Taking the first steps in managing your money in a better way can really benefit you in the long term. There are a few simple and easy steps that can make it easier for you to save thousands of pounds every year and always stay on top of your bills. Any additional disposable income can go towards repaying debts, saving for a rainy day, or even towards your next car or property. We have created a helpful guide on how to manage your finances, this will help your money go further than before.
Set up a budget
The first step can be challenging but requires very little effort, it’s to make the conscious decision to take control of your finances. Creating a budget is a great way to get an overview of your monthly income and expenditure. There are a number of benefits to having a budget in place, here are a few examples:
• Less likely to be affected by an unexpected cost
• Able to identify an area where you can make a saving
• Less likely to find yourself taking on debt
• More likely to have a good credit score
• More likely to be accepted for a loan or mortgage from different lenders
• Able to save for a big purchase such as a new car or holiday
What you will need
You will need to calculate your monthly income and expenditure. Things like mortgage or rent, council tax, household bills, travel costs, food and housekeeping, and clothing etc will all come under this. Try to gather as much information as possible at this stage. Payslips, bank statements and online access to your bank account will help you with this. We recommend creating a spreadsheet when collecting this data, alternatively you can write it down on paper. Most banks will have online tools to help you with this, there are also a number of mobile apps available to smartphone users that can simplify the process.
More than 50% of UK households have a regular budget. This can give them peace of mind knowing how much they are actually spending, many say it helps them feel better about their life in general.
Budget on the right track
If your weekly or monthly outgoings are higher than your income, you must find areas in which you can reduce your costs. This can even be as simple as cancelling a gym membership that is not in use, or taking lunch from home to work. Keep an eye out on what you spend daily on if paying by cash, check your bank statements if you use a credit or debit card to pay for things. Try to involve your family members when creating a budget, working together to plan how much spending money is available will help make a big difference.
Reduce and review
Household bills take up a large proportion of our income for most of us. You can save hundreds of pounds by choosing a better mortgage rate at the time of re-mortgaging, switching to a cheaper energy supplier and finding more competitive home and car insurance. It is a good idea to review your budget regularly, as it can be difficult to predict what may happen in the future. Household bills can increase and your income may even change, if your income is reduced, consider what things you can cut back on, if it increases, it’s a good idea to take this as an opportunity to save more.
Paying off debts
If you have any debts with loans or credit cards, it makes financial sense to pay off the debt with the highest interest rate first. Here’s a checklist of some different debts:
• Rent arrears
• Repossessed cars or properties
• Personal loans
• Pay day loans
• Credit cards and store cards
• Overdraft (fees and charges may apply)
• Utility bills (gas, electricity, water)
• Council Tax arrears
• Debt collection agencies
Try not to break any agreement terms, if you are prioritising higher interest rate debts first, make sure you at least pay the minimum amount on any other debts. If you have missed any repayments and are finding things difficult, it’s a good idea to get expert advice from a debt charity as soon as possible.
It is easier to save money if you set a goal for yourself. Sometimes it can be challenging and difficult staying motivated, but if you know what you want to achieve and how long it will take to get there, this can help you stay on the right track. One of the most effective methods to saving money is by paying into a savings account regularly. Some financial experts recommend having at least 3 to 6 months of expenses as savings in the event of unforeseen circumstances e.g. losing a job or unable to work due to health reasons. It’s not a problem if you are unable to save money straight away, you can still get to that point in the future by having it as a set target.
Once you have enough in your emergency fund, here’s a few of the most popular saving goals you may wish to consider:
• Buying a car from a motor trader without a loan
• Going on a holiday
• Paying down a deposit for your first home
• Having additional money for maternity or paternity leave
As your savings grow over time, you can even put more money towards a pension for more comfort in later life. You may even wish to create an investment plan depending on what goals you wish to achieve and within what timeframe you wish to accomplish them.
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