Managing your money: a beginner's guide

Managing your money means understanding how much you have coming in and going out, making sure your essential costs are covered, dealing with any debts, and planning what to do with any money left over. 

Good money management can help you stay on top of bills, prepare for unexpected costs, and work towards your longer-term goals.

If you're not sure where to begin, it can help to work through things in this order: 

1. Understand what money you have coming in and going out. 
2. Make sure your essential bills and priority payments are covered. 
3. Deal with any problem or expensive debt. 
4. Build an emergency savings buffer. 
5. Protect your income and household. 
6. Start saving towards your goals. 
7. Plan for your longer-term goals and retirement. 

The rest of this guide takes you through each of these steps.

Before you can create a budget, it helps to see clearly where your money goes each month. 

You could keep a spending diary and note everything you buy over the next four weeks. Or, if you mostly spend on a credit or debit card, look back at last month's statement to see where your money went. There are lots of ways to do this: 

• Try our free and easy-to-use Budget planner. You can save your information and come back to it anytime. 
• Set up a budget using a spreadsheet or write it down on paper. 
• Try one of the free budgeting apps available if you'd prefer to manage things online. 
• Check whether your bank or building society has an online budgeting tool that shows spending automatically.

Once you can see where your money is going, the next step is to set a budget. It takes a little effort, but it gives you a clear picture of what's coming in and going out, so you know what you can spend and how to avoid going into the red. 

Add up all the money you have coming in each month, including your salary, benefits, or any other regular income. 

Work out how much you spend on: 

• household bills 
• living costs 
• financial products like insurance, bank charges or interest. 

Look at your other spending, such as: 

• family and friends, including gifts and getting to events like weddings 
• travel, such as public transport, or car costs like fuel and MOT tests 
• leisure, including holidays, gym fees, meals out or other entertainment. 

Subtract your spending from your income to see whether you have money left over, or whether you're spending more than you earn.

If your outgoings are higher than your income, it's important to review your spending to find ways to cut back. Start with non-essential costs before looking at reducing essential spending.

Before you deal with debt or start saving, it's worth checking whether you could be bringing in more money each month. 

If you’re on a low income, you might be entitled to benefits you don’t currently claim. Take a few minutes to check what you could get with our Benefits calculator.

If you have loans or owe money on credit cards, it usually makes sense to pay off the debt with the highest interest rate, or the one charging fees for late payments, first. Credit or store cards, for example, usually charge more interest than personal loans from banks. 

Buy Now Pay Later agreements don’t charge interest but watch out for late payment fees. Make sure you don’t break the terms of any agreement, or you could be charged a penalty or extra interest. 

If you're focusing on paying down one debt, you still need to cover at least the minimum payment on any credit cards, and your monthly required payments on loan agreements. 

Find out more about dealing with bills and payments using our Bill prioritiser. 

Having some emergency savings is a great way to prepare for unexpected expenses, such as a broken washing machine or boiler. 

If possible, aim to have at least 3 months' essential outgoings available in an instant access savings account. 

Find out more in our guide Emergency savings – how much is enough? 

If you have money left over after covering your essentials, it can be hard to know what to sort out first. The right choice depends on your circumstances, but it generally helps to think about them in this order: 

1. Problem debt: if you have expensive or problem debt, such as high-interest credit cards or missed payments, dealing with this usually comes first. See Step 4: Deal with debts and missed payments. 
2. Emergency savings: if you don't yet have an emergency fund, building one up gives you a safety net for unexpected costs. See Step 5: Build an emergency fund. 
3. Pension contributions: paying a little more into your pension, especially if your employer matches contributions, can be a tax-efficient way to build your future income. See Step 6: Plan and protect your financial future. 
4. Savings and investments: once the above are in place, you might want to start saving towards specific goals, or consider investing for the longer term. See Start saving towards your goals. 
5. Protection: it’s also worth thinking about insurance to protect your income, health or family. See Step 7: Plan and protect your financial future. 

The best way to save is to pay a set amount into a savings account every month. Possible savings goals might include: 

• saving a deposit to buy a home 
• working out the best way to get a car, see our guide How to buy a car 
• taking a holiday without worrying about bills when you get back, see our guide Saving money for a holiday
• saving more towards your retirement 
• having extra money to draw on while you're on maternity, paternity or adoption leave. 

As your savings grow, you might want to think about investing some of your money for longer-term goals, which could give a bigger return if you're prepared to lock it away for a few years. 

For more tips and guidance, see our section on Savings. 

A pension is an investment that gives you an income once you stop working. If you're in a workplace pension, your employer will usually contribute too, and you'll normally get tax relief from the government on what you pay in. Paying in less now means less money later, so it's worth balancing your current needs against your future ones. 

Find out more about why it's important to save into a pension. 

Insurance can help protect your income, health, mortgage or loan payments, and the people who depend on you. Start by thinking about what or who you most need to protect, check what cover you already have (for example, through a workplace benefits package), then decide what additional protection you need. 

See our section on Insurance to find out more about the different types of cover and how to choose the right policy for you.

Writing a will can help ensure your loved ones are taken care of after you die, and that your assets are distributed as you choose.  

See our guide How do I write a will and how much does it cost?  

A power of attorney lets someone you trust make decisions for you if you're ever unable to, for example because of illness or an accident.  

Find out how to set one up in our guide How to make and register a power of attorney.