How to ensure you stay on top of your finances: Sarah Coles

But while we’re distracted by the big red alarm ringing from over the pond, there are other much quieter bells tinkling quietly in small corners of our finances, and some sitting silent, ready to spring into action when it’s all too late. It means we need to look out for early signs of trouble, and actively check on our finances to make sure nothing is quietly on fire.

One early sign of things going awry is when we start to get the nagging feeling that we’re not completely on top of our finances. In some cases, it can be as simple as realising you don’t know how much money you have left in your current account, because you’ve lost track of spending.

If things are more serious, you might find yourself spending down to the wire each month, dipping into savings, or using credit to make it to the end of the month. Nobody is perfect, so if this is a one-off, it may not be a serious issue. However, if it is becoming a bad habit, we need to investigate what’s going on.

It might be that your bills have been rising faster than your income, or that a remortgage has left you short of cash each month. Alternatively, it might be that you’ve taken on too many commitments for things you can’t afford. The first step is identifying the issue, by looking at your current account app or statements, or your credit card bill. You can also keep a spending diary to help you understand your risky spending patterns better.

Then put your spending details into a monthly budget planner – alongside details of your income. Start with the money you spend on the essentials first, then gradually build out commitments like pension payments, savings and investments. Finally, you can include the nice-to-haves. That way you can identify the costs you need to cut to get your budget back into balance.

If you’re building more significant debts, the alarm bells should be ringing more loudly, so the sooner you get on top of them, the better. Your budget is going to help here, but you also need to make a commitment to repaying expensive short-term debts. It makes sense to pay off those with the highest interest rates first, so less of your money goes into interest and more into repayments. You can also move your debts somewhere cheaper in the interim, and if your credit rating allows, a card with 0% on balance transfers can give you space to repay. However, you need to be firm with yourself before moving debts around. This isn’t an opportunity to borrow more, or you’ll just build bigger problems for the future.

You might also have a small voice in the back of your mind warning that things at work don’t look as solid as they once did. This might be because you’re hearing warnings of a looming global recession that are making the world of work in general feel less secure. It might be something more specific, relating to your employer or job in particular. It’s always a good idea to ask questions and try to get to the bottom of things, but in the interim it makes sense to build a few protections into your finances too.

While we’re working age, everyone should be working towards having enough emergency savings to cover 3-6 months’ worth of essential spending. This needs to be in an easy access savings account, so you can get your hands on it in a hurry if you need it. If you know you’re falling short on this front, then now is the time to focus your efforts. You might also consider preparing to spring into action if you lose your job. This can include everything from updating your CV to putting more effort into work-related networking – either in real life or on social media.

We also need to check for problems that won’t ring alarm bells for most people until it’s too late. A classic example is pension provision. It can be easy to feel that things are pretty much on track if you’re paying into the workplace scheme and generally keeping on top of your finances, so there are no signs that something is wrong. It’s only when you look in detail that you’ll really know where you stand.

Use a pension calculator to input your pension pot so far, and how much you’re putting away each month. That will show you the final pot you’re on track for – and potential income you might have to live on in retirement. If you’re facing a shortfall, you’ll be glad you checked while there was time to do something about it, rather than waiting for alarm bells to ring.

Similarly, there will be no signs that you don’t have enough life cover unless the worst was to happen. However, the HL Savings & Resilience Barometer shows that only 43% of people have enough life insurance. That falls to only 30% of couples with children and 10% of single parents.

Often people will appreciate that life insurance needs to pay off their mortgage after their death, but they may not think about any children, and covering the cost of bringing them up. It’s worth doing this rough calculation, and then erring on the side of generosity, to make sure your family is covered if you were to pass away.

The aim isn’t to start getting spooked by shadows in your finances. Instead, you need to know where you stand, deal with any growing problems, assess potential risks, and protect yourself from them well in advance. That way, you can sleep easy safe in the knowledge you’re not going to get a rude awakening from an alarm bell any time soon.

Income tax rises

Figures out this week show that fiscal drag continues to exert horrible pressure on our finances. In the 2024/25 financial year, we handed over an eye-watering £301.4 billion in income tax alone. Since the thresholds were frozen in April 2022, this has risen 21%, and in the past decade it’s up 85%. The fact that this freeze is in place until 2028 means this pain is far from over, so it’s going to be vital not to pay more than our fair share of this tax.

By using a cash ISA, basic-rate taxpayers can save 20% income tax on interest they receive from savings. Higher-rate taxpayers save 40% tax and additional-rate payers save 45%. Although basic-rate and higher-rate taxpayers benefit from a personal savings allowance (which means they can receive up to £1,000 and £500 savings interest a year respectively, without paying income tax), additional-rate taxpayers don’t get this allowance at all.

The tax relief on pensions also makes them a particularly valuable tool, particularly for those paying higher rates of tax and those nearing an expensive threshold. At this stage in the tax year, it’s an opportunity to address whether you can afford to increase monthly contributions, so you have the rest of the year to take advantage of the extra tax relief.

Sarah coles is Head of Personal Finance and Podcast Host for Switch Your Money On