The Sky Sports pundit says his former club need to make additions to the squad if they are to compete for major honours again, but urged caution over wasting millions on the wrong type of player.
United have spent £165million on the likes of Juan Mata and Marouane Fellaini in the last five transfer windows – only PSG have spent more across Europe in that period – and Neville feels much of that money was spent unwisely
And he says Van Gaal must adopt a different transfer policy to David Moyes, despite the supporters calling for more money to be spent.
Neville told Monday Night Football: “In the last five transfer windows they have spent some money. In the previous ones to that, maybe there was under-investment because Sir Alex was happy with the squad that he had.
“I like to go back and look at things. We were sat here 12 months ago and as a Manchester United fan if you’d said to me the champions of England, who’d just beaten Swansea away from home, were going to spend £140million in the next 12 months and be where they are today I’d say you’re mad.
“Of course they need to spend because they have to; they have to bring more players in. There’s no doubt about that. But it’s critical they bring the right players in.
“They’ve spent £140million in the last 12 months and they’ve got Zaha, Herrera, Shaw, Fellaini and Mata. Last season I’d argue that some of those buys were panic buys, who didn’t fit the philosophy – and they’re paying for it now.
“For that money, or a bit more money, you could have got Gareth Bale, Toni Kroos, Cesc Fabregas and Filipe Luis. For the same level of money that they’ve spent you could have got those four players into that squad.
“Put those four players in and we’d have been saying United were favourites for the league maybe and maybe the Champions League?
“They’ve got to recruit well and they’ve got a manager now who won’t panic buy, he won’t breech his philosophy and he is strong enough to sit there if he can’t get the players.
“The key is can they get the players that they want? It’s not just spending money for the sake of it.
“Last year they brought in two players who I don’t think suited what they wanted at the time – and that’s a bigger problem.”
Van Gaal admitted after the club’s opening-day defeat to Swansea that he would be looking to bring in new faces.
United adopted a 3-5-2 in that game and while Neville isn’t convinced he wants to use that system in the long term, he says the transfer policy will tell us more about the Dutchman’s approach.
“He’s the type of manager who’s confident enough to come to this country and think ‘I’m going to do it a different way’,” he added.
“I think we’ll know in the next few weeks; we’ll know in the recruitment and the type of players that are brought in.
“Danny Blind has been mentioned and Thomas Vermaelen was mentioned a couple of weeks ago. That suggests he’s looking for players that fit the system.
“I believe strongly that outside centre-backs in the back three, who have to defend the wide areas and accept the ball in full-back positions, and wing-backs, who have to be equally as good at one end of the pitch as they are at the other, are specialist positions.
“We’ll see by his recruitment. At the moment I think he’s forced to play this formation because of the players he’s got and the deficiencies he has in his back two, midfield area and the fact he hasn’t got world-class wingers.”