The beginner’s guide to money management
It’s easy to just get by with your money management, finger in the air, hoping for the best type of style 🤷♂️. But if you really want to get the most from your money, there are things you can be doing to make your it work harder. Our beginner’s guide to money management covers the stuff you really need to know.
1. Understand your finances
The first step is to get an overview of your finances so you know the state of play. Doing an overview will take little effort, but it’s a great way to get a great snapshot of the money coming in and going out.
Once you have an overview, the next step is setting a budget. Setting up a budget means you are less likely to end up in debt and less likely to get caught out by unexpected costs. It will also help you make substantial savings gains and will mean you are more likely to have a good credit score 💳.
3. How to set a budget
To get started on your budget, you’ll need to work out how much expenditure you have on a monthly basis:
- Household bills
- Living costs
- Travel costs
The first step in creating a budget is to jot down all the information you can. Pen and paper are fine or if you want to do it online you could try the Money Advice Service’s Budget Planner or there’s always trusty excel👩💻. There are also some great free budgeting apps which are designed specifically for managing your budget.
4. Getting on the straight and narrow
If you’re just starting out in your budgeting journey there may be few issues to iron out first. If you’re spending more than you have coming in or you’re not quite hitting your savings targets, you might need to work out where you can cut back. This could be as easy as making your lunch at home or cancelling subscriptions you don’t use. A spending diary is a great way to keep track of what you spend, as it’s easy to not look at your transactions day-to-day.
5. Save money on your household bills
For many of us, household bills make up a large chunk of our spending. Shopping around for better deals can be time-consuming but is very valuable when trying to cut back on spending. When it comes to gas and electricity, for example, there are plenty of suppliers fighting the good fight for their customers. Companies like Bulb offer affordable, renewable energy often at much cheaper prices 🌱. Money Advice Service state that consumers can knock around £300 off the average yearly gas and electricity bill by switching energy tariff.
Are you paying too much council tax?
Did you know up to 400,000 homes are in the wrong Council Tax band? Make sure you’re not being overcharged. It doesn’t take more than 10 minutes for you to find out and you could end up saving thousands of pounds.
Whether you drive, take the train or get the tube, travel costs probably make up a significant amount of your monthly spend. However, there are plenty of ways to cut travel costs including comparing your care insurance, booking advance train tickets, and where possible cycling or even walking to work. Saving money and the planet 🌎.
Deal with your debt
Every unpaid debt accumulates interest, so paying off existing debt will help you move that interest directly into savings. Start by paying off your highest interest rate first and make all your minimum payments on all your loans except the highest interest rate loan. In the first month, use all your disposable income to the loan with the highest interest rate, once this is paid off move onto the next highest interest rate loan.
If you have several smaller debts you could make a list of your outstanding balances from lowest to highest. By using this method you build momentum as you increase your payment amount and eliminate debts one by one.
6. Set up that all-important emergency fund
Setting up a rainy day fund ☔ will stop you from falling into debt again. It’s recommended that you have a 3-month financial cushion, this means enough to cover all your expenditure for 3 months. If you spend £1,800 on rent, bills, transport and food a month, your emergency fund will need £5,400. However, two in five of the working population have less than £100 in savings, putting them at risk if an unexpected bill lands. For more information on emergency funds, check out our blog on everything you need to know about emergency funds.