Seven tips for taking control of your finances

We’ve all been affected by the rising cost of living this year and, although the UK’s headline Consumer Price Index (CPI) inflation rate is finally starting to fall, overall costs remain high with core inflation – removing from the effects from food and energy – continuing to rise.  

Using the ONS tool, we calculated a modest grocery basket containing the bare essentials: white sliced bread, an iceberg lettuce, cheddar cheese, butter and bananas, would cost one-third more than last year. It is easy to see why our cash is not stretching as far as we might like. 

While the summer months may bring some respite from rising energy prices, food prices are expected to keep rising and putting pressure on household finances. 

So, it is more important than ever to take control of your finances to bring down spending, make your income stretch and ensure you build an emergency buffer to meet unexpected costs. But where do you start? Read on for our seven tips:  

1. List your outgoings

Understanding where your money is going is key, so either use your bank statements, a personal finance app or simply a piece of paper or Excel to list your outgoings. Do this regularly – weekly or monthly - to catch any unplanned spending that might have been avoided. Keep on track of pending transactions in your banking app so you can avoid fees if you go into an overdraft. 

Don’t forget to include spending on credit cards and regular payments such as streaming subscriptions and gym memberships. 

While doing this, you may find contracts or app subscriptions (including any your children may have) that you can cancel or switch to a better deal, ensuring your finances are in healthier shape immediately.  

2. Research and control your spending triggers

What makes you reach for your credit card? Understanding the situations where you spend more than you’d like can help you to plan around trigger points. 

If you usually buy lunch at work, for example, setting a reminder to take something with you in the mornings could avoid unnecessary spending.  

Be careful of those unplanned trips to the shop. For example, see how many non-essential extras you are putting in your cart when you just “pop in” to fetch a pint of milk.  

Deleting apps for your favourite stores from your phone or unsubscribing from advertising emails from tempting brands could also have a positive impact on your finances by helping you avoid impulse spending. 

A technique called mindful spending may also help you change the way you think about setting aside money.  

3. Be realistic about spending and saving

If you can put even a little money aside each month for a rainy day, it will help you in the long term, but you must make sure your goals are achievable. 

Scrimping on food or energy use can lead to you becoming resentful of your budgeting plans. This may lead you to overspend in the long term, rather than create a sustainable savings habit.  

Your bank may offer solutions to help you save a little every month, tempting you with higher interest rates for saving regularly or offering a ‘round up’ option where every purchase you make is rounded up to the nearest pound and the difference put into a savings account. 

These can help you start a savings habit that will grow over time. Seeing the balance on your savings increase can be hugely motivating! 

4. Maximise government help

Many people are entitled to more help with their finances than expected, while the government also offers solutions to encourage savers. 

If you are struggling with a low income, try the free Entitled To calculator to check you are getting all your benefits, including those related to the rising cost of living.  

Parents with high childcare bills may benefit from initiatives such as Tax Free Childcare even if their income is relatively high, while those of pension age may be eligible for extra help – see Age UK’s website for more details. 

From a tax perspective, if you do have money that you can put away for the future, tax-efficient products such as ISAs and pensions can ensure every penny has more of an impact with no tax paid on growth, income and returns.  

For those aged between 18 and 39 and saving or investing either towards their first home, or building a pot for retirement, a Lifetime ISA (LISA) may be suitable. Those eligible can invest up to £4,000 per year with a 25% government bonus on contributions up to the annual limit. However, note that terms and conditions do apply and those accessing their money outside of a property purchase or retirement will pay a 25% withdrawal charge. More information on LISAs can be found in our recent blog.  

For those considering investing, try Nutmeg’s ISA calculator to see how much your stocks and shares ISA could be worth in 20 years if you set aside a certain amount every month.

5. Make the most of your savings

Higher interest rates mean you may be paying more on any mortgages or loans that you may have, but the good news is that higher interest rates also mean better rates available for your savings too, whether in a savings account or cash ISA. 

Making the most of rates on your savings will help your money grow and mitigate the impact of the cost-of-living crisis. However, you will have to shop around. 

At the time of writing, those who need easy access to their money can get rates as high as 4% on cash savings, while if you are able to tie your money up for a year or more you can access rates of up to 5%. 

Try financial data group Moneyfacts to compare the best deals. 

6. Check and transfer legacy accounts

While rates have risen on new cash savings accounts and cash ISAs, those from previous years may be offering only tiny amounts of interest, a reflection of years of historically low interest rates up until 2021. 

It is worth checking the rates on these accounts and transferring them to higher-paying accounts if they are paying you poorly.  

If you wish to transfer an ISA, it is vital you follow the correct procedure, or you will lose your tax-efficient benefits. We’ll cover this in more detail in the section on ISA and pension transfers below.  

7. Take a longer-term view with investing

The cost-of-living crisis may be stretching us to our limits, but we still need to think about the long-term future when taking control of our finances. 

Higher interest rates on cash savings are helpful, but in periods of high inflation your money may still lose value over time in any cash savings account. This means you may need to think about investments if money is needed for longer-term plans, though these too are not guaranteed to beat inflation.  

Studies show that over time investments tend to outperform cash savings. However, bear in mind that investments are best suited to meeting long-term goals, and it is recommended that you put your money away for several years with the caveat that no returns are guaranteed. That’s why it is sensible to have rainy-day cash in place already and know you will not need the money for at least three years. 

We discuss more about whether or not you should consider investing during a cost-of-living crisis in this recent blog.  

Consider an ISA or pension transfer

If you are being paid poor rates on your ISA, or perhaps you worry that you are paying high charges on your pension, then a transfer may be the answer. 

With ISAs, a transfer could be between cash ISA providers, or moving from a cash ISA into a stocks and shares ISA with an investment provider such as Nutmeg. 

To switch providers, you must contact the ISA provider you want to move to and fill out an ISA transfer form to move your account. If you withdraw the money without doing this, you will not be able to reinvest that part of your tax-free allowance again.  

If you follow the right process, transferring can be easy. Read more about the reasons why you should consider transferring your ISA in our recent blog.  

Equally, transferring your pension can give you visibility over your retirement savings and help you plan better for later life. You will need to check with your current pension provider that you won’t lose any valuable guarantees or be charged exit fees and may need to seek independent advice in some circumstances. 

Taking positive steps 

Times may be tough financially, but making sure you have the right money habits in place will aid you during the cost-of-living crisis. Review your spending and saving regularly to see if you can improve things even when inflation eases.  

If you would like to discuss your financial goals further, you can book a free call with one of our experts. 

Risk warning 

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Tax treatment depends on your individual circumstances and may be subject to change in the future. 

Please note that during any transfer, your investments will be out of the market. Past performance is not a reliable indicator of future performance.