7 Financial habits you need to get into

The key to successful saving is adopting good financial habits – the kind of habits you won’t even notice once you get going.

Financial habits to adopt

31% of Brits surveyed in 2019 said that saving more money was one of their New Year’s Resolutions. But 80% of resolutions last less than three months.

So instead of aiming to ‘save more money’, aim to incorporate these seven habits into your money management routine, and the savings will take care of themselves.

Set savings goals

People who set goals save up to £550 more than those who don’t. You’re far more likely to stick with it if you know why you’re saving.

Use different savings accounts or pots to channel monthly amounts into specific goals like building a house deposit, saving for a wedding, buying a laptop, or growing a rainy-day fund. Set specific amounts for each, so when you’ve achieved one goal, you can redirect your monthly payments into a new one.

Save first, spend later

Once you’ve set your savings goals – and figured out how much you need to set aside a month – pay into your savings pots the day after payday.

We all have a tendency to spend whatever we have. By paying into your savings at the beginning of the month – rather than pledging to set aside whatever’s left – you’re more likely to stick to your goals. And you know exactly how much you can spend without dipping into your deposit fund.

Overpay your debts

The longer you take to pay down debts, the more interest you end up paying. Overpaying by even a small amount every month will not only clear the debt faster, but reduce the amount you lose to interest (that you could save instead!)

For example, if you paid an extra £50 a month on a 30-year, £230,000 mortgage, you would clear the loan more than two years earlier, having paid around £6,000 less.

Automate your finances

The less you have to think about them, the easier financial habits are to get into. Set up standing orders for your first-of-the-month savings payments. Put all your bill payments on direct debit.

You could even put a little extra aside with a micro-saving app that rounds up every purchase and squirrels away the difference.

Track your budget

Now the UK is practically cashless – particularly during the pandemic – it’s easier than ever to lose track of your spending.

Try using a budgeting app – or the budgeting features in your online banking – to keep an eye on how much you’re spending on entertainment, groceries, bills, and so on. Even without a cast-iron budget, you may shock yourself into tightening your takeaway coffee belt.

Invest for the future

If the pandemic has reminded us of anything, it’s that the unexpected can and does happen. It’s never been more important to have money set aside for the future. Even if the worst doesn’t occur, the UK state pension has never been enough to live on in retirement.

Cash savings are great, but their value is eroded over time by inflation. The best way to beat inflation in the long-term is to invest in stocks and shares. They are inherently riskier – the value of shares go down as well as up – but risk can be mitigated by taking long-term positions, and prioritizing passive funds. Investing can also be highly tax efficient, with the right mix of ISAs and SIPPs.

Be kind to yourself

Research has shown that self-compassion is the best way to achieve your goals. If you beat yourself up for failing, you’ll only give up.

Instead, treat any break from your new financial habits as a slip-up on the path to success – a blip you can recover from. Everyone splurges every now and then, the important thing is to stick with it most of the time.

So if you’ve resolved to save more money in 2021, build these habits into your money management. When you take stock in 2022, you might surprise yourself with how much you’ve saved – and how easy it felt.

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