Worrying about money can take over your life. And when you’re feeling anxious, it’s all too easy to keep ignoring your financial concerns. But taking a bit of time to work out how to manage your money will pay off in many ways.
Not only will you get on top of your outgoings, you’ll also find ways to save money every year. Whether you want to save up to pay debts, go on holiday (COVID allowing!) or buy a car, saving money is always a positive step to take. If you’ve never tackled your finances in a structured way then this guide to money management is for you.
An easy guide to money management
Let’s start with the basics. The first thing you need to do is to consolidate your accounts. If you only have one bank account then you can skip this step, but most people have multiple accounts and multiple credit and store cards.
These days you can find all kinds of useful financial apps that allow you to see all of your accounts in one go. Or, if you prefer, buy yourself a new notebook and write it all down.
The next step – and the most important money management tip I can give you – is to work out a budget. This will help you to take control of your finances and get peace of mind. Benefits of setting a budget include:
- More likely to stay out of debt.
- More likely to avoid being surprised by unexpected charges or costs.
- Less likely to end up with a poor credit rating.
- Less likely to not be accepted for the loan or mortgage deal you want.
- Much easier to see where you can make savings.
Around half of all households in the UK say that they keep a budget. It’s easy to get started. Work out how much you are spending on utilities and other household bills, all living costs including food and clothes and sundries, financial products such as insurance, travel by car and public transport, money spent on family, friends and charities and holidays, eating out and leisure costs.
Remember to check through all of your accounts and check whether you have any sneaky standing orders or direct debits going out that you had forgotten about. There are budget planners easily available online if you prefer to do it by computer, and there are also plenty of apps available too.
Resetting your budget
When you know for sure how much money is leaving your account or accounts every month, you can start to make changes. The most obvious point to make is that if you are spending more than whatever is coming in, then you must make changes as quickly as possible.
Look at your outgoings and work out where you can cut back. It could be something as simple as cancelling that gym membership you don’t use or deciding to take your own lunch into work rather than eat out every day. Small changes like these can really add up.
A spending diary can be useful for some people – simply record everything you find yourself buying every day for a month. This will give you a very clear picture of where you can save money and show clearly the kinds of payments that are easily forgotten.
Also check your credit and debit card statements to keep track on small and large payments. It’s crucial to understand where it’s all going.
Get the family involved
Remember that you’re looking to revamp the household budget. So if you live alone then you have control over all finances. However, if you live with family members, it’s worth getting them involved in the reorganisation of the household budget too. By sitting down and making a family or household budget plan, it becomes much easier to stick to.
The first place to start looking to make cuts is in the household bills and utilities. This usually makes up a significant proportion of money going out. Systematically check through every regular utility and bill that you pay, including:
- Council tax bill – is it correct and if you’re single are you taking advantage of the single person’s discount?
- Home phone and broadband – shop around for a better deal or use a comparison website. Swap to the cheapest deal you can find.
- Electricity and gas – swapping provider can often save you significant amounts of money. Research other providers and find a better deal.
- Timing of bills – are you paying on time or are you incurring extra charges for late payments? Then you can change the timing of direct debits and standing orders to avoid the charges.
- Credit cards – pay off more than the minimum amount every month if you can. Alternatively consider consolidating all cards onto a new one with 0% interest for a fixed term and make sure you pay it off.
- Mortgage – shop around for new deals or talk to your provider about your current deal to see whether you can make any savings.
Take a long-term flexible approach
To truly take advantage of the benefits of budgeting and money management, you need to keep on top of it. It’s not enough to budget once and leave everything to run on. I’d advise to review your budget every two months at a minimum. Life is unpredictable – particularly at the moment – and this should be reflected in your spending plan. For example, if you score a pay rise, you may be able to pay off debts and save interest. This will help you save more. Or you may find that utilities have increased and you need to legislate for that.
Set a goal for saving money to keep momentum going
Goal setting is a great incentive to help the whole household stick to a budget. If you have a clear savings goal, the chances are you’ll feel much more motivated about the changes you’re making.
Always put aside emergency savings for the unexpected, such as a leaking roof or malfunctioning boiler. A good goal for emergency funds is three months’ worth of household outgoings. Make this your target to aim for.
The easiest way to start saving is to set up a separate payment account and a regular monthly payment from your income into it. As your savings begin to pile up, think about the things you can do with it – top up your pension, invest in assets or buy a car without a loan.