Master your money with 5 golden rules of personal finance

Whether it’s the cost-of-living crisis, the economy or maybe just a few too many days until pay day – frankly, times are hard. This makes it an ideal time for some money management tips. Here are five golden rules of personal finance to help everyone through these tough times.

Rule 1 – Only spend what you have

It’s a simple rule, but it's still the most potent piece of money wisdom: don’t spend more than you earn. Living within your means is a sure-fire way to stay out of debt, avoid creeping interest costs and create financial stability. Plus, the peace of mind that comes from knowing you can afford your lifestyle is priceless.

Rule 2 – Create an emergency fund

As the famous line goes 'Life is like a box of chocolates, you never know what you’re gonna get'. That means a crucial money move will always be to have a stash of cash for when emergencies strike. It’s a good idea to aim for 3–6 months of living costs, saved in an easy access, high-interest saving account. And remember to top up your emergency fund if your cost of living has increased and if you can afford to.

Rule 3 – Pay down debt as a priority

Usually, the interest you pay on debt is higher than the interest you gain from savings. So, you might be better off repaying expensive debt as a priority before sending money to savings (aside from your emergency fund).

Here’s an example:

• The average interest rate on a UK credit card is 26.11%. If you had £1,000 of debt at a rate of 26.11%, you'd pay £261 in interest over the year (assuming this was simple interest and you made no repayments)
• The average interest rate on a UK easy access savings account is 2.77%. If you saved £1,000 in a savings account at a rate of 2.77%, you'd earn £27 in interest over the year (assuming this was simple interest and you made no withdrawals)

Rule 4 – Create money goals

For many of us, we’ll eat as much food as we have on the plate. Similarly, we’ll often spend the money that we have in our accounts. To really be in control of your cash, it’s a good idea to set clear money goals before it even arrives in your account. That might mean determining how much you can afford to save, then setting up a standing order for the day you get paid. Or maybe setting a spend budget, with about 50% of cash going to ‘needs’, 30% to ‘wants’ and 20% to ‘savings and investments’.

Rule 5 – Make your money work for you

Idle cash can be costly – in other words, money that’s not earning interest is actually losing value due to inflation. So, to make your money work for you, consider putting it in high-interest savings accounts or, if you are comfortable with the risk of losing money, potentially investment products. Over time, you’ll earn interest that compounds, allowing you to gain more interest on previous interest earned. With investments, any earnings over time can be reinvested to generate more dividends or returns, depending on the type of investment.

Looking for somewhere to keep your savings? Bank with Chase and you can open a saver account. Start saving with as little as you like, and we’ll calculate your interest daily and pay it monthly.

18+, UK residents.

Recommended reading

• How to achieve financial independence and retire early with FIRE
• How to be a jam jar saver
• What's a good amount to have in savings?

Disclaimer: As with all investing, your capital is at risk. The value of your portfolio can go down as well as up, and you may get back less than you invest. The Hub is intended as a knowledge portal to provide information on a range of topics, including financial products. Articles may reference products and services that Chase UK does not currently offer. This article is for information only and does not constitute financial advice.