Managing your money

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 or charges for late payments first. For example, credit or store cards usually charge more interest than personal loans from banks.

While Buy Now Pay Later agreements don’t charge interest, beware of any fees for late payments. It’s important to make sure you don’t break the terms of your agreements, or you might be charged a penalty or extra interest.

Remember, if you’re focusing on paying down one debt you must cover at least the minimum payment on any credit cards and your monthly required payments on loan agreements.

If you’ve already missed credit card or loan payments, or if you’re behind with other debts, it’s important to get help.

Once you’ve identified any debts that you need to pay, the next step to taking control of your finances is to set 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 helps you keep track of your money, so you to when you can spend and how to avoid going into the red.

To get started on your budget, you’ll need to work out how much you spend on: 

• household bills
• living costs
• financial products, like insurance, bank charges or interest
• family and friends, this could include gifts and travel 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. 

If you’re spending more than you have coming in, it’s important to review your outgoings. There might be ways you can make savings.

You could 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 credit or debit card, look at last month’s statement and work out where your money is going.

There isn’t a single way to create a budget. Here are some ideas:

• Try our free and easy-to-use Budget Planner. You can save your information and come back to it anytime you like.
• Set up a budget using a spreadsheet or just write it all down on paper.
• There are some great free budgeting apps available if you prefer to manage things online.
• Find out if your bank or building society has an online budgeting tool that takes information directly from your transactions. 

Don’t forget that a pension is an investment to give you an income in the future. If you pay less into your pot now, you’ll have less money when you stop working.

Try to balance your needs today with your future needs, so you don’t regret reducing your pension saving now. Remember:

• If you’re in a workplace pension, your employer will usually contribute too – that’s cash you don’t want to miss out on if possible.
• You’ll usually benefit from the government every time you pay money in, so the less you pay in, the less top-up you’ll get.
• Your pension is one of the most tax efficient ways to save for your retirement. If, like most people, you a basic-rate taxpayer, you’ll automatically get 20% relief from the government on your pension contributions.

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

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

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

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

Once you’ve got your emergency savings fund in place, think about future-proofing your income to ensure you’re protected if the worst were to happen.

There are different types of insurance cover you can take out to protect your income, health, mortgage, loan payments or people who depend on you.

The main thing is to decide what protection you need and weigh up the risks and benefits of protection insurance against the cost and coverage. It’s up to you to decide what’s important and how you’ll protect it.

The first step is to set yourself a goal. What or who do you need to protect most? This could be providing for your children, covering your mortgage payments, or simply your earnings.

Next, consider what protection you already have. For example, if you’re employed you might have a benefits package that includes a form of life insurance, or income protection for a set period should you find yourself not able to work due to illness or injury.

Finally, work out what protection insurance you want, based on the cover you already have and who or what you want to protect.

To find out more, see our section on Insurance, which takes you through the different types of cover and how to choose the right policy for you.

It might be hard to think about setting aside any money as savings. The best way to save money is to pay some money into a savings account every month. Possible savings goals might be:

• saving a deposit to buy a home
• buying a car without taking out a loan – find out more in our guide Saving money for a car
• taking a holiday without having to worry about the bills when you get back – see our guide Saving money for a holiday
• saving more towards your retirement – find out more in our guide Why save into a pension?
• having some extra money to draw on while you’re on maternity,  paternity or adoption leave.

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

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