January is the ideal time to start getting your finances in order. Many people feel like a fresh start following the holiday season and the excess that comes with it. There is also enough time left until the end of the tax year to take advantage of the various allowances.
If you would like to get your finances in shape this year, start by setting some goals. What would you like to achieve in the short, medium, and long-term? What is really important to you? With this in mind, you can start to review the individual components of your financial plan.
Review Your Budget
The first step is to understand how much money you have coming in and going out every month. Make a list of all income (net of tax) and expenditure appearing on your bank statement.
If you have a surplus, this is good news. You can start to think about how to put the extra money to work.
If you have a deficit, you will need to address this before you can consider other areas of financial planning. Left unchecked, a budget shortfall can lead to debt and further hardship down the line. Check your bank statement for any unused subscriptions or expensive services. Is there anything you can cancel for a quick financial boost? It’s worth shopping around for the best deals and thinking carefully about any purchases.
You should also consider options for earning more money. Perhaps this is the year you will seek a promotion, move jobs, or start the side business you have been considering.
Make a Plan for Debt
Sometimes, certain types of debt can be helpful – e.g. if it gives you an asset that improves your financial position, such as buying a property or investing in your education.
However, it can be destructive when it is used to fund a lifestyle beyond your means. Relying on credit for discretionary spending is one of the quickest ways to derail your financial security.
If you have consumer debt, this could be a good time to assess your position and make a plan for clearing it. It might not happen overnight, but committing to a budget and repayment plan will vastly improve your position by this time next year.
Build an Emergency Fund
An emergency fund is a vital part of a financial plan. Ideally, you should aim to keep at least 6 months’ expenditure in an easily accessible bank account.
This means that if an unexpected bill or repair comes up, you are prepared and do not need to rely on debt. It also means that if you are unable to work for a short period, you will have some money set aside to cover essential costs.
You can dip into your emergency fund as needed (that is what it’s for!), but you should aim to rebuild it as soon as possible. Any cash required for short-term spending (for example, holidays or home improvements) should ideally be held in a separate account.
Address Risks
As well as planning for short-term emergencies, it is important to think about other financial risks and put appropriate protections in place. For example:
- Life cover to aim to ensure that your family is provided for in the event of your death.
- Critical illness cover to help provide a financial cushion if you are injured or seriously ill.
- Income protection to replace your earnings if you are unable to work for a long period due to illness or disability.
While not every risk can be covered, having appropriate protection can mean there is one less thing to worry about if things go wrong in the future.
If you already have insurance policies in place, it might be a good idea to check you have enough cover and that you are not overpaying for your premiums.
Invest for the Future
To achieve your goals and provide a comfortable future lifestyle, you should consider investing. Cash alone is unlikely to keep pace with inflation and can actually lose money in real terms.
One way is to invest is through a workplace pension scheme. If you are eligible, you will be automatically enrolled in the scheme. There will generally be a default fund to invest in, although you may have some other options. The main advantage of a workplace scheme is that your employer needs to contribute as well.
If you don’t have access to a workplace scheme or would like to make additional contributions, you can also set up a personal pension. Your pension will benefit from tax relief whether you set it up yourself or via your employer.
You can find out more about pensions, including benefits and potential limitations, here.
A Stocks and Shares ISA is another option for medium or long-term investing. You can contribute up to £20,000 per year for tax-free growth. Unlike pensions, there is no tax relief available on contributions, but you do have unlimited, tax-free access to your money.
Depending on your circumstances, both pensions and ISAs could have an important role in your financial plan. If you have a larger amount or a lump sum to invest, you may also want to consider investment accounts or investment bonds for some of the money.
Regardless of which investment vehicle you are using, there are a few key rules for a sound investment plan:
- Consider investing for the long-term. Taking money out early could reduce your returns.
- Avoid trying to time the market or make judgement calls about which investments are likely to do well. This takes up a great deal of time, and even professional investors often get it wrong.
- Diversify your investments across a wide range of asset classes, sectors, and world regions.
- Invest at an appropriate risk level. This takes into account not only how you feel about risk, but how much you could afford to lose if the market takes a downturn.
- Review your plan regularly and make sure you are on track to achieve your goals. If you need to contribute more or adjust your risk level, the earlier you do this, the more impact it will have.
Please do not hesitate to contact a member of the team if you would like to find out more about financial planning.
The content in this article was correct on 08/01/2026.
The value of your investment can go down as well as up and you may get back less than the amount invested
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