Three Steps For Managing Your Money

Three basic steps to managing your money better

By Laura Rettie, Personal Finance Journalist. Last updated 2nd February 2023.

Laura Rettie

Good money management is key for saving, budgeting, and tackling debts. These three steps can help guide you towards reaching your financial goals.

Step 1: Budget

Your budget is your total monthly income minus your regular outgoings. There are lots of budgeting apps and tools available to help you work this out, but using a simple spreadsheet can also be just as useful as a starting point.

Before you start, be honest with yourself about your spending habits. Creating an unrealistic budget that’s too difficult to stick to isn’t helpful.

Once you create your budget, track your spending regularly and adjust your budgets for any unexpected outgoings or an increase or decrease in income.

Your outgoings should include:

  • Mortgage payments or rent
  • Commuting and vehicle costs
  • Council tax
  • Utility bills; energy, water and broadband
  • Mobile phone contract
  • Insurance; house, content, travel, life, health
  • Childcare costs
  • Debt repayments
  • Groceries
  • Subscriptions; e.g. Netflix, Spotify, Amazon Prime etc
  • Gym or fitness classes

Next calculate your annual expenses, such as birthday and Christmas presents, holidays, an MOT, or ground rent etc.

Total up your annual expenses divide by 12 to provide a monthly average figure.

Add your regular expenses to your monthly average one-off expenses to help make sure you’ve covered everything.

When you subtract your monthly outgoings from your monthly income you should have some money left over (if not, steps two and three are critical ASAP).

Divide any leftover money between savings and recreational spending.

  • Include things like:
  • Eating out and takeaways
  • Nights out
  • Beauty treatments & products
  • Clothes

It’s recommended to save at least 20% of your income each month, however paying down debts, especially interest bearing debts, should be your priority before putting money away in a savings account.

For more information on creating and sticking to a budget, check out our budgeting explained guide.

Step 2: Increase your income

Taking on extra shifts, getting a new job that pays a higher salary or negotiating a pay rise are three ways to increase your income, but there are other things you can do, including:

Earning an additional income with a second job

Many businesses will employ people on flexible terms, making it easy to fit around your main job. Consider driving for companies like Uber or delivering for a businesses like Just Eat.

Freelance at the weekend and evenings

If you're a graphic designer, writer, photographer or other creative professional, websites like Upwork and Fiverr connect you with businesses looking to employ you for project work.

Earn cash looking after animals

Families need help looking after their beloved pets and are willing to pay for people who will help to look after them.

Sell unwanted goods

Sell your old mobile phone, empty iPhone boxes and unused instruction manuals. You might be surprised how much your old Lego can fetch on second hand good sites like eBay, Gumtree and Facebook marketplace.

Check what benefits you may be entitled to

To check your eligibility for benefits visit Turn2us.

Earn cashback while spending money

Everyone needs to spend money so you might as well earn cash every time you need to get your wallet out. Quidco and TopCashback earn you cashback every time you spend online.

Step 3: Reduce your outgoings

Closely inspect your outgoings to find where you can make some cut backs or savings.

  • Are you due a new mobile phone contract, but don’t need a new handset? Switching to a pay as you go SIM can save you money each month.
  • Are you paying interest on credit card debt? Consider applying for a 0% balance transfer card to give you longer to repay your debt without having to pay expensive interest charges.
  • Look closely at your recreational spending - are you actually using your gym membership? Could you cut back on the number of takeaways you’re getting each month? Could you ditch your Starbucks habit?
  • Do you use all the streaming services you’re paying for? Can you unsubscribe from any channels or services you don’t use?
  • Do you take advantage of all the loyalty schemes you’re signed up to?
  • Could you commit to taking a packed lunch to work rather than buy sandwiches everyday?
  • Could you switch to a cheaper car or motorbike on a lower finance deal?
  • How could you save on your commuting costs? Could you walk, cycle or lift share?
  • Plan your meals to avoid throwing away food
  • Swap where you do your food shop to a discounted store
  • Get used to buying second hand goods - use websites like Facebook marketplace or Vinted for bargains
  • Use comparison sites to find the cheapest deals on things like your car insurance, contents insurance and travel insurance
  • Google the price of any item before you make a purchase to make sure you’re getting the best price
  • Reduce your energy bills by researching the appliances that are costing you the most money
  • Never automatically renew a service or contract without first researching if you can get a better deal elsewhere

These small changes all add up and can help you to achieve your goals quicker.

However, there are situations where saving a few pounds here and there won’t cut it. If you’re seriously struggling to pay your bills, take a look at the website for any benefits or cost of living support you maybe entitled to.

We're not good at talking about our finances openly in the UK, let’s face it, we'd much rather chat about the weather. Money is often a taboo subject and historically it’s been viewed as impolite to talk about it.

But that's got to change because looking after your money is just as important as looking after your mental or physical wellbeing. Your financial health should be a priority and we need to normalise putting the topic front and centre of everyday conversation, as uncomfortable and awkward as it might feel to begin with.

The information provided does not constitute financial advice, it’s always important to do your own research to ensure a financial product is right for your circumstances. If you’re unsure you should contact an independent financial advisor.