Why it pays to be on top of your personal finance basics
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However well you think you know your money, it always pays to stay on top of the basics. Here are five key areas to improve your finances.
How robust is your relationship with money?
When you’ve few financial concerns, it’s easy to feel you’re on top of things and in fine shape for the future.
But what about when the going gets tough - will your relationship with your personal finances bend or break, or even emerge in better health? The key to success is knowledge – and staying on top of the basics.
When economic or financial shocks come, understanding what’s happening to your personal finances and why, will help you to be in a stronger position to do something about it. And in today’s climate of uncertainty, there’s never been a better time to take stock of your relationship with money.
However well you think you know your money, there’s always a fresh opportunity to boost your own financial education.
We’ve put together advice and guidance on five of the key areas where it’s usually possible to improve your finances, with support from MoneyHelper.
This Government-backed website plays a vital role in helping many get to grips with the basics of money.
It also has plenty of useful tools and calculators to help you keep track and plan ahead, with support over the phone and online.
1. Your budget is the best building block for financial success
Taking the time to learn how to manage your money better is one of the most fundamental skills to boost your bank account – and once mastered, it can really pay off.
As well as helping you stay on top of your bills, it can help you pay off debts, sort out your financial priorities each year and encourage savings where possible.
Critically, it can also mean you’re less likely to get caught out by unexpected bills or costs, and will be in a better position to boost your credit rating.
You can try MoneyHelper's budget planner which encourages all sorts of different approaches to working out the best way of spending and saving to suit you. These include using different bank accounts for different types of spending (also known as the ‘jam jar’ method). To save a copy of your budget on their website, you’ll need to sign in.
For many, drawing up a budget won’t be a straightforward job as personal finances can often be complicated, so if you find it a struggle, there’s also plenty of support and help available.
2. Cut your bills and dig out the best deals
Saving money isn’t just a matter of being able to put cash aside when you can (though it always helps) – it’s also about getting the best deal or tariff you possibly can on any of your household goods or services.
For example, whether it’s choosing an electricity or gas supplier, insurer, mortgage, broadband or mobile phone, always do your research to ensure you don’t pay more than you need to.
Thankfully there are plenty of switching services which can help you to lower your costs, often with guides galore to advise you on the right deal to suit you.
And if you’re worried switching providers might be too much of a hassle, you can even - with some bills such as for your energy, for example- call your existing supplier and ask to be put onto its cheapest deal – you could save hundreds, research from Moneysavingexpert.com shows.
Or, to take it further, if you move from a standard energy tariff to a more competitive short-term fix with the same supplier, you could save on your bills.
Find more like this and other top tips such as cashback on purchases for potential savings.
3. Take care of your credit score
A good credit score - also known as a credit rating - is crucial because it can affect your ability to borrow money or get access to financial products such as credit cards or loans.
It’s worked out using personal information like your age, job and existing financial commitments.
Using your credit score, lenders will decide whether you can have a phone contract at a decent price, finance a car or even shop with ‘buy now, pay later’ benefits.
If you don’t have a credit history, it makes it much harder for lenders to trust that you’ll be able pay back what you’ve borrowed.
You’ve plenty of ways to improve your score, including ensuring you’re on the electoral register, always paying your bills promptly, or – if you’ve a generally poor score - considering a so-called ‘credit-builder’ card to gradually prove you’re worthy of being given credit.
4. Be wise in the workplace – why it could pay to know your tax code
You might not think of your work as a place to learn about – and save – money.
But understanding every bit of information on your payslip can give you a great insight into your money, how it’s treated and why it’s key to know your tax code to make sure you’re being paid the right amount.
Whether you’re only just getting your first payslip or if you’ve been working for years, it’s still critical to know how your pay is worked out.
Your payslip contains valuable information, including your payroll number, your gross and net pay, and normally your tax code too.
At first glance, your tax code might look like a random series of numbers and letters – but it’s actually a set of instructions used by your employer to work out how much tax to deduct from your wages before they land in your bank account.
Different people have different tax codes, depending on their circumstances – how much you earn, for example, or if you’re self-employed. So if you pay tax through the pay-as-you-earn (PAYE) system, your tax code tells your employer how much to take – and even the tiniest of mistakes can leave you hundreds of pounds out of pocket.
Why might your tax code be wrong? If you change jobs midway through the tax year, you might pay the wrong amount of tax, or if you have a work benefit such as a company car, have rental income or have retired.
Every year, HMRC sends out a coding notice telling you what your tax code is and how much tax you’ve paid. To make sure you’re on the right tax code, check your code matches the Personal Allowance you should be getting.
If you think your tax code is wrong, or you’re in any doubt, contact HMRC online via your personal tax account to let it know – you'll need to log in and set up an account using your Government Gateway or Gov.uk Verify ID.
It’s vital you give HMRC all the information they ask for so you don’t then end up on the wrong tax code again, and pay too much or too little tax.
As well as your all-important tax code and payslip, it’s key to make sure you’re being paid what you’re entitled to if you’re earning at a level close to the minimum wage. And if you find yourself faced with redundancy, it’ll help to know your rights on the size of any payout, your legal position, any benefits or tax credits or tax rebate. MoneyHelper also has a guide to help adjust your finances if you lose your job.
5. Learn how to better protect yourself against fraud
While the digital age has brought huge benefits, it has also ushered in new and different challenges too.
As we spend ever more time using the internet so too do fraudsters, keen to exploit our new online lives and find new ways to con us out of our money.
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