When it comes to financial literacy and sound money management, there's a lot of chatter. Simple, time-tested wisdom may often be the most effective. You don't have to be a financial whiz or spend a fortune on expert guidance to keep your finances in order.  Here are 6 personal finance management tips to help you get in control of your money.

Anything is possible if you have a firm grasp of fundamental financial concepts. Whether you want to put away more money, save for the future, or reduce your debt, we can help. The following are some fundamentals in personal finance management that may serve as the cornerstone of your own financial strategy.

In this article, we will cover the following in detail:

1. Always overspending?  Why you need to reduce your outgoings until they are equal to your income

2. How to create a monthly budget and stick to it

3. Reasoms to reduce your current debt and overpay where you can

4. When and why to start an emergency fund

5. Why you should prepare for your retirement from a young age

6. Don’t skip being covered by insurance

The best personal finance management tips to get your money on track

1. First, reduce your outgoings until they are equal to your income

Always in debt or overspending every month?  When first taking control of your personal finance, you need to ensure you are not spending more than you make each month.  Advice like this may seem elementary, but it's not always easy to put into practice. It might be difficult to maintain a frugal lifestyle when bills come at you from every direction and the temptation to spend money is all around from billboards to TV adverts to social media.

However, if you are always going over every month, relying on credit of an overdraft or credit card for your monthly spending habits, then things need to change.  Getting into debt for unnecessary spending that you can’t afford to pay back is never a good financial move.

The trick is to keep a detailed record of your expenditures for a few weeks, including any purchases made using credit cards, to understand where your money is going. With a few taps on personal financial budgeting software, you could get this done quickly and effortlessly.  Or simply print out all your bank and credit statements to assess where it has been going the last few weeks and highlight what is essential in one colour and what is non-essential in another.

The first step in taking control of your finances is to make sure you don’t spend more than you earn.  Work out where you are overspending and stop.  You will need the willpower to have better money management, but if you are here reading this, then I guess you are ready and willing to make the change!

Step one is to make sure you do not spend more than you make and this will ensure you don’t get into debt.

2. Create a monthly budget and stick to it

In step one you’ve taken a look at your unnecessary expenditure if you always overspend to ensure you don’t spend more than you make, now you need to make a spending plan for your money and budget your wages appropriately throughout the month.

A budget is a plan for how you will spend your money each month and it provides the foundation for your personal financial stability. Budgeting helps you to control your spending, save and make more informed decisions about your future.  It’s the best money management technique for understanding your finances each month.

You need to take stock of your income, expenditures, and obligations before you can build a budget.  You can use a notebook to create a monthly budget, a spreadsheet or there are lots of budgeting apps available if you prefer this way.  I simply use a Google Sheets spreadsheet for our monthly family budget.  I have access to this document on both my laptop and phone so I can edit it on the go.  It’s also shared with my husband so he can edit the document and access it whenever he needs to.  It works for us and we regularly update it through the month as bills go out of our account or money comes in.  We also track our spending on the spreadsheet each day to ensure we don’t overspend.

On this spreadsheet we have our total income each month, our non-negotiable outgoings such as mortgage and bills, various savings (emergency, holiday, Christmas, car repairs, etc), a food shopping allowance each week and family spending allowance each week.  As we spend from these or the bill goes out, we remove it from our spreadsheet and adjust the overall bank balance.  This helps us to see what we have left for spending each week and once we’ve spent our spending money for the week, that’s it.  We have to wait until the following week to get our next family spending allowance!

The most important thing when creating a monthly budget for your own personal finance is to stick to it.  That’s the whole point of creating it, to better manage your finances and allocate money for food, spending and saving and to be in control of it.

Also, make sure it’s a realistic budget and enough money is left for food and spending, otherwise you’ll feel frustrated you can’t ever stick to your new budget.  It should be flexible too so you can amend amounts when needed such as if you have expensive car repairs coming up, maybe you need to top up your car repairs savings and reduce how much you spend on entertainment for a while.  Once balances are looking healthy for various savings, then maybe you can reduce these savings for a while and increase your spending money for the month.

Ultimately, having a monthly budget that you can view easily at a glance and see where you are at with your money each day/week/month will be the biggest first step you take in having better money management.

Find more helpful tips on how to properly manage your salary and budget for the month in our dedicated budgeting blog post.

3. Reduce your current debt and overpay where you can

If you have debt then you need to pay it back.  Not paying debt can land you in financial difficulties both now and in the future.  Missing payments will incur charges that will stack up and only make the debt worse.  Not only this but missed payments are also marked on your credit record which can prevent lenders from letting you borrow in the future as you will be seen as a riskier borrower.  Also, you may need some responsible debts when your money management is under control such as a mortgage or home improvements loan or even a loan for a car, and you will be offered better interest rates the higher your credit score is.

Check out my own personal debt story when I hit debt crisis as a teenager and what to do if you are struggling to pay debts.  You don’t need to suffer in silence or hurt your credit score if you seek the help that is available as soon as you know you can’t make a payment.

Providing you are in a position to pay your debts then you need to start thinking about overpaying to get yourself debt free as soon as possible.  One of your top financial management responsibilities should be paying down or eliminating your debt. You can't help but feel weighed down by debt and prevented from making important investments in your future.

Mastering the art of debt repayment is a fundamental financial skill. When paying off a credit card, it's important to pay more than the minimum monthly cost to avoid spending as much on interest throughout the life of the loan.  You can also overpay a loan and receive interest rebates for each overpayment, reducing the final amount owed.  It’s how we’ve managed to quickly overpay every loan we’ve had since marriage.

You’ll be surprised at how much difference overpaying debts, even by a small amount can make.  There are lots of online debt repayment calculators that can assist you in seeing exactly how much you can save when overpaying a debt.

There are also easy ways to overpay a mortgage if you own your home and want to get this debt cleared quicker too.

4. Start an emergency fund

Once you’re in control of your monthly spending and not getting into debt each month or relying on credit and you’ve paid down your debt, it’s time to start thinking about saving an emergency fund.  You might even want to start this before you pay off your personal debt, as there are some situations when you’ll need cash available to pay for emergencies, especially for house-related emergencies such as plumbers and electricians who will often require a bank transfer, cash or cheque as payment.

A savings account designated specifically for use in times of financial disaster is known as an emergency fund. To put it another way, it's a cushion for when life throws you a curveball, like when your vehicle breaks down or you are laid off from your work.

The wisest course of action is always preparation since you can never be sure of what the future will bring. If you don't have an emergency fund available with cash, you'll have to dip into other areas of expenditure or take on more debt, such as using a credit card, to handle the unexpected expenses that arise. That's a quick way to go into serious debt, especially as taking cash out from a credit card usually comes with a much higher interest rate than spending on a credit card.

Even if you can’t save a large amount each month, you should set aside whatever you can realistically afford.  You’ll be surprised at how quickly savings add up and also what a relief it will be to have the cash there when you have your first unexpected cas emergency.  The trick is to be strict with your emergency savings and to not touch it unless it’s an absolute emergency.  It’s not there to dip into just because you’ve spent all your spending money and want to go out or buy something new.  Ideally, set up a standing order for a reasonable amount you can afford every payday to go into your emergency fund and then forget about it.  Don’t include your emergency fund savings in your disposable income each month, treat it like a bill instead.

If you struggle with saving money and need some assistance then check out the savings apps that use AI to save money automatically for you without you even noticing.

5. Prepare for your retirement

Preparing for retirement is a crucial part of life, but it's not always easy to know when to start. The earlier you start, the more time you'll have to plan and save, especially if you plan on being comfortable financially in your golden years.

The main reason for preparing for retirement is that most people will not be able to survive on their state pension alone.  You need to start planning for your retirement years in advance if you want to make sure you have enough money saved up to last you.

The first step to retirement is to start saving for it. This can be done by putting aside a certain sum of money every month, or by investing in a pension fund, retirement schemes or one of the pension plans offered by the government.  

In the UK, there are options with government bonuses such as the LISA for retirement with a 25% bonus on savings.

If you are self-employed and your business is profitable, you may want to set up your own personal pension plan. If you are not self-employed, then you can join an occupational pension scheme.  Often your employer will contribute towards your pension pot; usually the more you save, the more they will add.

It is important that you take the time to find out how much money will be needed for your retirement lifestyle and make sure that this amount is saved or invested.

6. Don’t skip being covered by adequate insurance

Checking that you have enough insurance coverage is an often-overlooked but crucial part of sound personal financial management. Having insurance is necessary. A fire in your home or the loss of your work may be devastating if you are not adequately covered by insurance.

It's important to have insurance for things like your home, car, and income in case anything unexpected happens, and a life insurance policy if you have a family. In some cases, this is the deciding factor between a little financial setback and bankruptcy.

It can be tempting to consider cutting out some insurances in order to save money in your monthly budget, but this will be an unwise move.  While you might not need private healthcare insurance in the UK, there are other insurances like life insurance which can be a necessity.  If you have a partner and children, how would they cope without you should the worst happen?  Could they work, look after the kids and pay all the bills without stress?  This is why life insurance is so important to ease any financial pressure in the event of a spouse or partner dying. 

It’s really important to budget for insurance each month and to make sure you have enough coverage for all eventualities.  Make sure your home insurance covers the cost of replacing the entire home in the event it is destroyed and you own your home.  Ensure your contents insurance covers the cost of replacing all your belongings.  And make sure you have car insurance, as it’s a legal requirement, but with an excess you can afford in the event of an accident.

If you’re wondering at what age to get life insurance then our helpful article will assist.

Final thoughts

We all know that personal finance management is a difficult task to handle. It is not easy to keep track of all our expenses and income in order to make sure that we are on the right track.  However, by following the six tips above, you can be sure you are developing healthy financial habits that will serve you well both now and in the future.  Maintaining a steady course is going to be your best bet when it comes to managing your financial resources.

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