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.
Setting up a budget means you’re:
DID YOU KNOW?
Over half of UK households keep a regular budget. Most say it gives them peace of mind about how much they are spending, and makes them feel better about life in general.
- 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
Money fitness tip
Remember to include one-off expenses such as your car tax, birthday and Christmas presents in your budget.
What you need
To get started on your budget, you'll need to work out how much you spend on:
- 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 our 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.
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Getting your budget back on track
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.
Money fitness tip
Remember to cancel Direct Debits for subscriptions or policies you're not using any more.
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. See Should you manage money jointly or separately?
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 - see Savvy spending
You can also save hundreds and even thousands of pounds by shopping around for a new mortgage, or reviewing the one you already have - see our Getting a mortgage section.
Money fitness tip
If you have more than one credit card, see if you can move the balance from the expensive one(s) to the cheaper one - see MoneySavingExpert's Credit card shuffle video for how to do it.
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.
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.
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.
Money fitness tip
If you have more than one credit card, find out which card has the highest APR and focus on paying that card off first. Go to our Credit card calculator to work out how fast you can reduce your debt and how much interest you can save.
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 debt advice charity straight away - see Where to go to get free debt advice.
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 and 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, or
- Buying a car without taking out a loan
See Goal setting for more information and try our GoalSaver to see how your savings will grow.
Investing your savings
As your savings start to grow, you can:
- Make an investment plan based on your goals and timeframes
- Pay money into a pension scheme for your spouse if they are not working - see Pensions.
Find out more in the Save and invest section.
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. Find out Where to get help if you're in debt.
Get your allowances and discounts
As a member of the Armed Forces there are a number of allowances you can get to help your income go further.
And make sure you check out the discounts available to you and your family, from restaurants to railcards.