How to be better with money in 2021 - from budgeting to reducing debt

by Derin Clark

As the UK starts 2021 with lockdowns and tighter restrictions, the economic uncertainty caused by the pandemic will likely continue impacting personal finances over the next 12 months.

While some will be in a fortunate position to be able to put more money away into their savings, others will continue to see their incomes fall or disappear altogether.

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Whatever position you find yourself in, it is important to prepare your finances for the upcoming 12 months so that they can withstand what the year may hold. Below, we’ve highlighted some ways that you can prepare your finances for 2021.

Budgeting your finances for 2021

A key way of managing your finances effectively is to create a budget. Normally it is advisable to create a monthly budget, in which you record all the money you have coming in (this should include any benefits or additional income you receive) and everything you have to pay out for during the month.

When recording your outgoings, it is important to put down everything you will likely spend that month, including non-essentials such as money spent on takeaways or gifts, as well as essentials including rent, mortgage, bills and food shopping.

Once you can see exactly what money you have coming in compared to what you have going out, you will be able to see if your income covers your outgoings, or if you have to make adjustments. Ideally, you should have more money left over at the end of the month when all your outgoings are paid for, or, at the very least, breaking even.

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Saving extra disposable income

For those who have more money at the end of the month, you can either choose to increase debt repayments or, if you are debt-free or your debt repayments are fixed, put the money into a savings account. Normally, it is advisable to pay off debts before saving, as the interest incurred on debts is higher than most savings accounts will offer.

If you are just starting a savings fund, you will want to build up your savings, so an easy access savings account, regular savings account or a notice account will likely be the best option as these will normally allow you to keep adding to the savings account throughout the year.

An easy access savings account is usually the most popular option for those starting to save as they allow further additions to be added to the account and also allow withdrawals. However, some restrict withdrawals, so it is important to check this before opening the account.

A regular savings account is usually fixed for a certain time period, for example 12 months, during which time regular deposits need to be made into the account. Some accounts require a deposit of a set amount, for example between £50 to £100, that have to be made each month, while others are not as strict with their conditions. Again, you should make sure you understand what the account requires before opening it.

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A notice account is similar to an easy access savings account, but a major difference is that you will need to give notice, for example 90 days, before you can withdraw money from the account.

Last year saw interest rates on all types of savings accounts reach a historic low and, with the Bank of England base rate likely to remain at 0.1% or possibly being cut further, it is unlikely that savings rates will increase significantly this year. Although this is disappointing for savers, it should not put you off starting a savings fund, but you should check the savings charts on comparison sites like regularly to see the best rates available and act quickly to open a savings account if a new chart-topping rate appears.

How to reduce debts

If you’ve got debt, a good financial aim for 2021 is to clear as much of the debt as possible, while also avoiding getting into further debt. Your monthly budget, which should include all debt repayments in the outgoing section, will give you an idea of where you can cut back on spending to put more money into repaying debt or, if you have money left over each month, if you can increase your repayments.As well as this, you may want to look at ways of making your debt quicker and more manageable to repay.

A good way of helping to reduce credit card debt is transferring the debt to a 0% balance transfer credit card. Although you may be charged a fee to transfer your debt to a 0% balance transfer credit card, by doing so you will have a pre-set time period in which you will not be charged interest on your credit card debt.

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As interest on credit cards is often about 20.0%, removing the interest from the debt can help to make it much quicker to repay. Ideally, before transferring your credit card debt, you should create a repayment plan that will enable you to repay the debt in full before the interest-free period has ended.

For those with multiple debts, consolidating the debt using a personal loan may reduce the interest being charged across the debts and make them more manageable to repay. Interest rates on personal loans are low at the moment, with the interest on a loan of £5,000 available from as little as 3.40% APR. With a personal loan, the interest rate will be fixed for the length of the loan and, as a result, repayments will be at a fixed amount until the loan is repaid.

If you are considering either a 0% balance transfer credit card or a personal loan, you should keep in mind that whether your application is accepted, as well as the interest rate you are offered, will depend on your credit score – which you can check for free.

In addition to this, the pandemic has pushed many households further into debt and made once manageable debt become unmanageable. If you have found yourself struggling with debt for whatever reason, or are falling into further debt that could become unmanageable, you should consider seeking professional advice by contacting Citizens Advice or a free debt charity to help reduce and manage your debt.

To compare the current savings account rates, as well as the 0% balance transfer credit cards and personal loan rates, visit