Whether you’re saving for a mortgage deposit or just a new TV, taking control of your finances can be daunting, especially if you’re not money-minded. But following a few simple steps can ensure you don’t stray beyond your means.
To begin with, you need to create a snapshot of how much money you’re spending each month versus how much is coming in: this budget calculator is a good place to start. Once you’ve worked out your salary after tax, plus any allowances or benefits, you need to rifle through your bank statements to find out exactly where your money goes.
Regular payments such as your mortgage/rent, council tax, insurance and gas, electricity and phone bills are simple to calculate, but things like food shopping and personal spending can be harder to work out. Comb through several bank statements and tot up how much you’ve spent on things like going out, entertainment and food each month. Break it down into as many categories as possible, as this will make it easier to see where you can save money. For example, how much money do you spend on takeaway coffees each month? Or films?
Your budget has to allow for irregular purchases, such as holidays. Work out how much you would spend on going away each year, then divide it by 12 to get a monthly figure. Do the same for things like Christmas and birthday presents, bike/car repairs and clothes. You might only do a big clothes shop once or twice a year, but you need to work out how much you should put aside each month.
The moment of truth. If the amount coming in is greater than the amount going out, think about setting up a monthly standing order for the excess to a savings account to earn more interest on your cash. But if your spending exceeds your income, it’s time to see where cuts can be made.
These can be simple things like making your own lunch rather than eating out, or adjusting your TV subscription package. Tweak the figures to reflect the cuts you want to make, then run the calculation again, and keep going until you come out in the black. The Money Advice Service offers tips on how to cut costs.
You might already have a savings account for holidays, but consider setting up separate savings accounts for all of your big one-off spends, like car repairs, clothing and presents. Work out your yearly spending on each of them, then divide each by 12 and set up a monthly standing order to the corresponding account. That way when something like Christmas comes along, you’ll see exactly how much you have to spend and won’t be caught short.
When calculating monthly payments, don’t forget to include interest on things like credit cards, overdrafts and loans. The amount you’re paying each month to service your debt might surprise you. Check the interest rates you’re paying and see whether consolidating your debt might save you money. A personalised financial review might provide a few ideas on how to make your money work harder for you.
It's time to stop worrying about money and take control of your finances:
The Money Advice Service set up by the government offers free and impartial advice on managing your finances.
The Citizens Advice Bureau can provide help with managing debt and sticking to a budget.