save by transferring your pensions and/or individual savings accounts (ISAs) to a lower cost investment services provider? As a yardstick, consider that every 1% saved in costs on a £100,000 total portfolio represents an extra £1,000 invested each year. Were that cost saving to earn an average annual net (after costs) return of, say, 5%, it would compound within 15 years to £21,578³ – that’s comfortably more than two extra state pensions⁴.

5. Make the most of your tax allowances

Are you making the most of the tax breaks available to you? Do you have an ISA, for example? What about a self-invested personal pension (SIPP), or a junior ISA for your children?

All profits made within an ISA, junior ISA or SIPP are exempt from tax. So too is any income received. In the case of a SIPP, you also get back the income tax you’ve paid on the money you use for your contributions – so if a basic-rate taxpayer contributed £80 to a SIPP, this would be topped up by £20 to give a contribution of £100. Higher-rate and additional-rate taxpayers can claim a further £20 or £25 through their tax returns.

The annual ISA allowance currently stands at £20,000 in the case of an adult ISA and £9,000 in the case of a junior ISA⁵.

Your annual pensions allowance – which is the most you can save in your pension pots in a tax year – is £60,000 this tax year⁶. So make the most of the opportunity. Just remember to consider any employer-matching on your workplace pension first before investing in a SIPP.

6. Save regularly

How do you pay into your SIPP and/or ISA – via irregular lump sums or monthly direct debt? A direct debit is a great way to get into good investing habits by contributing regularly.

7. Make the most of your CGT allowance

If you’re worried about having to pay capital gains tax (CGT) on the investment profits you might be sitting on in your general trading account, remember that the tax-free annual allowance falls from £6,000 to £3,000 from April 2024.

So consider making the most of the current allowance while you can and consider moving more of your investments into an ISA or SIPP. This would involve selling your investments and reinvesting the proceeds in an ISA or SIPP. You can read more here on how to do this. 

8. Rebalance your investments

If your goals change, rebalancing your investments is an option. Your asset allocation – your mix of shares and bonds – 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.

That’s why our Managed ISA and our all-in-one multi-asset funds, such as our LifeStrategy funds, automatically rebalance for you. But if you select funds yourself, you may wish to rebalance manually every so often.      

9. 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. If so, perhaps now is a good time to make sure this money is fully invested. After all, it’s time in the market not market timing that counts most in the long run and every little helps.

10. Get up to date with your paperwork

Are your contact details with your investment provider up to date? Does your pension have named beneficiaries? Pensions, unlike ISAs, do not form part of a person’s estate. As such, they are not covered by a will. So make sure your pension provider knows who they are.

Indeed, do you even 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 Source: Vanguard economic & market outlook 2024.

² 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.

³ 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.

⁴ The full State Pension is £203.85 per week or £10,600.20 a year.

⁵ For the 2023-24 and 2024-25 tax years.

⁶ For the 2023-24 tax year.