The last year has changed our daily and weekly routines almost beyond recognition. Whether it is the morning coffee you used to buy before your daily commute or the weekly trip to a café with a friend, the habits we have relied on to get us through our lives have been curtailed by restrictions, leaving many of us building different daily routines.
Financial habits have changed too. We may be spending more on different things, such as takeaways and subscription-based in-home entertainment, or we may have become accustomed to having less money to tuck away if we have been on furlough or our business has declined.
As we exit lockdown, now is a good time to start work on healthy financial habits that will set us up well for the year ahead. Here are five for you to begin with.
1. Pay yourself first
Before you pay any bills, develop a habit of paying yourself first. That means saving and investing a portion of your earnings before you do anything else with your money.
Consider the example from George S Clason’s classic book, The Richest Man in Babylon. Here, poor scribe Arkad became the richest man in Babylon by following the first law of wealth: ‘Save at least 10 per cent of everything you earn first and do not confuse your necessary expenses with your desires.’
After you’ve paid yourself, the rest of your earnings can then be used to pay bills and purchase the things you need.
2. Spend less than you earn
If you routinely spend more than you earn, you will build up more and more debt, leading to expensive interest charges.
When considering spending on something you– always ask yourself if you genuinely need it. Making a budget to see where your money goes or using a free app such as Moneydashboard, Emma or Yolt, can help you to monitor where the money is going.
3. Understand how your feelings impact on your finances
Money habits are tied to emotions and how we feel. It’s easy to fall into the trap of spending money when we’re disappointed, or angry, or even happy. Understanding how your emotions impact your spending can help with this.
Try jotting down how you are feeling when you make purchases for a while or make a pledge to sleep on a financial decision before making a purchase or investment to see whether you still feel the same the next day to help break the link.
4. Make debt a servant not a master
Not all debt is bad. Mortgages, for example, are an example of debt that can help you to own a home rather than renting more expensively, while student loans can help you to get a better graduate job.
What is crucial is that you understand what debt you are in and make a plan to pay it back. As a rule of thumb, pay off the most expensive debt first, and shift anything you can to a lower-interest form of borrowing (for example an interest-free credit card). Planning to pay it off is important too. If you are overwhelmed by debt, speaking to a professional such as an adviser at the Citizens Advice Bureau can help.
5. Speak to the experts
When it comes to managing your money, planning to build wealth, securing your future, and, above all else, drawing up an effective plan for fulfilling your objectives, an expert can help save you tax and build up your money more effectively.
How to build new habits into your daily life?
- Know your why - what's your reason for making the changes?
- Set realistic, measurable goals that are achievable
- Break up bigger goals into smaller actions
- Use rewards as a motivator (within reason) to treat yourself once you meet your goals
- Soon enough, these good habits will become hard to break
Making the right decisions now can bring peace of mind by offering a clearer future for you and your family. Speaking to one of our expert financial advisers can help you to keep on track and achieve your financial goals. Together, we’ll create a wealth plan that goes beyond simply finances, taking care of what really matters in every aspect of your life.