Most of the things we do every day we do from habit. It’s the same with finances, where you are spending your money, how much you are spending and what you are buying is likely down to habit. What brands you by products from, which shops to go to, the morning coffee or buying lunch every day are all habits. Any habit is hard to break and research suggests it takes 21 days to form a habit so it’s important not to give up after a week. Have you reviewed your personal finances and spending habits recently? Are there any changes you could make to improve your situation? Developing good financial habits helps you reach your goals more quickly, here are a few you can get started with today.
Pay yourself first
Do you ever find that by the end of the month you only have about £20 to put into savings? Or maybe even no savings? The trick I use is to pay myself first. Before you pay your mortgage or monthly bills, pay yourself first. Set up a standing order on the day you get paid to a savings account. If you do this you only have spending money left in your current account and you will not inadvertently use your savings for your ‘fun’ money.
Even better is if you pay yourself first, before even paying you taxes. How? By taking advantage of your employer pension you pay less tax due to the tax relief and quite often employers match your contribution to a certain point. You are more than doubling your retirement savings before even receiving your salary! So take advantage of your employer pension, don’t ignore it.
Track your expenses
The best thing I have done to improve my own personal finances is to track my expenses, and by tracking expenses I mean tracking every penny. Many people get to the end of the month having spent their monthly salary but have nothing to show for it. Do you really know exactly what you are spending your money on? The truth is you probably don’t if you have tracked where you are spending your money. An exercise you could try is to estimate exactly what you have spent last month’s salary on and then look through your bank statement and see how close your estimate is. Tracking expenses can be a real eye opener on how much you are actually spending on food, socialising, clothes etc. and most of these items it is likely you could probably cut down on. I have easily reduced my outgoings by a couple of hundred pounds by doing this.
Overspending on regular monthly expenses
Nearly all of your recurring expenses will be paid via direct debit such as utility bills, car insurance, phone bill etc. If you haven’t shopped around for a while you almost definitely can get a better deal elsewhere, check out Money Saving Expert, they have a fantastic guide over there. According to Money Saving Expert you can typically save £300 per year by switching energy providers.
I’d also suggest looking into how much you pay for things such as a gym membership. If you have a costly membership for the swimming pool, sauna and all the other luxuries, do you really use them and get your monies worth? Or could you get the same workout in the budget gym for a fraction of the price?
Create and stick to a budget
Creating a budget allows you to determine in advance if you are able to cover your expenditure, helps you get out of debt or increase your savings. If your current expenditure does not allow you to reach your financial goals then it is time to create a budget. By creating a budget you ensure you are spending your money efficiently as most of your money will be spent on what is important to you and you can cut out the things that don’t add value to your life.
Have a financial plan
Research shows that people who write down their goals are 50% more likely to achieve them than those without goals. This includes short term financial goals as well as long term financial goals. Creating a financial plan to meet your goals forces you to consider how viable your goals are and set realistic goals. Having a financial plan provides you and your family with security and stability.
An emergency fund allows you to plan for unexpected expenses such as a new boiler of car repair, it is usually suggested to have three months expenses in your emergency fun, buy you may choose to have more if that’s what you feel comfortable with.
Think about when you would like to retire and how you would like to live in retirement so you know how much you need in your pension pot. You may realise what your currently contributing to your pension is not sufficient for your goals, therefore you will either need to re-consider your goals or increase your contributions. If you know what age you want to retire you will need to invest accordingly and take on appropriate risk depending on how far in the future you intend to retire.
Review and adapt
The future is unpredictable and things may not always go according to plan. Whenever your circumstances change it is important to re-consider your goals and adapt your financial plan to meet them.
Maybe you are starting a family earlier than you had planned in which case you would need to re-consider your financial plan due to costs associated with children and going on parental leave. Maybe you are given a promotion in which case you should consider what you are going to do with the extra money to ensure you are still using your money efficiently, you may want to use it to travel more or you may want to save for retirement and bring your retirement date closer. Whatever your goals make sure you are using your money efficiently to meet your goals.