January 2025 - Agile IFA

Energy Saving Week is back from 17 January 2025. Throughout the week, the Energy Saving Trust will be working with organisations across the country to share tips on how you can reduce your energy bills and limit your carbon footprint.

If you’d like to take part, then keep reading to discover our best tips on how to boost your home’s energy efficiency this year.

More than 80% of homes built before 1930 are rated poorly for energy efficiency

A house’s energy efficiency is ranked on a scale from A (most energy efficient) to G (least efficient).

A government survey found that dwellings in England and Wales had a median energy efficiency rating in band D, and more than 80% of dwellings built before 1930 in England and Wales were rated in bands D to G.

Getting your home assessed for an Energy Performance Certificate (EPC) is one of the ways to know how energy efficient your house is, but chances are, there are at least a few improvements you could make to reduce your energy bill.

8 energy-saving tips to try in your home

If you want to reduce your energy bill or carbon footprint this year, read on to discover our eight top tips.

1. Switch off

One of the simplest tricks to reduce your energy consumption this winter is by turning appliances off when you aren’t using them.

Some common items you might want to switch off include:

Kettle
Lights
Toaster
Microwave
Phone or laptop

Switching appliances off at the mains instead of leaving them in standby mode can help you reduce your amount of wasted energy.

2. Upgrade your appliances

Improving the energy efficiency of appliances you use frequently could help you cut down on your energy usage.

For example:

LED bulbs use less energy than their halogen counterparts
Cooking in an air fryer is cheaper than in an electric oven
A heated drying rack uses less energy than an electric tumble dryer
Replacing an inefficient shower head with a water-efficient one could save you money and water.

Switching out your appliances might only save you a few pounds each year, but that can add up quickly.

3. Update your heating controls

Your thermostat lets you set the desired temperature of your home, and once it reaches this temperature, it automatically turns the boiler off.

But many people fall for the common misconception that turning up your thermostat will heat your home faster when instead it is heating your home to a higher temperature at the same speed.

Setting a heating programmer to turn off the boiler while you aren’t home and to turn it back on 30 minutes before you usually return will ensure your house is always at a comfortable temperature as well as reduce your energy consumption.

4. Block draughts

One of the cheapest options for insulating your home is blocking any draughts that could be leaking heat into the atmosphere.

Applying draught-excluder strips to windows and filling in cracks in walls is inexpensive and relatively easy to do yourself.

If you have a fireplace you don’t use, it might also be worth investing around £65 in a chimney draught excluder.

5. Insulate your loft

Loft insulation is more expensive than draught excluders, but is one of the most cost-effective strategies for keeping your home warm.

Heat rises, so if your roof doesn’t have heat insulation, it can leak out into the cold atmosphere and waste energy.

Stone wool insulation costs around £10 per square metre and you can lay it down yourself like a blanket, so professionals aren’t necessarily required.

6. Fix exposed pipes

If you live in an oil-heated home, uninsulated pipes may be losing heat that could be used to warm your home rather than being lost to the atmosphere.

Insulating these exposed pipes is thankfully not an expensive process but can help you save up to 25kg of carbon dioxide a year.

7. Try solar panels

Solar panels use energy from the sun, even on cloudy days, to make electricity which could then be used to power your appliances without affecting your energy bill.

Installing a typical solar panel system could help you save around £300 and 950kg of carbon dioxide per year. You could even install batteries that would allow you to store energy during the daytime to use in the evening.

8. Invest in a heat pump

A standard air-source heat pump could help you get back four times more energy than you put in. For comparison, a modern gas boiler loses around 8% of the energy you put in to make heat.

The installation of a heat pump usually costs around £14,000, but the UK government offers grants of £7,500 to help you offset costs. This makes a heat pump an excellent option if you’re planning to stay in your house long term, and might increase your property’s value if you decide to move.

Political instability in Europe and further afield affected investment markets in December. Read on to find out what other factors may have influenced your investment returns at the end of 2024.

Remember to focus on your long-term goals when assessing the performance of your investments. The value of your assets rising and falling is part of investing. What’s important is that the risk profile is appropriate for you and that your decisions align with your circumstances and aspirations.

UK

Hopes that the Bank of England (BoE) would cut its base interest rate before the end of 2024 were dashed when data showed inflation had increased.

Figures from the Office for National Statistics show inflation was 2.6% in the 12 months to November 2024, which was up from the 2.3% recorded a month earlier.

This led to the BoE deciding to hold interest rates despite speculation that a cut was on the horizon. The central bank also said it expects GDP growth to be weaker at the end of 2024 than it had previously predicted.

Data paints a gloomy picture for the manufacturing sector.

According to S&P Global’s Purchasing Managers’ Index (PMI), UK manufacturing hit a nine-month low as output fell for the first time in seven months in November 2024. The decline was driven by new orders falling. Notably, manufacturers are struggling to export their goods, with new orders contracting for 31 consecutive months. Demand has fallen in key markets, including the US, China, the EU, and Middle East.

A survey from the Confederation of British Industry (CBI) indicates that manufacturers aren’t optimistic about the future either. The organisation said orders at UK factories “collapsed” in December to their lowest level since the height of the pandemic in 2020. The slump was linked to political instability in some European markets and uncertainty over US trade policy when Donald Trump becomes president.

Chancellor Rachel Reeves wants to reduce UK trade barriers with the US, stating she wanted to end the “fractious” post-Brexit accord as she went to meet eurozone finance ministers at the start of the month. Closer ties with the EU may benefit some firms that are struggling with exports.

Retailers are also experiencing challenges.

The festive period is often crucial for retailers. Yet, data from Rendle Intelligence and Insights are “bleak” with footfall in the first two weeks of December down 3.1% when compared to 2023. A slew of high street names entered administration in 2024, including Homebase, The Body Shop, and Ted Baker, and the research suggests more could follow suit in the year ahead.

December was a month of ups and downs for investors in the UK stock market.

The month started strong when stock markets increased across Europe on 3 December – dubbed a “Santa rally” in the media. The FTSE 100 – an index of the 100 largest firms on the London Stock Exchange – was up 0.7% despite worries about the economic outlook. EasyJet led the way with a 4% boost.

Yet, just mere weeks later, on 17 December, the FTSE 100 hit a three-week low and lost 0.7%. The biggest faller was Bunzl, a distribution and outsourcing company, which fell 4.6% when it warned persistent deflation would weigh on profits in 2024.

While it might have felt like a bumpy year as an investor, research shows the FTSE 100 has performed well. Indeed, according to AJ Bell, the index had its best year since 2021 and delivered a return of 11.4%. The top performers were NatWest and Rolls-Royce, while JD Sports and B&M were at the bottom of the pack.

Europe

Much like the UK, the manufacturing sector in the eurozone is struggling. Indeed, PMI data shows the sector continued to contract in November 2024 as new factory orders fell. Germany recorded the fastest drop in output and, as the bloc’s largest economy, could drag economic data down.

Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, told the Guardian: “These numbers look terrible. It’s like the eurozone’s manufacturing recession is never going to end.”

Credit ratings firm Moody’s unexpectedly downgraded French government bonds, which are now rated Aa3 – the fourth highest rating – following the collapse of Michel Barnier’s government. MPs had refused to accept tax hikes and spending cuts in Barnier’s Budget.

Moody’s said: “Looking ahead, there is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year. As a result, we forecast that France’s public finances will be materially weaker over the next three years compared to our October 2024 baseline scenario.”

The news, unsurprisingly, led to French bonds weakening.

European markets also benefited from the so-called Santa rally on 3 December.

Germany’s DAX, a stock index of the 30 largest German companies on the Frankfurt Exchange, broke the 20,000-point barrier for the first time, despite a new election being called after the government collapsed. The recent boost means the DAX increased by around 3,000 points during 2024.

Similarly, Paris’s stock market index, the CAC, gained 0.6%. Luxury goods makers, like Hermes and LVMH, were among the biggest risers.

US

Unlike Europe, US manufacturing could give investors something to be optimistic about.

The PMI reading for November 2024 was 49.7, up from 48.5. While this means the sector is still below the 50-mark indicating growth, the signs suggest it’s stabilising and could move into more positive territory in the new year.

The service sector paints an even better picture. The PMI indicated the sector is growing at its fastest pace since the Covid-19 pandemic. Expectations of higher output linked to growing optimism about business conditions under the Trump administration led to a flash PMI reading of 56.6 for December, comfortably placing the sector in growth territory.

The job market also bounced back after disappointing figures in October. According to the US Bureau of Labor Statistics, 227,000 jobs were added to the economy in November, compared to just 36,000 a month earlier.

Yet, inflation continues to weigh on the US. In the 12 months to November 2024, inflation increased slightly to 2.7%.

While the Federal Reserve went ahead with an interest rate cut, taking the base rate to 4.25%, it also suggested it would make fewer cuts than expected in 2025 if inflation remains stubborn. The comments led to the S&P 500 index closing almost 3% down, while the tech-focused Nasdaq fell 3.6% on 19 December.

President-elect Trump is set to take office on 20 January 2025, but his plans are already influencing markets. Indeed, on 2 December, the dollar rallied after Trump warned countries in the BRICS bloc that he would impose 100% tariffs if they challenged the US dollar by creating a new rival currency.

The BRICS bloc was originally composed of Brazil, Russia, India, China, and South Africa, which led to the acronym. They have since been joined by Iran, Egypt, Ethiopia, Saudi Arabia and the United Arab Emirates.

Asia

In a move that shocked citizens, South Korea’s president declared martial law on 3 December, which led to political chaos. The uncertainty led to South Korea’s currency dropping to a two-year low and exchange-traded funds (ETFs), which track the country’s shares, fell sharply. Indeed, the MSCI South Korea EFT dropped by more than 5% in the immediate aftermath.

Outside of South Korea, stock market performances were more positive in Asia.

On 9 December, Hong Kong’s Hang Seng was up by 2% after China said it would implement a more proactive fiscal policy and planned to loosen monetary policy in 2025. The market was also aided by consumer inflation in China falling to a five-month low in November to 0.2%.

On the same day, Japan revised its economic growth upwards, leading to a 0.3% boost to the Nikkei 225 index.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

When creating an estate plan, there might be people you want to pass wealth to but they’re not in a position to manage their finances. Using a trust could provide a way to leave a vulnerable loved one assets and feel confident they’ll be effectively managed.

Trusts aren’t used as commonly as other ways to pass on wealth, such as gifting or leaving an inheritance directly. In fact, according to government figures, there were only around 733,000 trusts and estates registered on the Trust Registration Service as of March 2024. Yet, in some circumstances, a trust could present a valuable option.

There are many reasons why you might consider someone vulnerable or not want to pass on assets directly to them. You might consider using a trust if you want to pass on wealth to:

A child
A person at risk of financial abuse
Someone who has made poor financial decisions in the past
An adult who has a disability that affects their ability to manage finances.

A trust may allow you to improve the financial security of loved ones without them being responsible for managing assets.

A trust means someone you choose can manage assets on behalf of beneficiaries

A trust is a legal arrangement that you (the settlor) set up where assets are managed by a person or people (the trustee) for the benefit of one or multiple other people (the beneficiary).

So, while the beneficiary may benefit from the assets, it’s the trustee who will manage them. As the settlor, you can set out how and when you want the assets, and any income they generate, to be used.

For instance, if you want to pass on wealth to your grandchild, you might name their parents as trustees. You could state money may be withdrawn from the trust to cover educational costs and, once the child turns 25, they can withdraw and take control of the remaining assets.

Or, if you want to provide for a disabled adult, you might create a trust that states the trustee is to provide the beneficiary with a regular income for the rest of their life.

Crucially, as the settlor, you can set the terms of the trust so that it suits your goals.

You should note that there are several different types of trust and, once set up, it can be difficult or impossible to reverse the decisions you’ve made. So, seeking professional legal advice if you think a trust could be an option for you may be valuable.

3 important questions to consider if you’re thinking of using a trust

Before you set up a trust, it’s important to consider if it’s the right option for you. Here are three essential questions that may help you start to weigh up the pros and cons.

1. Who would act as the trustee?

Choosing someone to act as a trustee can be difficult, so you might want to consider who you’d ask.

You want a person you can trust to act in line with your wishes and in the best interest of the beneficiaries. However, you may also want to think about the skills they have – are they comfortable handling finances? Are they organised enough to manage the trust effectively?

You can choose more than one trustee, and set out whether you’d like them to make decisions together. You may also choose a professional to act as a trustee, such as a solicitor or financial planner, who would charge a fee for their services.

2. What would be the aim of the trust?

Thinking about the reasons for creating a trust is essential, as it might affect the type of trust that’s right for you and the terms you set out.

For example, a trust that’s simply holding assets until a certain date could be very different from one you want to use to preserve family wealth for future generations.

In some cases, you might find that an alternative option is better suited to your needs.

Let’s say you want to set money aside for your grandchild to access when they turn 18. A Junior ISA (JISA) allows you to save or invest up to £9,000 in 2024/25 tax-efficiently on behalf of a child. The money held in a JISA is locked away until they reach adulthood. So, it might be more appropriate and avoid the complexity a trust may add.

3. How much control would you give the trustee?

If you have a clearly defined idea about how you want the trust to operate, you might choose to set out exactly when the assets can be used. Alternatively, you may give more control to your trustee and allow them to use their judgment.

There isn’t a right or wrong answer, so focusing on what’s important to you is key.

When setting out terms or restrictions, you may want to spend some time weighing up different scenarios and the effect they might have.

For instance, if you want the trust to provide a defined income, you might want to consider:

How the trustee should adjust the income for inflation
Whether they can withdraw a lump sum in certain circumstances
If there is a point you want the beneficiaries to take control of the assets.

Rigid restrictions could have unintended consequences.

Let’s say your loved one has an opportunity to purchase a property. Withdrawing a lump sum to act as a deposit could mean their day-to-day costs fall and provide greater security when compared to renting, but restrictions might mean this isn’t possible. Or if they face a medical emergency, accessing the wealth held in a trust could enable them to receive treatment quicker or provide more options.

Contact us to talk about your estate plan

A trust is often just a small part of an effective estate plan. If you’d like to discuss how you might pass on wealth to loved ones in a way that aligns with your goals and considers your wider financial plan, please get in touch.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning, tax planning, or trusts.

Using allowances and exemptions could reduce your overall tax bill and help you get more out of your money. On 5 April 2025, the current tax year will end, and many tax-efficient allowances and exemptions will reset. So, here are five that you may want to consider using before the 2025/26 tax year starts.

1. ISA allowance

ISAs provide a popular way to tax-efficiently save and invest. Indeed, the latest government figures show in 2022/23, 12.4 million ISAs were subscribed to with around £71.6 billion being collectively added to accounts.

For the 2024/25 tax year, you can add up to £20,000 to ISAs. If you hold money in a Cash ISA, the interest you receive wouldn’t be liable for Income Tax. Similarly, if you invest through a Stocks and Shares ISA, any returns generated aren’t liable for Capital Gains Tax (CGT).

If you don’t use your ISA allowance before the tax year ends, you’ll lose it. So, it could be worthwhile reviewing your saving and investing goals now.

Before you place money into an ISA, it’s often a good idea to consider your goal. For short-term goals, a Cash ISA might be suitable for your needs. On the other hand, if you’re putting money away for a goal that’s more than five years away, you may want to consider if you could benefit from investing.

In addition, if you’re aged between 18 and 39, you could open a Lifetime ISA (LISA). In the 2024/25 tax year, you can add up to £4,000 to a LISA and receive a 25% government bonus. The £4,000 LISA allowance counts towards your overall £20,000 ISA allowance.

However, if you withdraw money from a LISA before the age of 60 for a purpose other than buying your first home, you’d pay a 25% penalty. As a result, a LISA is often most suitable for those saving to get on the property ladder.

2. Dividend Allowance

If you’re a business owner or hold shares in some companies, you might receive dividends.

You don’t pay tax on dividends that fall within your Personal Allowance, which is £12,570 in 2024/25. In addition, you can receive up to £500 in dividends before Dividend Tax is due under your Dividend Allowance. So, dividends could offer a valuable way to boost your income without increasing your tax liability.

You cannot carry forward unused Dividend Allowance.

Even if your dividends could exceed the allowance, the tax rate you pay could be lower than receiving a comparable amount that was liable for Income Tax. The rate of Dividend Tax you pay depends on your Income Tax band. In 2024/25, the rates are:

Basic rate: 8.75%
Higher rate: 33.75%
Additional rate: 39.35%

So, making dividends part of your financial plan could reduce your overall tax bill even if you’re liable for Dividend Tax.

3. Capital Gains Tax Annual Exempt Amount

Chancellor Rachel Reeves made several changes to CGT in the Autumn Budget, including increasing the main rates. Consequently, you could find your tax liability is higher than expected when you make a profit when you dispose of some assets.

Indeed, the Office for Budget Responsibility estimates CGT could raise £15.2 billion in 2024/25, which may then increase to £23.5 billion in 2028/29.

From 30 October 2024, the standard rates of CGT are:

24% if you’re a higher- or additional-rate taxpayer
18% if you’re a basic-rate taxpayer and the gains fall within the basic-rate Income Tax band.

Importantly, the Annual Exempt Amount means you can make profits of up to £3,000 in 2024/25 before CGT is due. So, if you plan to dispose of assets, timing the decision to make use of this exemption could be valuable.

You cannot carry forward the Annual Exempt Amount into the new tax year if you don’t use it.

4. Pension Annual Allowance

Pensions provide a tax-efficient way to save for your retirement as contributions benefit from tax relief and the interest or investment returns generated are tax-free.

In 2024/25, the Pension Annual Allowance is £60,000 – this is the amount you can tax-efficiently add to your pension in a single tax year, so you might also need to consider employer contributions and those made by other third parties. However, you can only claim tax relief on up to 100% of your annual earnings, or £2,880 if you’re a non-taxpayer.

There are two reasons why your Annual Allowance may be lower.

If your adjusted income is more than £260,000 and your threshold income is more than £200,000, the allowance will taper. For every £2 your income exceeds the adjusted income threshold, your Annual Allowance will fall by £1. The tapering stops at £360,000, so everyone retains an allowance of £10,000.
If you’ve already flexibly accessed your pension, the Money Purchase Annual Allowance may affect you. This reduces the amount you can tax-efficiently add to your pension to £10,000.

You can carry your Annual Allowance forward for up to three tax years. So, you have until 5 April 2025 to use any unused allowance from 2021/22.

5. Inheritance Tax annual exemption

Government figures suggest Inheritance Tax (IHT) bills are on the rise. Indeed, IHT tax receipts between April 2024 and October 2024 were £5 billion – around £500 million higher than the same period last year.

If your estate could be liable for IHT when you die, passing on wealth during your lifetime could be a valuable way to reduce a potential bill.

However, not all gifts are considered immediately outside of your estate for IHT purposes. Some may be included in your estate for up to seven years, which are known as “potentially exempt transfers”.

So, using allowances and exemptions that enable you to pass gifts to your loved ones without worrying about IHT might be an important part of your estate plan.

In 2024/25, the annual exemption means you can pass on £3,000 without worrying about IHT. You can carry forward your annual gifting exemption from the previous tax year, so you could gift up to £6,000 in a single tax year and have it fall immediately outside your estate.

There are often other allowances or ways you could reduce your estate’s potential IHT bill. Please contact us to talk about steps you may take.

Get in touch to discuss your end-of-year tax plan

If you’d like to talk about which allowances and exemptions you may want to use to reduce your tax bill in 2024/25, please get in touch. We’ll work with you to help you understand which steps could be right for your circumstances and aspirations.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The Financial Conduct Authority does not regulate tax planning, Inheritance Tax planning, or estate planning.

While you might have similar goals or circumstances to other people, a financial plan isn’t a one-size-fits-all solution. Instead, a tailored financial plan that considers your needs and goals could help you get far more out of it.

For instance, one goal might be to ensure you’re financially secure in retirement. It’s likely to be something many other people are working towards too, but that doesn’t mean your retirement goals are the same. There could be many differences, which may affect how much you need to save. For example:

What age would you like to retire?
Are you entitled to the full State Pension?
Will you be retirement planning with a partner?
What kind of retirement lifestyle are you looking forward to?
Do you have a defined benefit pension that will provide a reliable income?
Will you be financially supporting dependents or other loved ones during your retirement?

So, even if you’re working in a similar position and are hoping to retire at the same time as a colleague, the amount of income you need in retirement could be vastly different.

A tailored financial plan could help you understand your finances so you’re in a better position to make decisions that are right for you. Here are three compelling reasons why a tailored financial plan could benefit you.

A bespoke financial plan will understand your circumstances

Different circumstances and priorities could mean your financial situation is very different from another person’s, even when you have broadly the same income.

As a result, basing your financial decisions on what other people are doing, rather than tailoring them to you, could mean you make choices that aren’t right for your circumstances.

For instance, a friend may tell you that it’s too risky to invest and that saving is a better option. This might be the case for them. Perhaps they don’t have an emergency fund and are choosing to build that up first, or are saving for a short-term goal so investing would be inappropriate. However, it doesn’t mean that investing couldn’t be right for you.

Reviewing your options with your financial position in mind could help you balance potential risks and make decisions that are right for you.

Your goals will form the heart of your financial plan

While understanding your financial situation is an important part of creating an effective long-term plan, just as crucial are your goals – what do you want to use your wealth for?

Once again, everyone is on their own path, so if you made financial decisions based on the aspirations of another, it could mean you miss out on opportunities to turn your goals into a reality.

For example, someone who wants to retire early might increase their pension contributions so they’re able to achieve a sustainable income once they stop work. Putting extra money aside for retirement might seem sensible, but that may not align with your aspirations. If your focus is to give your children a helping hand when they reach adulthood, you might contribute to a Junior ISA instead, or if you dream of setting up your own business, you may want to use some of your wealth to invest in it.

An effective financial plan is about understanding how your income and assets could be used to help you live the life you want, so tailoring it to your goals is essential.

A tailored financial plan could ease your fears

It’s not just your goals that a financial plan could help you manage, but your fears too.

Finances can seem complex, especially when you’re working towards goals that might be decades away. You may need to consider areas like investment risk, the effects of inflation, or how you’d cope if your income unexpectedly stopped. So, it’s not surprising that you might feel nervous when you look at your finances and consider the future.

A financial plan could help you address the fears that are worrying you. For instance, if you’re concerned you could lose your job, a financial plan might demonstrate how you could use your other assets to create an income stream if you need to.

Alternatively, if you have a family, you might be worried about how they’d cope financially if you passed away, so you may decide that life insurance could offer you peace of mind.

In this way, a financial plan could help you manage your fears so you’re better able to focus on enjoying your life today.

Contact us to talk about your tailored financial plan

If you’d like to create a financial plan that’s tailored to your aspirations, worries, and financial circumstances, please contact us. As financial planners, we’ll work with you to build a plan that could help you reach your goals in the short and long term. Please contact us to arrange a meeting.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

When you’re making financial decisions, it can be difficult to look at your options objectively. Indeed, factors like your past experiences and emotions may influence the conclusions you draw.

Behavioural finance seeks to understand how people make financial decisions and what factors influence them. Understanding some aspects of this area of study could help you identify when you’re making choices that aren’t based on logic or facts.

Over the next few months, you can read about some of the different factors that could be affecting you. Now, read on to discover how habits and experiences could cloud your judgment.

Financial habits start forming in childhood

Your relationship with money might go back further than you think, and these early habits could still influence your decisions today.

In fact, a 2013 study published in the Telegraph suggests most children have formed financial habits by the time they’re seven. By this age, children often recognise the need to plan ahead with money and why you might delay decisions until a later day.

Money views that are reinforced while you’re young could go on to affect how you approach managing your finances in adulthood.

For example, a child who grows up in a household where money is scarce might develop a habit of frugality. While not overspending is positive, it could lead to a fear of spending that means they miss out on opportunities.

It might affect their long-term financial decisions too. A person who is worried about losing money might avoid investing or be overly cautious. So, their relationship with money could result in overlooked opportunities to grow their wealth over a long-term time frame, even when it’s appropriate for them.

Similarly, if you saw your parents making frequent impulsive purchases, you might be inclined to do the same.

It’s not just childhood where potentially harmful money habits are formed. The experiences you have as an adult could also influence your decisions.

Let’s say the first time you invest you lose some of your money. You might decide that investing isn’t right for you based on this outcome, even though the investment risk associated with new opportunities and your circumstances could be very different.

4 practical ways you could change your financial habits

The good news is that it’s possible to change financial habits and learn to recognise when past experiences are affecting your ability to weigh up options.

1. Have a clear financial vision

Being clear about what you want to achieve with your finances could help inform your decisions.

For example, if you’re focused on building a pension that will provide you with an income you can comfortably retire on, you might plan to invest your savings, so they have a chance to grow at a faster pace. Understanding why this is the right decision for you could mean you’re less likely to alter your investments, even if you’re fearful due to previous experiences.

2. Learn to spot when poor habits could affect you

Learning to recognise when you’re more likely to fall into negative habits may help you improve your financial behaviour. If you’re unsure where to start, keeping track of your financial decisions might be useful.

For instance, you may realise you’re more likely to overspend when you’re feeling low. You might then create a separate pot for your disposable income so your spending can’t affect other goals. Or if you note frequently checking the performance of your investments leaves you wanting to make adjustments, you may limit how often you review them.

3. Evaluate your decisions carefully

You’re more likely to fall into poor decision-making patterns if you rush. If you don’t have enough time to go through your options properly, using past experiences to decide provides a shortcut. However, it could mean you’re not making decisions based on all the information that’s available to you.

Where possible, give yourself more time to consider what’s right for you. While you might feel like you need to make a decision quickly, giving yourself some time could ultimately be more valuable.

Once you’ve made a decision, interrogating it can be useful as well – why have you come to that conclusion? What influenced your choice?

4. Get an outside perspective

It can sometimes be more difficult to spot your negative habits than it is in others. So, getting an outside perspective may be invaluable.

Simply having a conversation about your plans might highlight how previous experiences are influencing your decisions. Or the other person may be able to point out that you’re not acting in your best interests because you’re sticking to old habits.

As a financial planner, we could offer you an outside perspective and help you understand how a financial decision might affect both your short- and long-term finances.

Contact us to talk about your financial plan

As your financial planner, we might help you identify when habits and experiences could be leading you to make a decision that doesn’t align with your financial plan. If you’d like to review your finances or have any questions, please get in touch.

Next month, read our blog to find out how emotions may affect your financial decision-making skills.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.