Although the UK inflation rate is falling, the cost of living remains high and many of us are struggling to keep spending and saving under control. Follow this guide to better organise your finances so you’re in the best possible place when the economy recovers.
Creating a comprehensive budget
Ensure a firm foundation for managing your money by creating a comprehensive budget that’s easy to use and can be adapted to reflect changes. This gives you a clear picture of what you’re earning, how much is required for essential spending and the remaining funds each month. Having it laid out in black and white makes it easier to track trends and identify areas where your money management could be improved.
Remember to regularly check and update your budget so it remains a useful tool. Variables like salary, tax payments and your pension contribution can change fairly frequently, as can the cost of your essential expenditure.
Building an emergency fund
Prepare for all eventualities by building an emergency fund. This money can be used to cover unexpected bills like car and house repairs so that they don’t disrupt your standard monthly payments and spending.
Aim to save an amount that could cover three to six months of essential costs including rent or your mortgage, utility bills, groceries and transport.
Planning for the future
Once your spending is under control and you’ve got a pot for emergencies, you can start planning for the future and putting money into savings.
Using a bank account is the most straightforward and safe way to save. These are secure, and types designed for saving often having interest rates that at least equal inflation. ISAs – Individual Savings Accounts – let you save £20,000 a year tax-free while fixed-rate accounts offer a higher interest rate on untouched funds for a fixed term, usually two years.
If you want to try to grow your savings faster than inflation, you could consider investing your money in financial assets such as stocks and shares. When these gain value, so will your investment, and you can sell your stocks or shares for a profit. Online platforms such as Tradu give you real-time visibility of the markets and the ability to manage your portfolio in one place, so it’s easier than ever to invest your funds.
Unlike banking, there is a risk of making a loss as your money will be in a moving market, but with research and practice and utilising strategies such as stop-loss orders, you have a good chance of profiting. Make sure you test your skills without investing real funds at first and go for low-risk options as the foundation of your portfolio.
Managing debt effectively
Finally, focus on managing debt effectively to prevent this from damaging your financial health.
Debt from short-term borrowing options such as credit card charges should be paid off as soon as possible due to the high interest rate on what you owe and to protect your credit score. In contrast, you can prioritise savings over long-term loan agreements like mortgages as these are sustainable.
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