Beginner’s guide to managing your money

Taking the time to manage your money better can really pay off. It can help you stay on top of your bills and save £1,000s each year. You can use these extra savings to pay off any debts you might have, put them towards your pension, or spend them on your next car or holiday. Read on for money management tips, including how to set up a budget, sticking to it and how to save.

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How to set up a budget

The first step to taking control of your finances is doing a budget. It will take a little effort, but it’s a great way to get a quick snapshot of the money you have coming in and going out.

Over half of UK households keep a regular budget. Most of those who do say it gives them peace of mind about how much they are spending, and makes them feel better about life in general.

Setting up a budget means you’re:

  • less likely to end up in debt
  • less likely to get caught out by unexpected costs
  • more likely to have a good credit rating
  • more likely to be accepted for a mortgage or loan
  • able to spot areas where you can make savings
  • in a great position to save up for a holiday, a new car, or another treat

What you need

To get started on your budget, you’ll need to work out how much you spend on:

Learn how to manage your money better with our Budget planner.

  • household bills
  • living costs
  • financial products (insurance…)
  • family and friends (presents…)
  • travel (car costs, public transport…)
  • leisure (holidays, sport, restaurants…)

A great way to work out your budget is with our free and easy to use Budget planner. Just grab as much information as you can about your income and spending (bills, bank statements…) and get started.

You can save your information and come back to it anytime you like.

Alternatively you can set a budget up using a spreadsheet or just write it all down on a piece of paper. There are also some great free budgeting apps available and your bank or building society may have an online budgeting tool which takes information directly from your transactions.

Getting your budget back on track

Do you have the maths skills to get the most out of your money? Visit the National Numeracy Challenge for help.

If you’re spending more than you have coming in, you need to work out where you can cut back.

This could be as easy as making your lunch at home, or cancelling a gym membership you don’t use.

You could also keep a spending diary and keep a note of everything you buy in a month. Or, if you do most of your spending with a bank card, have a look at last month’s bank statement and work out where your money is going.

Use our Quick cash finder to see how small changes can save big money.
You can find more information in How to budget on a low income.

Get everyone involved

Get everyone in your family involved with keeping to a budget. Sit down together and make a plan that you can all stick to. Work out how much spending money is available and agree between you what you’ll each have.

Cutting your household bills and your mortgage

For many of us, household bills make up a large chunk of our spending. The good news is that it’s easy to save hundreds of pounds off your bills by following our tips.

You can also save hundreds and even thousands of pounds by shopping around for a new mortgage, or reviewing the one you already have.

Be flexible

Life is unpredictable so try and review your budget and your spending if there’s a change, or at least every couple of months.

You may get a pay rise, which means you can save more, or you may find your household bills increase.

Our section on Cutting costs has lots of helpful information.

Paying off loans and credit cards

If you have loans or owe money on credit cards it usually makes sense to pay off the debt that charges the highest rate of interest first.

Use our Money Health Check to get a clear picture of your finances and get personalised advice on how to improve your situation.

Examples include:

It is important to make sure you don’t break the terms of any of your agreements. So even if you’re focusing on paying down another debt, you must pay at least the minimum on any credit cards and your monthly required payments on any loan agreements.

Getting help if debt problems become serious

If you’ve already missed credit card or loan payments or if you’re behind with so-called ‘priority debts’ such as your rent or mortgage, energy bills, Council Tax, child support or court fines, take advice from a free debt advice charity straight away.

Set a savings goal

Some people find it hard to get motivated about saving, but it’s often much easier if you set a goal.

Your first step is to have some emergency savings – money to fall back on if you have an emergency, such as a boiler breakdown or if you can’t work for a while.

Try to get three months’ worth of expenses in an easy or instant access account. Don’t worry if you can’t save this straight away, but keep it as a target to aim for.

The best way to save money is to pay some money into a savings account every month.

Once you’ve set aside your emergency fund, possible savings goals to consider might include:

  • taking a holiday without having to worry about the bills when you get back
  • having some extra money to draw on while you’re on maternity or paternity leave
  • buying a car without taking out a loan
Read more about How to set a savings goal.
Use our Savings calculator to see how your savings will grow.

Investing your savings

As your savings start to grow, you can:

  • Put more money into your pension. It’s a great way to make sure you’ll be able to live more comfortably later in life.
  • Make an investment plan based on your goals and timeframes.
Learn more in Why save into a pension.

If you’re overwhelmed by your debts

Often, the hardest part of paying off your debts is taking the first step.

It’s easy to feel overwhelmed if you know you’re struggling financially. It’s tempting to bury your head in the sand and ignore your bank statements and demands for payment, but it won’t make the problem any better and could make it worse.

So, take a deep breath and open any letters you’ve been ignoring.

Once you’ve done this, at least you’ll know what you have to deal with and you can work out what you need to do next.