Do a Money Makeover Overhaul your finances; save £1,000s

Taking a day to cut your bills, treating it like a job, saves many £1,000 over the year. And unless you earn £525,000+, that's the best paid day of the year.

This isn't by 'cutting out cappuccinos', it's by systematically working through all bills & products to ensure you've the best deal on everything. This is a five-step plan to overhaul your finances and save £1,000s.

Radio special - Save £1,000 in a day

On 13 January 2012, Martin was on a special Jeremy Vine Radio 2 slot, telling people all about the Money Makeover technique, and loads of folks phone in with their inspirational acts...

Will it really make a difference?

Be under no illusion, a full money makeover will take a good eight or 10 hours, but it'll be worth it. In my ITV1 series Make Me Rich, I was challenged to go to families' homes and save them as much as I could in a day.

The average saving was a little over £5,000 a year; and this was before I started to say "cut back". Now, suppose by doing it yourself, you only do half as well, saving £2,500 (though hopefully you'll do better); compare that to what you earn!

And remember this saving is without tax so unless you're paid £3,500 a day (just under £900,000 a year) it's likely to be the best paid day of your year!

What if I don't have the time?

Then make the time. This is incredibly important. However, if you simply can't right now and just need a quick MoneySaving hit then shimmy straight along to Step 2: Pain-free savings and you should still manage to gain serious cash.

Can I get someone to do this for me?

"Aaaarghhh!" I'm asked this all the time, and hate this question; asking it means you've missed the whole point of MoneySaving. The process doesn't just save you cash, it empowers you to understand how companies will take your cash through ignorance, apathy and inertia. Yet even if that wasn't the case, there aren't any MoneySaving advisers, the service doesn't exist, and even if it did, their cost would eat up much of the gain.

Step 1: Do you spend more than you earn?

This isn't a trite question. Unless you know the answer, we can't work out how militant the savings must be. Standard MoneySaving is about cutting your bills without cutting back; it involves changing your finances, not your life.

Yet if after that you're still spending beyond your means, there's a major problem and cutting back may be necessary too; meaning lifestyle as well as MoneySaving changes.

Of course those spending less than they earn may only need to free up wasted cash, so it stays in your pocket, not in that of big companies. This is why it's important to know where you stand.

How to find out.

There are two ways:

• The BIG danger signal.
  
  Are you in debt? If you are, and can't answer the question, "what are your debts from?", in other words you didn't 'buy a car or a conservatory' but simply used cards or loans to fill the gap; then this sounds an ear-piercing alarm.
  
  It means your debt comes from systematically spending more than you earn. If this is the case, no further investigation is needed, we know the answer and you need to skip straight to pain-free savings.
  
  
• Accurately assess your spending.
  
  If you're not sure where your finances stand, you need to add it up. The specially designed Budget Planner calculates your genuine annual income and then tells you exactly how much more you spend than you earn.
  
  Most people are shocked by the result, as many who think they're within budget month-by-month, aren't when it's done over a year. This is the start point of sorting out your cash, so spend the time to do the budget.

Step 2: Pain-free savings

The essence is simple. If you can get the same thing paying less; then do so. Yet it's not only about car insurance and credit cards. Saving money stretches to cutting childcare costs, cheaper contact lenses or checking your council tax bill. It's what this whole site is dedicated to.

How to do it

This site has well over 100 detailed MoneySaving articles each picking the best deals. Below I've deliberately selected some that enable big and easy savings on current outgoings. Yet check every section (using the tabs at the top of the page) for your specific needs.

Did you save big? Please report your savings

Step 3: Still spend more than you earn?

Now you've done all the main pain-free savings, your new expected monthly outgoings should be significantly lower. What to do next depends on you:

Were you already spending within your means?

If so, you should now have more money to spend, save or repay debts. However, remember things change, you need to keep on top of your finances. Today's best deal isn't necessarily tomorrow's.

Ensure you get the free weekly MoneySaving email; which includes any changes and new top deals to help you save even more.

Yet even though you're now spending within your means; you may still be in-debt or wanting to quickly save for something specific. In that case, some of the techniques in Step 4: Painful savings may still be useful.

Were you spending more than you earned before?

We now need to know if you've brought your spending under control. This again means calculating an accurate answer based on your new expenditure levels. If you did the budget planner earlier, all you need do is change the values for areas where you've made savings. If not, then it's time to start the budget planner process.

You may consider this to be a bit unnecessary, after all you've done the savings, so do you really need an accurate answer? My response is an unrelenting yes; and as I explain in many other places on the site, the reason is because of what's called a "debt spiral"; one of the nastiest, most unrelenting, life-destroying, financial problems you can have.

You may feel this is over-dramatising. Yet when there's no money left, you can't borrow more, and the creditors are asking for money back which you've no ability to repay, it touches every element of your life. The danger is what's called a 'debt spiral'. It works like this:

All this means we need to know whether you still spend more than you earn, which means filling in the budget planner. If it says you're now spending within your means... hoorah! Though you may still be in debt or wanting to save for something specific; thus you may still find some of the painful savings below useful.

Alternatively, you may consider the job is done. Yet even in that case, remember things change, you need to keep on top of your finances. Today's best deal isn't necessarily tomorrow's.

To help, ensure you get the free weekly MoneySaving e-mail; which includes any changes and new top deals to help you save even more.

If you're still spending more than you earn; there is no option - you need to rein in your expenditure, so keep reading….

Step 4: Painful savings

These are changes that involve curtailing or changing elements of your lifestyle. It sounds horrid, but actually it can be much easier than you think. Small changes on things you do regularly, for example cutting from two takeaways a week to one, can save you £250 a year.

The place to start is the Stop Spending article, which is specifically designed to challenge your spending impulses and includes The Demotivator: a tool to stop you spending what you can't afford. Yet it's all about asking yourself the right questions...

"Do you really need all your Sky TV channels? Can you make food rather than get takeaways? Do you really need the cappuccino? Why not start making sandwiches for lunch? Do you need the weekly celeb gossip magazine? Do you need a car - could you sell it? Can you get a second job? And why not stop smoking?"

You'll find many MoneySavers' top suggestions for these in the Great Ways To Cut Back Hunt. Yet it's actually about asking two questions for every element of your life... Do I need it? Even if I do need it, can I still satisfy the need, even though it mightn't be as good, in a cheaper way?

Seek help from other people in a similar boat

There are two sections of the site's Forum where you can seek help and suggestions from others on cutting back.

• Debt-Free Wannabe.
  
  This Forum Board is dedicated to paying back debt, many people have already turned around huge deficits to pay back all they owe. As such the regulars in there have redefined the term "necessity"; for them it isn't the creature comforts we all need, but the bare minimum requirements.
  
  So go into Debt-Free Wannabe and post your 'Statement of Affairs' detailing everything you spend money on and how much (without giving away any personal details), and then be prepared to have your habits torn apart; but all constructive ways to cut your outgoings.
• MoneySaving Old-Style.
  
  This Forum Board has its own philosophy, separate to the rest of the site all about thrift. Rather than just saving money it's about cutting back, being less consumerist and more environmentally friendly, making, cooking and growing things rather than buying them.
  
  If you want to know how to clean your house using only white vinegar, get stains out without Stain Devil, cook for a family of four for under £15 a week, make your own clothes, then MoneySaving Old-Style is for you. There's also the Thrifty Ways for Modern Days book (all proceeds to charity) based solely on the wisdom of this board.

What if all these cut backs still aren't enough?

My first answer is "try a little harder". Many people think they've cut back on everything, but there are still little things that could go and as the Demotivator shows, over time the little things add up.

If things are so serious, it's very likely you're also in significant debt. If that's the case and you can't afford to make even the minimum repayments on your standard outgoings; you need to urgently take action. A range of non-profit debt counselling agencies can help you. For more on this read Debt Problems: What to do and where to get help.

Piggybank budgeting

Budgeting isn't just a way of calculating your expenditure, it's also a way of controlling it. One of the ways to do this is to start living with a philosophy that says "what can I afford to do?" rather than "how can I do what I want for less?"

To help with this I've designed a special 'piggybank budgeting' technique, which helps you easily allocate and manage your money, a detailed explanation is in the Piggybank Budgeting section of the main budgeting article.