How to organise your finances for 2021

organising finances

January 26, 2021

After an expensive Christmas and compulsive online buying during lockdowns brought on by Covid-19, many of us are currently looking to cut spending, save money and clear debt in 2021.

Well never fear!  We’re here to help you kick off 2021 with a ‘new YEAR, new ME’ attitude to help get your finances back into shape.

Below are top tips and guidance on how to manage money better through savings goals, financial planning, debt reduction, boosting your credit score and much more.

In this guide:

What is personal finance?

Why is personal finance important?

The top five areas of personal finance you should organise

What is personal finance?

Personal finance refers to all the ways in which you can best manage your money and plan for a financially secure future.

Personal finance comprises:

  • Budgeting
  • Savings and investment (e.g. pensions)
  • Insurance
  • Credit
  • Tax and estate planning

Why is personal finance important?

Personal finance is important because if you don’t manage your money or plan for your future you could:

  • Waste vast sums of money
  • Have no funds for emergencies (such as the Covid-19 pandemic)
  • Be subject to an IVA or bankruptcy
  • Have a miserable and miserly retirement
  • Cause financial hardship for your dependents and loved ones

Planning for the future and managing your money is essential if you want to avoid financial challenges and unnecessary stress. If you don’t, financial woes are no laughing matter and can heavily impact your mental (or even physical) health and affect the wellbeing of you and your loved ones.

As far as we’re concerned, knowing how to manage personal finances is essential learning which should be instilled at an early age, starting with a good, old-fashioned piggy bank!

Teaching a child financial self-reliance from an early age is one of the greatest gifts you can give to your child, furnishing them with valuable skills for a happy and financially secure future.

Now, we'll take a look at the key areas of finance that you should try to focus on if you're planning on being more organised with your money.

Top 5 areas of personal finance you should organise

1. Budgeting

Good money management starts with budgeting - you need to know exactly what money you have available to spend by deducting your monthly spending commitments from your income.

You can easily calculate your monthly or annual budget by using a spreadsheet to record all your monthly (or annual) income and expenditure.

There are lots of free resources on the internet where you can download a template budget spreadsheet. If you do not have access to Microsoft Excel, we recommend using Google Sheets’ monthly budget template or Google Sheets’ annual budget tracker template. All you need (if you haven’t got one already) is a free Google email account.

Once you’ve completed a budgeting spreadsheet, you’ll be able to see at a glance what disposable income you have left to spend, save or invest. Knowing your disposable income will enable you to manage finances more efficiently, help you decide where to make cutbacks and efficiently manage money. It will also help curb compulsive spending!

For the more ‘tech-savvy’ app lovers or people who HATE spreadsheets, there is a wide choice of budgeting apps you can download and use, some of which are completely free or have a small premium.

For more info on budgeting apps, check out our guide on the Best Online Money-Saving and Management Apps and Tools.

2. Savings and investment

Part of your financial plan should involve putting money aside for a ‘rainy day’ in a savings account or, for those wanting a more risky but potentially higher return on their savings, investment.

Short-term savings

Having some sort of emergency savings to fall back on is essential as you never know what might be around the corner.

Just look at how many people have been financially devastated by the coronavirus epidemic. Even with the Chancellor’s emergency budget measures to try and help businesses survive, the Telegraph reported an estimated 200,000 job losses or jobs that are at risk.

The only drawback with short-term savings (i.e. savings you want to be able to access instantly or at short notice) is that the interest rate is low and it will not give your savings much of a boost.

How much should I save?

Most financial experts recommend you should aim to save between 10% and 25% of your net income or that you should apply the 50/30/20 rule:

  • 50% of your net income for essential spending (mortgage, food shopping, etc)
  • 30% of your net income on non-essentials (Netflix, new phone, gym, etc)
  • 20% of your net income should go into savings and/or investment

Where should I save - Bank account vs easy-access cash ISAs?

For easy access to your savings, bank accounts top ISAs. There is now a vast choice of savings accounts on the market and we recommend shopping around to compare interest rates. We recommend also taking a look at modern, online-only challenger bank accounts (like Monzo, First Direct or Starling) who offer the use of money-saving apps to help you budget and save more efficiently.

All UK residents aged 16+ are entitled to an ISA allowance at the start of a tax year (from 6 April every year). For the tax year 2020/2021 this allowance is £20,000.

Easy-access cash ISAs can earn you slightly more interest on your savings as you do not pay tax on the interest. However, access is not always as quick and straightforward as access to a bank savings account, especially if you use online bank accounts with banking apps.

Long-term savings

Fixed-term bank accounts and ISAs are a much better choice for higher interest rates and a more favourable return on your savings, should you not require instant access to them.

Ideally, you should allocate some of your savings to an easy-access savings account or ISA, and some to a fixed-term bank account and/or ISAs.  That way you’re getting the best of both worlds and are able to access funds urgently, should an unforeseen event happen where you need to dig into your savings.

There are lots of different types of ISAs to choose from on the market including:

  • Cash ISAs
  • Stocks & Shares ISAs
  • Lifetime ISAs
  • Help to Buy ISAs
  • Junior ISAs
  • Innovative Finance ISAs

If you’re struggling to decide which ISA to go for, we recommend seeking advice from an independent financial advisor.

A huge part of your long term savings goals should of course also include pension planning so you can enjoy your hard-earned retirement.


As mentioned above, investments are a higher risk type of savings but can potentially bring much higher returns than any current [low] interest rates can - the current Bank of England base rate is a miserly 0.10%.

he choice of investments can be a little overwhelming, but the most popular types of investment are usually stocks and shares, property, premium bonds and ISAs.

There are a vast array of investment funds you can choose from:

  • Shares
  • Unit trusts / open-ended investment companies (OEICs)
  • Investment trusts
  • Insurance company funds
  • Tracker funds
  • Real estate investment trusts (REITs)

And an equally confusing choice of investment products:

  • Stocks and shares ISAs
  • Workplace pension
  • Personal pension
  • Investment bonds
  • Endowment policies
  • Whole of life policies

The Money Advice Service provides more insight into what these different types of investment funds and products entail.

As you will see from the following graph, UK shares and property have historically been the most valuable type of investment but of course, this was prior to the economical impact of Covid-19, where some share prices have plummeted and property prices have literally gone through the roof!

Government bonds, shares, cash and commercial property

Source: Santander

Savings vs investment

The beauty of savings is that it’s reliable and there’s no doubt as to whether the funds will be there when you need them - especially useful in an emergency.

Whereas if you had invested all of your spare funds, not only could your funds probably be tied up should you need access to them in an emergency, you might even lose some of your money should your investment not be prosperous.  That said, investments can bring a much higher return than savings.

The following graph shows you a clear indication of potentially how well an investment in shares (or bonds) could perform compared to cash savings.  However, bear in mind this comparison relates to a £10,000 investment over a nine-year [historical] period from January 2010 to December 2018 and if you had invested in shares of a company that fell victim to Covid-19, then this graph would tell a vastly different story.

Investment in shares compared to cash savings

Source: Barclays Bank

3. Insurance

As with emergency savings, having insurance in place for all of life’s eventualities is a very important part of financial planning.

The most common types of insurance most people take out include:

  • Car insurance
  • Life insurance
  • Income protection insurance
  • Home insurance
  • Travel insurance
  • Health insurance

Obviously, most of us take out car and home insurance as a matter of course but what about other types of insurance - what if you lose your job or are diagnosed with a terminal illness?  What would happen to your home and your family then?

At the very least, we recommend taking out income protection insurance and life insurance as a financial safety net.

An income protection insurance policy protects you against lost income if you become unemployed, are made redundant or have an accident or become too ill to work.  Income protection insurance payments are tax free and will help you survive financially until you’re able to work, employed or retired.

Equally, life insurance is a HUGE safety net for your loved ones in the event of your death.  Life insurance policies will help cover the cost of your funeral, any debts, your mortgage and household bills.

Compare quotes online for life insurance and income protection insurance to get the best deals.

4. Credit

When organising your finances, you should always look at what you owe and whether you can reduce your debts by consolidating them or pay them off quicker by reducing your non-essential expenditure.

For example, you could apply for a new credit card offering a 0% balance transfer to clear an existing credit card you’re paying high interest payments on.

Did you know that having large debts can adversely affect your credit rating, as does not paying your bills or loan repayments on time.  And if you have a low credit score, this will affect how much you can borrow and will attract a higher APR on loans.

As most lenders and insurers will check your credit score when you initially seek a loan or request a quote for insurance, you should always check your credit report before applying.  This will give you a chance to increase your credit score and in turn, receiving a larger loan or better deal.

For more information about your credit file, take a look at our Credit report and scores FAQs.

Note: If you’ve just taken out a loan or insurance (before reading the above) and want to try and get a better deal, remember all orders and contracts are subject to a cooling-off period which means you change your mind - usually 14 days from the date of inception.

5. Tax and estate planning

The final leg of your financial journey should be tax and estate planning.

In 2021, there’s no excuse for not making a Will as there are lots of cheap and free Wills services all over the UK.

However, to fully prepare for how your finances are dealt with on your death and to avoid a hefty inheritance tax liability, you should put some serious thought and planning into how your estate is dealt with on your demise. If you’re going to be paying inheritance tax (if your estate will be worth more than £325,000), we strongly recommend seeking professional legal advice.

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