Martin Lewis offers up his tips on how to overhaul your finances. "Typically, families who've never done this before, on average earnings, can save up to £3,000 a year."

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1. Clinically assess your finances

 

If you spend more than you earn, either you will start to eat up your savings or you'll start to build up debt. You have to know which is bigger, your spending or earnings? The way to do this is by using a budget. A free budget planning guide is available on Martin's website.

2. Pain-free savings

 

This is about cutting your bills, without cutting back and working through every single element of your finances to see if you can save money. This is not just for credit cards and mortgages, there's also council tax, contact lenses, all sorts of purchases - if you spend on them, you can save. And here's some of the top ways to save now:

Childcare

If you pay for childcare and you're a single person who works more than 16 hours a week, or you're a couple and you BOTH work for more than 16 hours a week and you earn less than £40,000 family income, then you should definitely check out whether you're eligible for childcare tax credit. The average pay out is £3,000 a year and even if you can't get that you should look at childcare vouchers too.

Car insurance

Never simply auto-renew when your renewal notice comes through. You're wasting a fortune. Instead, use comparison services to get quotes from elsewhere, then see if you can get hidden cash back from cashback websites.

Credit cards

If you've got existing debts on cards, it's crucial that you deal with them right now.

  • Lower your interest rate, either by getting a new balance transfer deal or by calling your existing provider and asking, "Can I shift debts to you from other cards and if I do will you give me a cheap rate?"
  • Pay off the highest interest rate debts first. Just do the minimums on everything else and focus all your cash on clearing the debt that's costing you the most.
  • Stop borrowing any more. It won't help.
  • If you're really struggling and in debt crisis, get help from one of the non-profit debt counselling agencies - Citizens Advice Bureau, Step Change or National Debt line - 0808 808 4000.

Trains

If you regularly travel on the train, the way to save money is to take the logic book and throw it out of the window. One example is using split ticketing. I remember once checking out a price for a journey from London to Penzance. The standard price? £257. But, if instead, you chose to buy a ticket from London to Plymouth where the train stopped then on to Penzance, then back to Plymouth, then back to London - same seat, same train, same time. But instead of a cost of £257, by buying the constituent ticket, the cost is £50.

Gas and electricity

Going... Going... soon to be GONE! Time to act! We've seen a round of price hikes, with all of the big 6 companies raising prices, plus three of the cheapest online deals have recently been pulled. Millions of people are currently on standard tariffs and can save a massive £180 a year by switching to the cheapest online deals, but go quick. Compare, ditch and switch!

3. Go back to your budget

 

If you're still spending more than you earn, it's time to carry on to the next step...

4. Painful savings

 

If you're here, you're spending more than you earn and that means you need to cut back, whether it's small things like cups of coffee at work, flogging what you've got, or doing an absolute moratorium on all spending apart from heating, food and transport. A quick tip about things that you spend regularly; there are four golden numbers: - 12, 52, 250 and 365. If you spend something once a month, multiply it by 12 to get the annual cost. You can guess 52 and 365, they're easy. And 250? That's if you do it every day at work. £2 a day on a cup of coffee? That's £500 a year...

5. Piggybanking budgeting technique

 

Working out a budget is relatively easy. The problem is sticking to it. One technique to help with that is called piggybanking, because you set up lots of little accounts for your main expenditure. For example, Christmas, holidays, bills... saving for a new sofa.

When you get paid each month, use a standing order to move money into those other accounts. Now your actual bank account tells you what you've got to spend. When it comes to you going on holiday, look in your holidays account - if you've got £200 in it, that's how much you can afford to spend. It may be less than you want but at least you know you won't be blowing your budget.

Remember, don't be scared of finance, it isn't that difficult. You may take a little bit of time, but the amount you can save by overhauling your finances will probably amount to the best paid day of the year.

Martin Lewis is a broadcaster and London Press Club consumer journalist of the year, you can read his full step by step Money Makeover on his website. Other websites offering tips on budgeting are listed on the right hand side of this page under External Links.

For some quick and handy hints and tips, download our budget factsheet.

This page was last edited in November 2012.