The cost of living crisis has gripped the nation with many people, understandably, worried about how much their bills will rack up to.
And as saving money becoming increasingly difficult, Martin Lewis has shared his 'piggybanking' technique to help those looking to put away some funds this year.
The Money Saving Expert (MSE) founder issued advice that could help people see how much they actually have left to spend at the end of each month, after their bills are paid. This also means that people will be able to budget better and ease some stress that they may have when it comes to fears of overspending.
READ MORE: People earning under £40,000 urged to check if they're missing out on benefits
Here is how the money-saving method works...
What you need to know before you budget
Before you begin to sort out your finances, Martin Lewis has said that you need to look at your bank account in detail such as direct debits and what money you have coming out soon such as your main shop. Don't just look at the main figure as that could give you a false indication of how much money you have.
Another thing he asks people to consider is that if you ask yourself the cheapest way to do something, you could overspend. Instead you need to think about whether or not you can actually afford what you want.
What is Martin Lewis' piggybanking technique?
Now for the piggybanking technique. The financial guru says that this helps you "automate your spending so you always know how much money you can truly spend."
To do it, you can follow these steps:
1. Select your main categories of spending
The first step is to work out how much you can spend in different areas of your life. You can use the "Part C – Monthly desired spend" column of the Budget Planner to do this.
After this, you need to look at what the major categories are such as saving up for a holiday, a wedding, Christmas, birthday. Other categories can also include food and clothing. If you're self-employed, you should always have a tax account, warns Martin Lewis.
2. Arrange your piggies
After you've set aside money for each category, Martin explains that they are a few ways you can now tell how much cash you have left.
He explains: "It used to be you'd have to set up a couple of different bank accounts, one for each of your categories, so the money's effectively in little pots (almost as if you're putting them in different piggybanks). For example, you could have a main bank account, a bills account, then accounts for holidays, Christmas, and emergencies.
"However, many current accounts now offer simpler and quicker ways to split money into different pots that can be easily managed in one place, either via an app, or online. So you don't need to worry about having lots of bank accounts with different providers."
Three providers stand out to Martin Lewis. At present, these include:
- Chase: Chase* lets you split money into separate saver accounts, each with its own individual account number (and a decent 2.7% interest rate) - so you can choose which account each regular payment goes into, and out of. Chase also offers a range of opt-in rewards such as a year of 1% cashback on everyday spending and 5% AER interest on 'rounded-up' savings.
- Monzo: Monzo lets you create 'pots' with different names, and you can arrange for your salary to be divided up automatically between each pot. You can also pay bills from specific pots too.
- Starling Bank: Starling* lets you set up 'spaces' and automatically send a portion of your salary in to each space. You can then choose which bills come from each space.
He adds: "These are just three of the many new options for piggybank-friendly accounts - traditional banks will often let you open other 'savings' accounts (paying little or no interest) and let you easily set up standing orders between them. Explore the full best bank accounts guide to find the right option for you."
Martin Lewis bonus tip: For the piggies you're only likely to access once a year, for example, holiday or Christmas piggies, it's worth using a savings account so that you're accumulating interest on the money you're putting in there. Our Top Savings Accounts guide will point you in the direction of the best options for this.
3. Use a standing order to feed the piggies
After setting up the categories, the money expert recommends setting up standing orders which will place a certain sum of cash away each month.
Giving an example, he adds that if you have allocated £800 a year to spend on Christmas, you would put £67 a month into a Christmas account each month, so it builds over the year.
Martin Lewis bonus tip: Schedule this for two days after getting paid, not for the same day – just to give you a little bit of room in case there are any payment problems.
4. End result
After all these steps have been completed, you should have a clear picture of how much money you have to spend once you have taken into account your bills and anything else you are saving up for.
Martin concludes: "If you've piggybanked properly, putting aside all the cash you need for bills and essentials, you're free to spend whatever is left in your main bank account each month. You really know how much money you have to spend at Christmas or to go on your holiday – there's no fooling yourself anymore."
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