Money Makeover - Give your Personal Finances a Facelift with Confused.com

• Top Tips
• Published: 23 Feb 2009 in Money and Savings

A step-by-step guide to saving money in the credit crunch 

Unless you’re an accountant, managing personal finances is something most of us would rather leave to a rainy day. Many of us are guilty of overspending, and tackling the problem head on can sometimes seem like a depressing prospect. However, it doesn’t have to be that way. Sort out your finances now and you could actually claw back enough cash to start saving again. 

Step 1: Budget 

It’s important to draw up a budget. This involves calculating your income and outgoings. Keep a diary of every penny you spend. Be honest and include everything; it’s often the small expenses that add up. 

If you’re spending more money than you earn, some cutbacks will be necessary. Try to prioritise between essential purchases and luxury spends. Could you live without that cheeky pint after work or over-priced designer dress?  

When budgeting, aim to plan for the whole year rather than just month by month. Don’t forget occasional items, such as birthday and Christmas gifts, and remember to include payments such as road tax and car insurance.  

Step 2: Dig yourself out of debt 

Whether it’s a mortgage repayment or mounting credit card balance, many of us are in some sort of debt.  

You might like to think about consolidating your debts – for example converting high-interest credit card balances into a cheap loan. Alternatively, you could compare credit cards and transfer your debt to plastic with a lower interest rate. 

Online banking is a good way of keeping track of day-to-day spending and managing money in/money out – which could help you avoid any infuriating bank charges. 

If you’re having difficulty meeting repayments, contact your debtors to see if you can agree on a realistic repayment scheme. 

Step 3: Review 

Regularly reviewing your bank accounts, mortgage, pension and savings will also help make sure they're still right for you. Changes in your personal circumstances could mean a particular policy is no longer your best option.   

Look at the costs involved in borrowing money on your mortgage, loans, overdrafts, credit cards and store cards. Assess how well your savings and investments are doing. Look at any insurance policies you might hold and seek different quotes to see if you can secure a cheaper deal. 

Step 4: Save 

You could aim to hold back 10% of your earnings as savings. Hopefully, the previous steps could help you achieve this surplus. If you do free up that 10%, you’ll need to decide on how to use it wisely. Draw up a list of financial goals, with a view to making your money work for you. 

Do some research and compare savings accounts, cash ISAs, pension schemes etc. to find the ones offering the best interest rates. 

Step 5: Relax 

Once your books are in order, starting to save will be that much easier. Just remember: the sooner you start, the more you’ll save. Come rain or shine, don’t put off until tomorrow what you can do today.