Family finances:
Managing your money
To take control of your money you need to be honest about what you spend and how much you owe (for example on bank loans and overdrafts or credit and store cards).
Firstly, write down your total regular, monthly income.
Then calculate your monthly expenditure. You may find it easier at first to write down your annual costs and divide by 12, as lots of things - car insurance, TV licence, house insurance, holiday - may be paid only once a year). We have a Family Budget Calculator which can help you identify and quantify your expenses. Click here to download.
You should earn more than you spend. If you don’t - you have a problem. You may be able to reduce your outgoings by eliminating unnecessary expenses or consolidating credit card and store card debts into a loan with a much lower interest rate. Do not however make the mistake of consolidating credit card and store card debts into a loan then continuing to run up further debts on the cards. If you have a problem with debt, contact your local Citizen’s Advice Bureau for free, confidential advice. They will be able to put you in touch with a local debt counselling service to help you.
If you earn more than you spend you need to think about what sort of savings you need but ideally only after clearing your short term, expensive debt like credit and store cards.
Write down a list of all you owe on credit cards, store cards and loans. Sort out a payment plan to clear the credit and store cards and set up standing orders to make sure you stick to it. If the amounts owed are very high either cut up your card(s) or put them in drawer for a few months until you get the balance down.
You can then decide what to do with your surplus cash each month:
Short term savings
- Easy access but generally lower interest rates
- Build up and keep the equivalent of 1 to 2 months' income on one side for emergencies
- Saving over a year, say, for a holiday or the annual house and car insurance.
Medium term savings
- Better interest rates in exchange for more restricted access, for example 3 months' notice
- Saving for a large purchase such as a conservatory or car.
Long term savings
- Benefit from higher rates of return in exchange for long term commitment and/or higher risk
- Investments in the stock market such as shares and unit trusts
- Saving for school and university fees
- Saving for your retirement.
We recommend taking professional advice in respect of all long term savings, particularly for retirement, and perhaps for medium term savings where the amounts involved are large. Although specific types of investment have minimum limits, which may vary between the various providers, there is no minimum limit when it comes to investment advice in general. Obviously the smaller the amounts involved, the more limited you are likely to be in terms of what you can achieve but it is always worth talking to a professional adviser as you may be surprised at what can be achieved.
What can you do yourself to improve your financial position?
There are many steps you can take to improve your financial position:- Review your bank statements regularly and identify unnecessary expenses (like that gym membership for £55 every month that you no longer use, or subscribing for all 873 satellite channels when you watch only Sky One) and cancel them as soon as possible.
- Stop using your credit card for a week or a month every so often and be amazed at how much you don’t spend.
- Set yourself limits for personal spending and stick to it. This can be particularly important if you are prone to impulse buying or are addicted to eBay.
- If you are self employed your accountant should be ensuring your income is maximised in a tax efficient manner. (This can be the most significant difference between having an accountant to manage your affairs and just going to a “tax shop” to get your tax return completed.)
- If you are employed, check your PAYE tax code to ensure it is correct and make the most of benefits, such as health insurance, offered by your employer. The payslip calculator can help you check the tax deducted from your pay.
- Arrange to pay regular bills by standing order or direct debit. Sometimes you get a discount for this method of payment particularly from utility companies.
- Be proactive and look for the best deals for savings, credit cards, loans, mortgages and insurance.
- Consider selling what you don’t need at car boot sales, on eBay, or on Amazon if it’s books, CDs and videos. However take care that it doesn’t evolve into a business (or be prepared to declare it as such to HM Revenue & Customs). The danger sign is when you are buying things cheaply to sell them for a profit rather than clearing out your cupboards – you are then in business.
- Ensure your home is correctly insulated and consider having a water meter installed to reduce household running costs.
- Review your telephone bills and look for alternative providers or lower cost call plans to suit your call patterns. Consider locking out premium rate numbers if necessary.
- Be careful if you have a combined account for your mortgage, day to day living and savings. It can make it harder to keep track of your money and you may find you are spending more than you think.
As the saying goes “look after the pennies and the pounds will look after themselves”…
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Where next?
Within Family finances
- Overview of the UK personal tax system
- Managing your paperwork
- Self assessment and tax returns
- Caring for elderly relatives
General…
