Open University economist and Senior Lecturer Jonquil Lowe is something of a financial guru. She specialises in personal finance and is one of the authors behind the free OpenLearn course Managing My Money. Here she gives the young and old tips on how to master your money.
[This story was updated on 1 August 2024 following new government information and after the Bank of England chose to cut interest rates]
Know your money personality
We all have innate behavioural traits and these can influence our attitudes towards money and how we manage it. If you’re naturally risk averse, you are probably hoarding too much cash. If you are an impulsive character, you may find it harder to keep your spending under control.
The New Zealand government-funded money guidance site Sorted has a quiz where you can check out what your money personality is and get tips to help you manage your finances better given what you know about yourself.
Pay yourself first
One in five UK adults have less than £100 in savings. If you find your bank account empty at the end of each month, try ‘paying yourself first’ by transferring a set amount into a savings account as soon as new money comes into your account.
Make the most of savings rates
In our time-constrained lives, it’s easy to leave any unspent income languishing in a current account. Get into the habit of transferring any surplus to a savings account where it can earn interest. You can set this up with your bank or a third-party app so it happens automatically.
With headline inflation now back on target, the Bank of England has started cutting interest rates (to 5% from August), so consider locking into a fixed-rate of return on your savings.
But don’t sit on too much cash!
Everyone needs some cash savings to draw on in an emergency. For most people an amount equal to three to six months’ spending is enough. And cash savings are the best way to save for short-term goals such as holidays.
But, for longer term goals (10 years or more), cash consistently performs very badly compared with investments in stocks and shares. Don’t be put off by the fact that investments go up and down in the short run – as a long-term investor, you ride out those dips.
Embrace online or mobile banking
With bank branches closing, you may feel you have no choice but to switch to online or mobile banking. But a positive aspect is that it gives you access to ‘open banking’. This enables you to make payments in a more secure way (sometimes called ‘Pay by Bank’) and to share your account data with trusted providers.
For example, they could be lenders, giving you better access to, and potentially cheaper, credit, or account aggregators who help you keep track of your money across multiple accounts.
Look after your credit rating
Before granting a loan, lenders check the information in your credit file with one or more of the three big credit reference agencies, Equifax, Experian and TransUnion. The most basic information you need to build a credit score is being on the electoral roll.
After that, you need a record of successful management of paying bills and loans. So try to have some household bills in your name or consider taking out a credit card, but pay it off in full each month so that you do not run up interest charges.
Lock into energy deals to give you budget certainty
Utility bills have been a rollercoaster in recent years and intense competition for energy in global markets means that may continue. So when gas and electricity prices are trending downwards, consider taking out a one-to-two year fixed-rate deal.
This will help you budget with certainty and protects you should prices rise again. If prices fall a lot further, you can usually cancel the fixed-rate deal, but might have to pay an exit fee.
Shop around to find these deals -this is all the more important if you’re a pensioner who will no longer be getting Winter Fuel Payment to help with your energy bills.
Harness a spending diary as your money conscience
If you find it hard to keep tabs on your spending, try keeping a spending diary. This has two roles. First, it helps you to see where your money goes. Second, if you know you’ll have to write down what you’ve spent, it can make you think twice about impulsive spending on non-essentials.
Schedule a money meeting with yourself
Put a couple of hours each month in your calendar to review your finances. This is the time to pay outstanding bills, check whether you could switch to cheaper suppliers or better savings accounts, review how your pensions and any investments are doing and reflect more broadly on your financial goals and how to achieve them.
Claim help you’re entitled to
However savvy we are, anyone can hit a bad patch. Job loss and relationship breakdown are common triggers but the cost-of-living crisis has taken its toll on many. You may have personal savings and insurance you can draw on.
But don’t be shy to claim the state benefits that are there as a safety net for everyone. Getting these benefits can also open the door to other help such as lower ‘social tariffs’ for fuel and broadband. It’s estimated that £19 billion of support goes unclaimed each year.
This includes four out of 10 eligible households failing to claim Pension Credit which, from this coming winter, will determine whether you get Winter Fuel Payment, worth £200 (or £300 if someone in your household is aged 80 or over).
For more tips on managing your money visit our series of Financial Five-a-day Podcasts hosted on OpenLearn where Jonquil also shares some of her tips.
