Questions to ask yourself ... to sort out your finances

Is loyalty or laziness costing me?

People who don’t put in the legwork get charged more. Savings accounts often give a better interest rate for the first year, then it drops dramatically, because they want you to just sign up and forget about it. With mobile phones you pay off the handset within a couple of years, but keep paying a higher fee because you haven’t shopped around. Put a note in your calendar for when subscriptions and contracts will end, because you always pay more when they automatically roll on. Lots of people opened a bank account for the free student railcard, and 30 years later they still have it. But there is a switching service – it may feel like an annoying piece of admin, but you could save a lot of money.

How much do I need in emergency savings?

Ask any financial adviser how much you should have in an emergency savings fund and they’ll say three to six months’ salary, but that can feel intimidating. Instead, think about what’s right for your situation: if you lost your job, would you be able to pay your rent or mortgage, would you have somebody else you could live with? A traditional rule is 50:30:20, so 50% on essentials, 30% on things you want and 20% on savings, but that’s unrealistic now that essentials are so costly, so some people have tweaked it to 60:20:20. However you divide it, having a rule of thumb can help make sure you’re always saving when you’re paid, rather than trying to save from what’s left at the end of the month. The key to saving is, when money comes in, put it out of reach. Round-up apps, or a high street bank account that lets you have “pots” you automatically transfer money to without having to think about it, are great.

What will my retirement look like?

Pensions can be a real source of fear, and auto-enrolment means people never look at their pension pot, so they think they’ll be sorted, but that’s rarely the case. The self-employed, meanwhile, have to manage it themselves. Lots of people rely on property, but property prices could fall, or you might need care. You may think you’ll get an inheritance, but there’s no guarantee that your parents won’t need care, so paying a little bit of attention to what’s in a company pension, or starting one if you’re self-employed, is crucial. The sooner you start, the less you need to save because of compound interest and investment return over time.

Do I honestly know what comes in and goes out?

To start a budget, you need to know what’s coming in and going out, but very few people do. There’s no point in thinking you need to save half your income into your pension if you can’t afford that, so you have to be realistic, by looking at the difference between the cost of your essentials and income. Lots of banks let you categorise your spending automatically. Look at the categories that take most of your money, including recurring standing orders and direct debits. Writing it out by hand can give you a moment of pause to work out how much you can save, rather than berating yourself each month when you fail because you didn’t take a good look at what’s possible.

How much interest am I paying on debts?

Many people wouldn’t be able to tell you how much the interest on their mortgage is costing in pounds and pence, but it’s worth making the effort to look at your statement, because you may realise you could save with a different product. If you’re paying interest on a credit card, you almost certainly don’t need to be. Get on to a 0% balance transfer deal. If you repaid the minimum payments on a debt of £1,000 on a credit card with an interest rate of 20%, you’d pay £2,317 to clear the debt, over 18 years and four months. If you changed to a fixed payment of £25 a month, you’d pay £1,559 to clear it, and it would take five years and three months. Use the repayment calculator on the Barclaycard website.

People often fall into financial arrangements such as living together, taking out a joint account or keeping their finances separate without thinking about the implications. Joint financial products can be useful, but they mean your credit files are tied, so if your relationship fails, or if a partner is less trustworthy, you’re impacted, too. Life changes; you may always have had separate money, then start a family so one of you is earning less, or one of you may go self-employed, and suddenly you’ve got a very different situation. Think about whether your attitude and your partner’s attitude to money align and how you feel about being financially reliant on each other. On a more granular level, think about who is paying for what; childcare costs, for example, tend to have an impact on women’s finances, rather than a family’s finances. That shouldn’t be the case. Women also have dramatically less savings, investments and pension pots as they get into their 40s, but that’s something you can correct within a family if you’ve talked about it. A partner can pay into your pension if you’re on maternity leave, for example.

What emotions drive my spending?

Spending is often driven by guilt, envy, excitement or boredom. You may think someone is “good with money” because they save a lot, but that can also be driven by emotions such as a fear of not having enough. During the pandemic, a lot of people overspent because they soothed difficult emotions by going on Amazon, then waiting for the dopamine hit of a delivery. It’s so easy to feel something, then spend – you tap your card, hit “buy now”, use Buy Now Pay Later – but in order to put a bit of a barrier in place, think about why you’re spending.

Am I claiming everything I’m owed?

Last year the amount of unclaimed benefits stood at £22.7bn. That includes things such as pension credit, carers’ allowance, child benefit (which is available to anyone who earns under £60,000) and council tax support, but also social tariffs, so if you’re on a certain income, you could get slightly cheaper broadband and mobile phone deals. Hundreds of thousands of people don’t claim tax-free childcare, which is for anyone who earns under £100,000 and is worth £2,000 a year. Marriage allowance is another thing that lots of people aren’t aware of. There’s also a lot you can get tax relief on, such as the cycle to work scheme. The website entitledto.co.uk shows you everything you can claim.

Money: A User’s Guide by Laura Whateley is published by Fourth Estate. To support the Guardian and Observer, order your copy at guardianbookshop.com. Delivery charges may apply.