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Managing your money more carefully in later life

James Daley

Money expert and Founder of Fairer Finance

Last updated 30th April 2024

9 min read

Unless you’re lucky enough to have a very large pension, you’re likely to need to manage your money carefully once you reach retirement.

Once you start drawing a pension, your income is likely to be relatively stable – but your outgoings won’t necessarily be as predictable. So it’s important to get a handle on your week to week expenditure and then also make sure you have some money in reserve for when something unexpected hits – like your boiler breaking down. And with prices rising, it's all the more important to have a clear view about where you're spending your money – and how you'll manage if your core expenses rise further.


Drawing up a budget is a worthwhile discipline at whatever stage of your life you’re at. By keeping tabs on exactly what you’re spending, it’s easy to ensure you’re not wasting money – and easier to make plans to meet your financial goals.

You don’t need any more than a pen and paper to get started with drawing up a budget. But there are some great online tools that make the process even easier.

The Government-backed MoneyHelper, for example, has an easy to use online budget planner tool( opens in a new tab) that helps you put a budget together. You’ll need to have some bank statements at the ready – so you can accurately enter details of all your income and expenditure. The more time you put in to making it, and the more accurate it is, the more useful it will be.

Once you’ve completed it, you can either save it on the MoneyHelper website – or you can download it as a spreadsheet and save it on your personal computer.

Like all good budgeting tools, it doesn’t just ask about your monthly outgoings, it also asks for details about things you may only pay once a year – like insurances or road tax. These can be easy to forget when you’re making a budget, but they’re absolutely crucial to getting a clear picture of where you stand with your finances.

Once you’ve completed a budget – hopefully, you’ll see that you have some money left over each month which you can put aside into a savings account. You should aim to keep an emergency fund of at least three to six months’ worth of expenses. This will ensure you’ll have some spare money in the event that you end up with a large unexpected bill – like a major repair to your car or your home.

Bear in mind that your costs are likely to rise – so it’s worth thinking ahead to how your budget may look if your outgoings were higher. It’s always difficult to know exactly how much prices will go up by. When it comes to larger costs like your energy and broadband bills, you should get decent forewarning from your supplier.

For food costs, and other major expenses, it’s worth thinking how your budget would look if prices rose by as much as 10-15% over the year ahead. In March 2024, inflation – the rate at which prices are rising every year – fell to the lowest level in two and a half years. But just two years ago, it hit double digits for the first time in 40 years. This has put pressure on many household budgets – and there’s no way to guarantee how inflation will change in the years ahead.

This highlights the importance of planning ahead to make sure you can balance your budget if your regular costs rise.

Easy ways to cut back on your spending

If it looks like you’re spending more than you’ve got coming in, drawing up a budget will help you get a clear idea of where your money’s going and where you might be able to make savings.

There are often significant savings to be made just by switching your utility bills, internet, phone and insurances to different companies. And a forensic sweep through your bank statements may help you identify one or two things you’re paying for that you don’t really need anymore – like a newspaper delivery, a club membership or a regular trip to an expensive coffee shop.

Once you’re retired, there are also numerous savings to be made when you’re travelling, shopping or out having fun. Read SunLife's guide on the best freebies and discounts for over 50s to help you put a little extra back in your bank account each month.

If you can’t find a way to get yourself bringing in more than you’re spending each month, then you need to look at boosting your retirement income. Take a look at Sunlife's guide for some ideas.

If debt repayments are part of your regular outgoings, you should take a look at our debt in retirement guide for ideas around how to get on top of your borrowing.

Cutting energy costs

Energy bills have thankfully fallen since the record levels in 2022 and 2023. And they are predicted to drop further since a new energy price cap was put in place in April 2024. But they are still a significant cost that is unaffordable for many. As a result, finding ways to cut your energy use can result in significant savings.

At the most basic level, that might be by working harder to turn off the lights or by keeping the thermostat down a degree or two in winter – and putting on a few more layers. If you’re looking for a longer term solution to cut your bills, you could consider investing in a new more efficient heating system.

If your boiler is old, it’s likely to be inefficient and costing much more than newer models would. Alternatively, you could look at installing more sustainable heating systems – such as solar panels or heat pumps. These tend to come with a significant upfront investment – but will usually pay for themselves over a 10 to 12 year period.

Finding a good bank

If you’re comfortable doing your banking on your mobile phone, a new breed of banks have budgeting tools built into their apps. These keep track of your spending in real time and can let you know when you’re breaching certain limits that you set yourself – or when you’re hitting your goals.

Banks like Starling(opens in a new tab) and Monzo(opens in a new tab) have this functionality built in – and will also give you instant notifications when you spend on your debit card, so you can keep track of your balances by the minute.

Alternatively, there are apps like Emma(opens in a new tab) which help you bring together all your accounts in a single app – and keep track of all your spending and saving.

You may want to find out more about your credit score before you apply for a new bank account. Read our guide to on what a credit score is and how to improve it.

Contactless and cash

All banks now offer contactless cards, which are a convenient way of making most day to day transactions without having to even enter your PIN.

But while contactless is convenient, it can sometimes be a little too quick, with some people feeling it can make it too easy to spend money when you’re trying to budget. Others worry about the security.

If you lose your card, it’s easy for someone else to use it – although banks will usually refund you if you call them straight away once your card is lost. Nevertheless, if you’d rather not have a contactless card, some banks allow you to order a card without contactless functionality.

Some people prefer to use cash as a budgeting tool. Once the bills have come out of your bank, withdrawing all of your discretionary spending money can be one way of making sure that you never spend more than you mean to.

However, with cash usage rapidly declining in the UK, in some areas it can be hard to get free access to cash – and some shops, pubs and restaurants no longer accept it. So if you’re able to embrace digital budgeting options, these are likely to be more sustainable.

Getting in the savings habit

It’s easy to get out of the habit of saving in a world where loans and credit cards are easy to come by.

But building up debt in retirement is riskier, as your income is likely to be fixed, and you’re not going to get those bonuses or pay rises that might have helped you out when you were working.

That’s why it’s all the more important to build up some savings in retirement.

You should aim to keep your emergency money in a savings account – earning as much interest as you can, but available for you to get your hands on at relatively short notice if you need it.

If you’re a basic rate taxpayer, you can earn up to £1,000 a year in savings interest without having to pay any tax – and if your total income is below £17,570 your tax-free allowance can be even bigger. For higher rate taxpayers, you can earn up to £500 a year without paying tax.

If you’ve got a larger amount to stash away, then it’s worth thinking about saving your money into cash ISA, where you can save up to £20,000 a year – without paying any tax. If you’re able to keep on contributing to your ISA, it can add up – and the tax breaks could start to become very valuable a few years down the line.

Protecting your savings

If you do build up a larger savings pot, make sure you spread your savings across a few different banks.

Almost all banks that offer accounts in the UK are protected by the Financial Services Compensation Scheme (FSCS). This protects your savings up to £85,000 in each bank – meaning that in the unlikely, but not impossible, event that your bank goes bust, you’ll still get every penny of your money back.

FSCS protection is granted per banking licence. So beware that some banking brands are owned by the same group and share a licence. For example, Bank of Scotland and Halifax share a banking licence – so two lots of £85,000 invested in separate accounts with each of those banks would still only give you £85,000 of protection in total. However, both brands are part of the Lloyds group – and Lloyds has its own banking licence. So you could put £85,000 in Halifax and £85,000 in Lloyds and still have 100% protection. You can find out more about who shares banking licences on the Which?(opens in a new tab) website.

Searching for a better return

Once you’ve got a larger sum of money saved, you might want to consider looking for better returns than you can get in a savings account – by investing some of your savings in other assets like bonds, stocks and shares.

Once again, holding this in an ISA protects you from having to pay any tax on dividends or capital gains. But if you’re thinking of investing, it’s worth taking independent financial advice so you make the right decisions with your money. When you’re investing in anything other than cash, your capital is at risk and it’s important that you understand the risk you’re taking and how much you’re willing to consider losing if markets turn against you.

If you don’t want to take independent financial advice, you could look at investing your money through one of the new breed of investment platforms that offer readymade portfolios. Companies such as Nutmeg, Wealthify and Moneybox will select a portfolio for you based on how much risk you say you’re willing to take. But keep an eye out for high annual fees. Anything more than 1% a year is expensive. It’s possible to get started with readymade portfolios for less than 0.5% a year.

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