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7 good financial habits to help you manage your money

The most effective way to build your long-term savings is to have good financial habits.

By developing healthy financial habits that fit easily into your everyday life, you could be growing your savings without even noticing.

How to build good financial habits

According to a YouGov poll, 49% of people surveyed in the UK made “saving more money” one of their New Year’s resolutions for 2024. But we all know New Year’s resolutions are easily forgotten, with most 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 good financial habits that are easy to keep up with.

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 even just an emergency fund.

You also 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 either 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 putting money in something like a stocks and shares ISA with the goal of going on holiday or funding home improvements.

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 money out of your current account and into your savings pot before you have a chance to touch it, you avoid the temptation to spend it.

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. This means 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 lighter.

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 list 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, while also helping you work out where you could cut back.

Some of these apps can send you alerts when you’re spending more than usual on regular purchases, like doing the weekly food shop, 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. The higher the “interest rate”, the more your money will grow. You can’t lose any money that’s saved in cash, but there is a risk that the money you save won’t be able to buy 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. How much your shares are worth depends on how much the things you invest in 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.

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

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.

It’s always a good time to start saving

You now have a solid idea of some good financial habits you can develop to help you build up your savings pot. That means it’s time to open a savings 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 investments going up in value.

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 put up to £4,000 in a lifetime ISA each tax year, which means you could get up to an extra £1,000 in your account.

The catch is that if you withdraw money from a lifetime ISA before you turn 60 and use it for anything other than buying your first home, you’ll have to pay a 25% penalty fee.

If you’re saving up for a dream holiday, a new car 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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