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7 financial habits to help you manage your money

The most effective way to make a difference to your long-term savings is to develop good financial habits.

Forming habits that fit into your everyday life can mean you’re growing your savings without even noticing!

Building a savings habit to help you save more money

According to a YouGov poll, 41% of people surveyed in the UK made “saving more money” one of their New Year’s resolutions for 2023. But we all know New Year’s resolutions are notoriously easily forgotten - with over 55% of resolutions abandoned in the first half of the year.

If you’re committed to putting more money in your savings pot this year, here are a few tips to create sustainable financial habits that are easy to keep up with and that blend into your daily life.

Set savings goals

People who set savings goals save up to £550 more a year than people who don’t.

It’s much easier to stay motivated when you have a clear idea of what you’re saving for. This could be something like a dream holiday, a new car or just a rainy day fund to cover your expenses for a few months.

You don’t have to choose just one. You could open different savings pots for different goals and set target amounts for each goal. You can then choose to divide your savings between your goals or work towards one at a time.

If you’re saving to buy a first home, for example, you could open a lifetime ISA to save up for your deposit. Once you’ve been given the keys to your new home, you can then keep saving but in something like a stocks and shares ISA with the goal of going on holiday (or buying a brand new kitchen for your new home).

Save before you spend

Once you’ve figured out your savings goal (or goals), you need to decide how much you can comfortably put away each month.

When you come up with a number that feels right for you, make sure to put that money in your savings pot as soon as you get paid.

By getting your savings out of your current account and into your savings pot before you have a chance to touch it, you avoid the risk of being tempted to put less away than you intended.

Set up automated payments

The best way to make sure you put money away into your savings every month is to set up automated payments, such as a direct debit, into your savings pot. This way
you’ll be working towards your savings goals without even having to think about it!

Many banking apps also allow you to set up “round-up” or “spare change” features, meaning your purchases will be rounded up to the nearest £1 or £10 value, with the spare change going into a savings pot automatically. This can add up quickly and is a great way to put a little extra into your savings on top of your monthly payments.

Overpay your debts, if you can

Whether you’re paying off a personal loan, a mortgage or a credit card, the longer you take to pay off your debts, the more interest you’ll end up paying.

Overpaying your debts by even a few extra pounds each month will help you clear those debts faster, meaning you’ll pay less interest overall and save more money in the long run.

Stay on top of your budget

We’re using less cash and making more card payments than ever before, and it can be easy to lose track of your spending when your wallet doesn’t get any emptier.

But technology, such as budgeting apps, can help you keep track of your spending. Most budget tracking apps will link up with your bank account and show you what you’ve spent as well as any direct debits that come out of your account.

This can help you see how much you are likely to have left at the end of the month, which is useful to figure out how much you can put into your savings.

It also helps you work out where you could cut back, such as subscription services you’re not using or too many takeaway dinners.

Some of these apps can send you alerts when you’re spending more on something than you usually do, such as on groceries, and even suggest cheaper options.

Make your money work harder

There are two ways you can grow your money to hopefully give yourself more in the future: saving and investing.

When you put your money in a savings account, it will usually grow by earning interest. So, the higher the “interest rate”, the more your money will grow. Your money is protected, meaning it can’t go down in value, but there is a risk your money won’t be able to buy you as much in the future as it can now if prices go up.

By putting your savings in an investment account, such as a stocks and shares ISA, your money is usually invested in the stock market on your behalf. This means, you’ll own shares in all sorts of things like companies and property. So, the amount of money that your shares are worth depends on how much those things are worth.

Money that’s invested has greater potential to grow over the long term than accounts that grow with interest rates, meaning they can, potentially, go up by more. But the value could go down as well as up with changes in the stock market.

Investing is usually better suited to long-term goals, of at least five years, as changes in the stock market tend to level out over time.

Don’t be too hard on yourself

Research shows that being compassionate towards yourself is key to not giving up on your goals completely.

When we’re too hard on ourselves, it’s easy to take any slight mistake or slip-up, such as accidentally overspending, and use that to convince ourselves that we’ve failed in our goals.

No one is perfect and we all make mistakes. It’s important that you treat any financial slip-ups as small blips you can recover from, instead of seeing them as signs of failure and giving up on your goals.

Everyone splurges now and then and as long as you stay on your path and keep your eyes on the bigger picture, you’ll be on track to reach your savings goals even if you treat yourself to a takeaway coffee once in a while.

It’s always a good time to start saving

You now have a solid idea of the habits you need to develop to build up your savings pot in a way that fits into your everyday life. But your first step is to open a saving or investment account.

If you feel comfortable with investing as opposed to saving in cash, there are many products out there to suit different goals.

ISAs can be a good place to start, as you won’t pay any tax on money you make from your savings growing.

If you’re saving up to buy your first home or to set yourself up with a retirement fund, a lifetime ISA gives you a 25% government bonus on top of everything you invest. You can invest up to £4,000 in a lifetime ISA each tax year, which means you could get up to £1,000 extra in your account.

If you’re saving up for a dream holiday, a new car, a rainy day fund or any other long-term goal, a stocks and shares ISA could be a great fit. You can invest up to £20,000 a year into ISAs in your name.

If you’re dedicated to saving on a regular basis, both our Lifetime ISA and Stocks and Shares ISA can be opened with a direct debit of just £25 a month.

Stocks and Shares ISA

With one, simple annual management charge of 1.1%, our Stocks and Shares ISA could be a good option if you're looking to invest over the long-term.

Lifetime ISA

If you want to save for your first home or for life after 60, our Lifetime ISA could help as you'll gain a 25% boost from the government on top of your savings, as well as any potential stocks and shares returns.

Our Stocks and Shares ISA and Lifetime ISA both invest in stocks and shares. This means they have good long-term growth potential, but the value of your investments could go down as well as up so you could end up with less money than you've put in.

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