STARTING out on the journey to improve your finances can feel daunting – it’s hard to know where to start.
But small steps can have a huge impact, we spoke to top finance experts to pull together an 11 step guide to being financially better off within six months – and you could save THOUSANDS of pounds.
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Here’s how to get started:
Set a budget
To be better off, you need to live within your means. Understand your income and outgoings, and then create rules for how to spend your money.
Graham Wells, from Gro Wiser financial coaching, says: “Trying to fix multiple aspects of your finances in one go is unlikely to work, so you need to prioritise.
“Be realistic and focus on small steps that will compound over time.”
The 50/30/20 rule is one way to divide up your spending, where 50% of your money goes on essentials like the rent or mortgage and food shop each month, 30% on nice-to-haves like meals out and new clothes, and 20% into savings.
You may need to tweak the percentages depending on your income and outgoings, or if you want to save more.
Six month savvy: Someone earning £1,500 a month after tax could save £1,800 in six months by following this rule and putting 20% into savings monthly.
Automate it
Set up direct debits so that your money is automatically funnelled to where it needs to be.
For example, you might set up one to pay off credit card debt and another to transfer cash into a savings account.
Automating the process means you don’t need to remember to do it manually and removes the temptation to spend on other things instead.
“Set up the direct debits for payday – if you wait until the end of the month to see what’s left, you can be almost certain there will be nothing,” says Sarah Coles from the wealth manager Hargreaves Lansdown.
Six month savvy: Use the round-ups tool on your banking app. This rounds your spending to the nearest pound and puts the difference into savings.
For example, if you spent £1.87, it would be rounded to £2, with 13p going into savings. These small amounts really add up over time.
Check your bank statement
It’s easy to lose track, so check for any subscriptions, membership or services that you might have forgotten about and no longer need.
Do you use all of those TV streaming services? When was the last time you went to the gym?
Check you are getting the best deal on bills like your mobile phone, broadband and car insurance. If you are out of the initial deal period, you are probably overpaying.
Six month savvy: Research by Citizen’s Advice found that a quarter of UK adults have accidentally taken out a subscription, often because they didn’t realise a trial period had ended or that the deal had automatically renewed.
According to Money Wellness, we each waste about £170 a year on unused subscriptions.
Get free money
Use cashback websites to earn money on those essentials that you do need to buy.
Sites like QuidCo and Topcashback offer money back on purchases such as insurance, holidays and clothing: just set up an account, click through to the retailer from the cashback website, and then buy as usual.
Cashback is never guaranteed so only use this for things you need to purchase anyway.
Switching bank accounts is another way to bag free cash; banks often pay bonuses to new customers. Be sure to check the requirements to make sure you qualify.
Six month savvy: Currently on QuidCo you could get 7.5% cashback at Expedia, while at Topcashback you could get 15% cashback at Currys.
Topcashback says its users earn on average £345 a year.
Banks including Santander, First Direct and Lloyds are currently offering switching bonuses of up to £180.
Pay down debt
Focus on clearing expensive debt before you worry about savings. The interest rates on credit cards and loans are higher than you can earn on savings, so will undo your efforts.
Check if you are eligible for a 0% credit card, where you can clear your debt without racking up extra interest charges.
Ideally you should have a direct debit to clear your credit card in full each month, but if you can’t afford this try to pay off more than the minimum amount.
Six month savvy: If you had £1,000 on a credit card charging 24% and paid £50 a month, it would take two years and two months to clear and you’d pay £252 in interest.
If you paid £200 a month, you would clear it in six months and pay £58 in interest.
‘My Lifetime Isa has changed my finances – I could get £15k free cash’
When Antony Jones first heard about the Lifetime Isa, he thought it sounded too good to be true.
But since opening an account, he has pocketed £4,000 in free cash.
Lifetime Isas can be opened by those aged 18-40, and you can save up to £4,000 a year in them until you are 50, which you can put into cash or invest.
The best thing is that you get a 25% bonus from the government – so if you save £4,000 in a year, you get £1,000 on top.
If you saved the maximum every year from age 18 to 50, you’d get £32,000 free cash in total. And because the bonus gets paid a month after you put money into the account, you can start to feel better off very quickly.
“I only regret missing out on those years when I could have been saving into a Lifetime Isa but didn’t know about them,” says Antony, 39, who lives in Cardiff and opened his account in 2021. He could get £15,000 in total from the bonus if he keeps saving until he is 50.
The one catch is that the money can only be used either to buy your first home or after age 60. Antony, who works as a software developer, already has a mortgage so wants the money to boost his retirement savings.
He has set up a direct debit to invest £330 a month through the investment platform AJ Bell, and splits the money between two funds: Vanguard LifeStrategy 80% Equity and Vanguard Global All Cap Index.
“I opened a Lifetime Isa because I wanted the bonus, but it’s completely changed my finances. It has helped me learn about investing and do more of it,” says Antony.
Set up a savings account
Experts recommend having three to six months’ of outgoings in an easy-access savings account in case of an emergency.
Make sure you are getting a good rate – money in your current account won’t earn interest.
Top easy-access accounts are currently from Chase Bank and Trading 212, paying almost 5%.
You can then put some money in a fixed savings account, where you may get a higher rate but can’t access the money for a set period.
Alice Haine, from the investment firm Bestinvest, says: “A small amount set aside each month will kickstart your journey towards financial security, with each top-up helping to ease the stress when a sudden cost lands in your lap.”
Six month savvy: For those just starting a regular saver account can be a good option – these pay a higher rate but limit how much you can save.
For example, you can save up to £300 a month with First Direct and earn 7%. If you maxed out the account, after a year you would have saved £3,600 and earned £135 in interest.
Pay into a pension
Retirement might be decades away, but it’s still important to save for. If you are 22 or over and earning at least £10,000, you should be automatically put into your company pension scheme.
Usually you contribute 5% of your salary into a pension and your company pays in 3%.
Ask if your employer will pay in more if you increase your contribution too.
Six month savvy: Pensions are for the long-term so you won’t see results in six months, but if you contribute £50 a month from age 22 and your company £30 a month, and it grew at 5% a year, you would have more than £108,000 by age 60.
Start investing
Investing is the best way to grow your money over the long-term, but it comes with risks because the stock market can go down as well as up.
You should only invest money that you are able to tie up for a minimum of three years.
The simplest way to start is with a robo-investing app, where you answer some questions about your finances and how much risk you want to take, and are then guided to a ready-made investment fund. You can often start with as little as £1.
Six month savvy: If you invested £25 a month into a fund that grew at 6% a year, after a year you would have £309, and after 10 years you would have £4,096. If you were able to save £50 a month, you’d have £617 after one year and £8,194 after ten years.
Set some boundaries
Identify your money weaknesses and set some rules to help you tackle them.
If you are an impulse buyer, for example, delete shopping apps from your phone.
Consider the 24-hour rule, where you leave an item in your basket for a day to give you time to think about whether you really want it.
Six month savvy: Use a spreadsheet or budgeting app to record your spending and break it into categories, says Wells: “This can be transformational.
“It helps people understand more about their spending behaviours and what changes they would like to introduce.”
Be kind to yourself
There is often a feeling of guilt associated with money and a sense that we should know more, says Wells, but it’s not something many people are taught.
No one is perfect and there will be months that you get off track.
Coles adds: “Don’t lose sleep about the imperfections in your finances. Focus on what you have achieved, rather than what is left to do.”
Six month savvy: Write a list of the things that are worrying you, says Haine: “Sometimes the things causing the most anxiety can be easy to fix.
“Doing everything at once will feel overwhelming, so focus on each money woe one at a time.”
Get help
Improving your finances can be overwhelming, but there is support available if you need it.
Charities like Citizens Advice and Step Change are an important resource if you are struggling with debt.
The Money Helper website offers guidance on everyday money as well as savings and pensions.
For investing help, be sure to use regulated websites for tips such as Hargreaves Lansdown and AJ Bell.
I’m a psychologist – here are three tips to change your money mindset
Simonne Gnessen, founder of Wise Money Financial Coaching:
Reframe it
What messages do you tell yourself about money? Saying “I’m bad with money” or “I always overspend” can unconsciously encourage you to behave in that way. Try to notice how you think and feel about money, and reframe it. Say “I’m making progress” and “I am trying” instead, and focus on the wins.
Be curious
Don’t judge yourself if you get off track or overspend. Instead try to explore what caused you to do that and consider what you could have done differently. Coming from a place of curiosity rather than judgment means you will be more open to change. Journaling can help you explore your feelings and spot behaviour patterns.
Set a money date
Make it something you enjoy rather than a chore. Schedule regular time for money matters, whether it is five minutes to top-up your savings or an hour to comb your bank statement – this stops tasks building up and becoming overwhelming. Set a time to check-in with your partner; do it over coffee and cake rather than at home surrounded by paperwork, to make it feel like a treat.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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