Key takeaways:
- Ten practical tips for your personal money management.
- Understand tools like budget spreadsheets and debt-to-income ratios to strengthen your financial foundation.
- Explore saving and investing options like ISAs and pensions for short- and long-term goals.
When it comes to financial literacy in the UK, a lot of it is learned the hard way through trial and error. And in many cases, it may be because you’ve had to start actively researching how to tackle a money challenge as you’re facing it.
Managing your money effectively is about creating habits that help you feel financially confident and secure (plus, help keep the stress levels down when you’re faced with a new financial obstacle).
So, we’ve put together ten ways you could manage your money.
Think of it as a simple guide to financial strategies that could help you feel prepared, confident, and resilient to life’s financial hurdles.
This list is for guidance only, Wealthify does not provide financial advice.
Jump to:
- Make a budget spreadsheet
- Determine debt to income ratio
- Factor in sinking funds
- How much should I have for emergency fund?
- Income protection insurance
- Understanding inflation
- Split your financial goals
- Short-term goals suit savings
- Invest for long-term goals
- Plan your pension
10 personal money management tips
Here’s a practical list of money management tips that could help you feel in charge of your financial situation. Feel free to cherry-pick the ones relevant to your circumstances, or you could try to incorporate all of them into your daily, weekly, or monthly money habits:
1. Make a budget spreadsheet
Top of the list is your budget.
Why? Because, if there’s anything on our list that’ll help you the most, it’s this.
After all, how else will you know how much money you can set aside each month to reach your goals?
You can create a budget spreadsheet to help you organise your finances and give you a clear picture of your income, outgoings, and how much you then have spare.
If you’re not confident building one yourself (this writer certainly isn’t destined to enter the Excel World Championships), there are plenty of free and paid templates available online. Often with built-in calculations, they can make you feel motivated about taking control of your pennies and pounds.
If you use a banking app on your phone, many of them can now categorise your spending automatically, showing how much you spend on essentials like groceries, bills, and non-essentials (such as dining out). This can help you effortlessly understand your spending habits.
2. Determine debt-to-income ratio
Going hand-in-hand with the budgeting step is working out your debt-to-income (DTI) ratio. This is basically how much debt you’re paying off each month versus how much you make in income.
Even if you’re currently debt-free, you may still face a time in your life when you do have debt.
So, taking some time to understand your DTI now could prepare you for future decisions that affect your borrowing.
This is because a high debt-to-income ratio could limit your borrowing options and make managing your finances much harder. In order to reduce financial strain, the general guidance is to prioritise paying off debts with interest rates of 8% or higher. [1]
If you find your ratio is high and need help paying this off, there are two methods people tend to use:
The snowball method:
This suggests paying off smaller debts first to build momentum. Think of your debt repayment strategy as a snowball rolling down a hill; the repayments getting bigger as it rolls towards the finish line.
The avalanche method:
This method is when you throw everything you have at paying off debt with the highest interest first (to save on overall interest payments).
When that debt is cleared, you redirect the same payment amount to your debt with the next highest interest — repeating the process until they’re all cleared.
3. Factor in sinking funds
As part of your budget, you’ll have inevitable occasional spending beyond your basic essentials (bills and food, etc.).
It can be anything from the car getting an almighty fail on its MOT, to needing your hair cut; things you wouldn’t dip into an emergency fund for (which we’ll cover in point 4).
Instead, the kind of things people consider as sinking funds: money you won’t get back once it’s spent, but that you can’t really avoid either.
And while you probably won’t begrudge sending urgent flowers to someone you love, you might feel a little annoyed about having to put an unexpected down payment on a Stag or Hen Do in Croatia, when your budget doesn’t allow it.
By setting up your budget to allocate money consistently to sinking funds, you could avoid financial surprises and reduce the risk of getting into debt. Just a pound a day as a standing order into an easy access Cash ISA could give you peace of mind.
4. How much should I have for emergency fund?
Emergency funds provide protection if you were to suddenly lose your source of income or face a serious crisis. It gives you a safety net to cover your essential outgoings (food, bills, accommodation costs); you could use your budget spreadsheet or banking app to identify the essential versus non-essential spending to target the right amount.
Nearly one in four people in the UK are reported to have no emergency savings at all.[2] But as it’s something designed to give you financial resilience and a sense of safety, having something saved is a key goal in money management.
As a rule of thumb, you could use it to try and save up enough to cover at least three to six months of essential outgoings. If that amount seems impossible at first, just making a start by setting the goal of reaching £1,000 is something to get the ball rolling. You could always make further milestones when you reach this goal.
The hope is that you’ll never need to use this money, but it can still earn interest as it sits there. Ideally, you need quick access and a reasonable interest rate.
Many people set up standing orders from their bank into a specific savings pot for their emergency fund; this means it’s saved automatically, but also out of sight, to hopefully prevent being dipped into.
5. Income protection insurance
From mobile phone to car cover, travel to life insurance; there’s protection for absolutely everything these days.
Income protection insurance is a policy that could cover a portion of your earnings if you’re unable to work due to serious illness or injury (with the optional additional policy to cover you in the event of redundancy). Having income protection ensures you could maintain essential payments and commitments during difficult times.
6. Understanding inflation
Over time, the cost of things rises (for example, the cost of groceries and transport), and this is measured as a percentage. The rate of inflation is then measured by the average increase of a large number of products and services.
In the UK, the Bank of England has a target rate of inflation at 2%. However, for the past few years we’ve been facing an increased rate. [3]
If your savings (which earn interest) were to grow slower than the rate of inflation, where would that leave you in ten or twenty years' time?
The problem with inflation is that it could outpace your interest rates; the longer this goes on, the less your money might be able to buy in the future.
Because of this, you might want to try and make decisions with your money that aim to beat the rate of inflation in the long term.
To preserve and grow your wealth effectively, it’s important to factor inflation into your saving and investing strategies. Keep this in mind as we move onto the next tips.
7. Split your financial goals
Dedicating some time to categorise your financial goals could help you create a feasible action plan.
For example, you may find you’re closer to your goal of getting a property deposit saved than you realised — and can focus on that in the next few years of saving. Whereas you may have much longer-term plans that will need 10+ years of money management to reach.
Having these goals mapped out – along with your trusty budget to steer your spending and savings allowances – all you need to do next to decide:
- Which are ‘short term’.
- Which are ‘long term’.
- Work out which respective action to take next.
8. Short-term goals suit savings
Once you have your list of goals, you could divvy them up, and there will be ones you’ll likely achieve quickest (in the next five years).
Whether it’s getting a new car, saving for a wedding, or having that once-in-a-lifetime trip around the world; the amount you could set aside for these will likely suit a savings account, like the easy access Cash ISA we mentioned earlier.
As you’re likely to reach these goals – and subsequently spend this money in a relatively short amount of time – you can benefit from the interest rate on offer without worrying too much about losing out to inflation in the long run.
9. Invest for long-term goals
Anything that will take you longer than five years (retirement savings, expanding your property portfolio, or building generational wealth) would more likely be suited towards investing instead.
This is because investing is considered a ‘long-term’ strategy that people do for at least five to ten years, and ideally longer. This gives your investments more time to ride out market turbulence; it’s normal to see your investments go down, and you’ll notice these highs and lows on a performance graph.
Put simply, investing gives your money more potential.
Instead of just being tied to a single interest rate, you could have lots of different returns from different types of investments.
These types of investments are called asset classes, and they range from:
- Stocks and shares (which are very popular)
- Government or corporate bonds (which are similar to you loaning them your money)
- Property and physical commodities like gold, silver, or oil.
By holding many different asset classes – an investing technique called ‘diversification’ – you have the opportunity for some better-performing investments to balance out any that don’t do so well.
With services like Wealthify, investing is as easy as signing up, adding money, and letting a team of experts handle all your investment decisions for you. The benefits of this are that anyone can do it — and you don’t need to spend hours, days, or even weeks researching investment options.
Note: It’s important to understand that with investing, the value of your investments can go down as well as up, which means it’s possible you could get back less than you initially invested (particularly if you withdraw during a market downturn).
10. Plan your pension
One fact about pensions you might still not know about is that you can transfer one (such as a past workplace pension) to another provider — or even bring all your pensions together in one pot.
Not only could this help you keep better track of your retirement savings, it could also save you a small fortune in fees over the years (as every pension provider charges you a management fee).
The other big question is: how much money do I need to save in order to retire?
Like everything else we’ve talked about here, that figure is pretty subjective and will have a lot to do with your personal circumstances. You can use pension calculators like this one to see what your pension projection is — and see if you need to increase contributions now to enjoy a more comfortable retirement later.
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
With investing, your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.
Wealthify does not provide advice. If you’re not sure whether investing is right for you, please speak to a financial adviser.
