Get organised with a dedicated household account

Opening a dedicated bank account for all of your household expenses can go a long way towards peace of mind and good money management.

Many years ago, disaster struck early on in my marriage when the electricity meter reader who came to our small village made a mistake with our regular reading. This made us think our heating was surprisingly cheap, which led to us setting our thermostat comfortably high and using our dryer throughout our first winter in the UK.

Finally, we received a correct reading and a bill for over £1,000. I persuaded the energy supplier to allow us to pay it off over the following year, although it took them much longer to stop the red demand letters that continued to pour through our letterbox.

The solution: getting organised

After that incident, I opened a separate household account for our bills. I added up our annual costs, divided them by 12 and set up a standing order from our current account so there'd be enough money available. I also set up Direct Debits for most bills to automate payments where I could.

Some companies charge a higher amount if you choose to pay monthly instead of annually, so it's important to work out the difference and decide if that's preferable.

Put money aside for annual payments

If you opt for annual payment and can afford to put away the money for next year's premium, divide the anticipated annual amount by 12, and put that sum into your account each month. You'll then have the money available on renewal of that policy which could even translate into a discount.

I use this method with our TV licence (annual) and our water bill (biannual), so that when the invoice arrives, the money is there, but this can be done with any annual cost. Regular essential outgoings for many people include rent or mortgage, council tax, broadband, TV, mobile phone, insurances, road tax, gas, electricity and water.

If you own a property, your mortgage is likely to be your highest expense. Mortgages are usually paid monthly, but if you're planning to top up your payments on an interest-only mortgage, for example, you could set aside a monthly amount and make an extra payment once a year. There can be upper limits to how much extra you can pay without penalty, so you'd need to check the details with your mortgage provider.

Keep a close eye on payments and offers

It's also important that, once you have set up the dedicated account and are using it for all your regular outgoings, you keep a close eye on payments. It's all too easy to accept a low-cost or free subscription offer for a magazine, newspaper, TV or film channel. Even if it's free upon signing up, you'll normally have to supply your card details, and after the offer period is over, the payment will default to the usual or higher rate. Unless you've made a note of the date of the offer ending, the money will continue to go out, possibly without you realising.

I am not immune to these offers, but I make a note in my calendar of the date that they revert to a higher price, set an alert for 48 hours before and then cancel the subscription. Moneysavingexpert.com advises a regular ‘Direct Debit audit’ (Opens in new window) for those long-forgotten gym memberships or the insurance a salesperson may have talked you into when you bought a fridge or a washing machine, for example, that you no longer have.

There are other traps you can fall into:

1. Some costs, particularly for utilities, might creep up slowly
2. Two Direct Debits to the same company can occasionally go out in one month
3. You might forget about some annual Direct Debits or miss the notification from the supplier

The solution is to make friends with your bank account. Download the banking app. Take a quick look at it every day. That way, you'll hopefully spot any problems that might arise.

Create a financial cushion

Make sure you have a small financial cushion in case there is a hike in one of your payments or an incorrect payment is taken. Energy bills can be a particular problem. You could potentially save on your energy bills by choosing to pay by Direct Debit, but according to moneysavingexpert.com, it is possible to end up overpaying. Use their calculator (Opens in new window) to work out how much you should be paying. If you find you're paying too much, you can ask your supplier to bring the rate down, and they might agree to this.

If you're in a relationship, whether or not you have separate bank accounts as a couple, the creation of a dedicated household account will put a wall around your set outgoings.

Chase lets you set up multiple current accounts easily. Since you can spend from these directly, it might help you track your spending throughout the month and allows you to have that dedicated household spending account.

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Recommended reading

• Use the power of automation to manage your money
• Can old school money tips help us during the cost-of-living crisis?
• Saving for a house deposit on under £40,000 a year