When it comes to the New Year, many of us set goals for our careers, health and finances. But how often have you begun the year on the right foot, only to find by the 31 st January all good intentions are out the window and you’re back on the wrong foot?
If 2022 is the year you want to start saving money, clearing debts or preparing yourself for a
better relationship with money, then placing an emphasis on improving your money habits is
a great place to start.
Bettering your financial habits isn’t going to happen overnight, but with persistence and know how you can make those financial resolutions stick. Here are 8 tips to get you started.
1. Create a Spending Plan
Think of a ‘spending plan’ as a roadmap for how you’ll spend your money, rather than a list of ‘don’ts’ that restrict your spending. With a spending plan, you are creating a growth-oriented mindset that will allow you to keep track of your expenses alongside your income and keep you from living beyond your means. There are many templates out there but a favourite we shared earlier this year is the 50/30/20 rule. In short, divide your after-tax earnings so that 50% goes on the things you need, 30% on the things you want, and 20% on saving towards your financial goals.
2. Clear Bad Debt
It may be a no brainer, but if you’ve any form of bad debt looming you must look at ways to tackle it first. By paying off bad debt, you will also improve your credit score and you can start saving more money to secure your financial future.
The same applies to credit cards. If you can’t afford to pay something in cash or pay it off quickly, really try to avoid buying it. The likes of Buy Now, Pay Later schemes (Klarna, Clear Pay) should also be avoided as the debts can soon add up if the repayments aren’t managed properly.
3. Pay Yourself First
A fancy way of saying save some money for later but do it when you first get paid. The idea is that you create a pot of extra money to use later on something you need or want, instead of right now as part of your regular monthly expenses. Set up an automated transfer to a savings account, because we all know if we don’t save it, we find a reason to spend it. Period.
4. Limit Non-Essential Spending
It is no secret that financial stability is not about how much money you make. It is about how much money you can retain. Things like shopping sprees and impulse purchases are big offenders here.
Another big culprit for making money disappear is forgotten subscriptions, particularly those on your phone. Open your settings app, tap your name, tap subscriptions and you’ll find everything you’ve signed up to – you might be surprised at how many you pay for that you don’t even use.
5. Credit Score Check
People tend to only care about their credit score when they are looking to purchase a home or take out a loan but it’s always worth downloading your full credit report from time to time to see what information is held on you. From there, you can dispute incorrect information, add a notice of correction or work on areas that may potentially raise a red flag to lenders (e.g. missed payments) in the future. The goal here is to be proactive as opposed to reactive.
There are many agencies offering access to a full credit report but a go-to of ours is Checkmyfile.com. It’s a slightly different approach as it compiles data from four credit agencies as opposed to one which many others offer. This not only creates a more detailed report but helps your broker match you to lenders you have a better chance of getting accepted by.
6. Consider Protection
Getting the right insurance can protect your home and assets whilst saving you a lot of money. Figures from employee benefits provider Unum UK show that one in 10 of us is likely to need to take over six months off work due to ill health. What’s more, we are three times more likely to go on long-term sick leave than we are to die during our working life. Income Protection is a policy designed to help you if you can’t work because you’re ill or injured. It ensures you continue to receive a regular income until you retire or can return to work. Of course, the type of insurance policy you need depends on your circumstance, and this is where a broker like me, can advise you free of charge.
7. Learn to Invest
If you’re reliant on your savings to work for you. Stop. The interest rate you earn on savings is likely to be lower than the rate of inflation – currently 5.1%. This means your spending power will decrease over time. Investing early and starting small is the most reliable way to build wealth over time. From stocks, bonds, ETF’s and index funds, there’s a lot of information out there so you should speak to an expert. Our team of wealth management advisors at Gameplan Wealth can also help put a retirement plan in place and make your money work harder for you.
8. Set Up A Will
It may seem obvious but anyone with a house, savings or workplace insurance scheme should have a Will. However, around 59% of UK adults do not have a Will in place (Canada Life, 2020). Dying without one means a probate court will determine the distribution of your assets - which may not align with your dying wishes.
Just remember, these tips are for information purposes only and should not be taken as personal financial advice. Should you wish to discuss any of the points relating to your personal finance, investment, Wills or insurance, please get in touch.
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