The start of a new year is a good time to take stock and think about changes or improvements you would like to make over the year ahead. As such, in the spirit of helping our clients ensure you maximise your financial potential in the year ahead, we’ve pulled together a list of some things for you to think about and potentially action in relation to your finances in 2025.
Start with your “Why”
The very first step in preparing a financial plan or considering an investment, is to establish your why – what are you are trying to achieve, and what will achieving it allow you to do? Philosophers might call this identifying your “purpose”, but for a financial plan, this comes down to your needs, the minimum objective you want to achieve and then potentially your hopes and dreams – why you want to accumulate assets and wealth. This doesn’t have to be complicated or detailed, and usually starts with life rather than financial objectives.
Your objective might as simple as to have enough money to fund your current lifestyle for the rest of your life without having to continue to work, or without continuing to work at your current pace past a certain juncture. Or your goal might be to buy a holiday home, or a yacht. Maybe you want to travel extensively, or transfer wealth to your children. Maybe your objectives are all of these and more. Whatever it is, and however kitsch or generic it might sound, your “why” is probably unique to you, and identifying and revisiting it over time will help to anchor your financial and life decisions. Using it as the basis for your decisions is likely to greatly improve your sense of satisfaction and happiness.
Identify the timelines on each of your goals
Then it’s helpful to start thinking about the timelines for each of your goals. Are they short term goals such as maybe buying that yacht or putting children through university in the next 3 years, or are they more medium term goals, like starting to find and fund the purchase of that dream holiday home in the next 7 – 10 years? Or are your goals more long term, focused more on securing a travel filled retirement and transferring wealth to your children in a tax efficient way?
Thinking in terms of timelines is really important, as different timeframes likely require different funding approaches and investment strategies. These need to be individually considered, and then consolidated into a single, cohesive financial plan that underpins and informs what investments you should have in your portfolio, and the manner in which you should be holding your assets.
Understand your current position
Of course, in planning the direction of your financial journey, you need to clearly understand where you’re starting from. This includes having clarity on the assets and investments you’ve already built up, and knowing both your current and expected cash income & expenditure.
As part of this analysis of your current situation, we advise clients to actively consider,
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- Family budgeting and reviewing your spending. Your income will help to build your wealth, however you also need to “close the back door” and ensure your wealth is likely to grow over time, until you move from the saving to the spending phase of your financial life plan.
- Having a good understanding of the investments that you are holding, and why, to ensure that having worked hard for your money, it is also now working hard for you. An important part of this stage is to ensure that you are happy that you understand the level of risk within your investments, and that it is appropriate for you and your plan(s).
- While investment returns are not known in advance, fees and charges are. So make sure you have an understanding of the fees and charges you are paying on your investments (both to managers and advisers), and ensure that you are happy that they represent value for money.
Keep saving & investing “new” money
Saving is a habit, and like all habits, once broken it can be hard to start up again. We encourage clients that building wealth is enhanced by continued saving towards one or more of their objectives. When significant assets are accumulated, the temptation can be to turn the savings tap off, and leave it all up to the investment markets. This is a flawed approach. Continued saving ensures that you are “dollar cost averaging” – buying further assets at a range of price points, which in turn reduces the risk of poor market timing.
Watch your financial behaviours
This is often the big one! We are all quite often our own worst enemy when it comes to investing. Countless books and academic studies have shown that investor behaviour and our own in-built biases often have a disproportionate effect on our investment returns.
These behaviours include inertia, overconfidence, loss aversion, trying to time markets, recency bias and simply following the herd. Any of these on their own will likely negatively impact your investment returns. It’s so important to have an investment expert in your corner who will recognise and gently steer you away from blowing up your own portfolio…
Consider your business exit
If you are a business owner, this one is for you. It is never too early to start considering your potential exit route. While your exit may be many years in the future, now is the time to start weighing up the different routes and thinking about the ownership structure that might benefit you and your family and some of the people involved, whether they are your employees / partners as potential successors, other businesses that might be interested in acquiring your business and indeed the advisors that you can trust to help you optimise your outcomes.
This planning needs to start many years in advance of your exit, to ensure you extract the maximum wealth from your business in the most tax efficient way. At Acuvest, we have found that collaborations that bring together our investment and personal financial planning skills, along with specialist corporate finance advice and the input of your own accountant are the ones that yield the best results.
Align your financial and investment plans
We touched on this one earlier, the importance of aligning your investment assets with your goals and your financial plan. If some of your goals are very short-terms and will require cash imminently, it likely makes sense to keep some of your wealth in low-risk and liquid assets. Of course if most of your objectives are longer-term in their nature, you can potentially be exposed to more risk assets, with the objective of higher returns over time. This is one of the most crucial roles that we play with our clients – matching their investment portfolio to their different goals.
Follow these steps and you will give yourself the best chance of financial success in 2025. Most importantly, don’t let the search for perfect get in the way of getting things done. In reality, you will never find a perfect time to engage with the perfect adviser to help you make perfect financial / investment decisions. The best thing you can do right now is to identify the smallest single step to help you improve the management of your finances and investments, and set yourself a deadline by which time you will get that done. Then do it.
