The New Year, New Me sentiment crops up at every turn of the calendar but doesn’t often hold fast (in fact, UAB Medicine estimates that only 8% of people stick to it). January is now long gone and I would wager a safe bet that your New Year resolutions were left behind with it?
Taking the opportunity to revisit your spending and saving is perhaps the most impactful resolution you can make however, one that should not be abandoned so flippantly. It will help you build a stable financial foundation.
Common aims, such as living a healthier lifestyle, are laudable, but the best tend to have specific targets and goals, which means it’s far easier to monitor your progress and keep going.
Today we’ll look at strategic, actionable steps you can take to start 2022 in the right way and create those habits that will transform your finances – helping you make bigger, bolder resolutions every New Year to come.
Why Pick Money Habits as Your Big 2022 Resolution?
Bad habits are the most obvious place to pour your efforts and extend beyond drinking a little more than you should or indulging your love of pastries.
- Forgetting to put anything towards your savings, which you’ll rely on in an emergency.
- Failing to open a pension account (for yet another year) making your retirement even more precarious with each passing month.
- Spending on a whim and living paycheck to paycheck for your next splurge.
The issue with these behaviours is that the consequences can be far more severe than eating a few extra calories than you’ve planned for.
A lack of pension, no contingency savings, and a reliance on short-term, high-interest debt can mean you slowly dig yourself into a hole that is extremely difficult to get back out of.
We’ve collated a series of useful New Year Saving Tips from the lending platform at Wonga (you can read the full list of tips here), so you can work towards building a more secure relationship with your finances, one step at a time.
8 Great Spending and Savings Habits to Adopt This Year
The key to a sustainable habit is making it something you do without thinking.
- You get up every day and brush your teeth.
- You click your seatbelt into place before you drive off.
- You might doodle on a phone call or tap your fingers when you’re bored.
These are all habits. If you want to incorporate good money habits into your daily life, it can take a little effort – but the payoff is financial freedom, so it’s well worth it!
Let’s look at the eight most important spending and savings habits to work on.
1. Prepare a Household Budget
Budgets are an invaluable tool to help manage your money and show you where you’re spending more than you think and where you have the opportunity to contribute to your savings.
It’s also a great resource if you want to:
- Keep on top of forthcoming commitments, so you’ve planned for bills.
- Make sure you have set aside funds for anticipated larger expenses.
- Work out when and where you can carve out a little capacity to add to your savings.
You can download several free budgeting apps, such as Mint. Alternatively, a simple notepad or spreadsheet works as well if you’re looking for a less technological solution!
2. Give Yourself Breathing Room
It’s always tempting to treat yourself when you’ve earned a little extra – but if you can manage to live just a little below your means, you will build a far stronger financial base.
Frugal living isn’t for everyone, and you don’t have to restrict spending on the essentials but can make a few easy adjustments that add up to a healthier bank balance.
Think about switching to a cheaper insurance premium, choosing a broadband and TV streaming package to replace multiple subscriptions, or making a shopping list and sticking to it whenever you go to the supermarket.
Living to the maximum might be fun in the short term but can cause no end of stress if you’re pushing your overdraft to the limit.
3. Reduce Debts as Early as Possible
Some debts are intended to be long term (such as a mortgage), but anything unsecured, short-term or with a high-interest rate should be a repayment priority.
Even chipping away gradually with a monthly repayment just over the minimum will reduce the amount of interest you pay each month and make a debt-free future a possibility.
If you’re concerned about balancing savings and debts, the typical advice is to pay off your obligations first and then concentrate on building a savings balance.
Interest charges on debt are normally far higher than the interest you earn on savings, so it makes sense to focus your efforts this way around.
4. Making Your Financial Transactions Effortless
We talked earlier about how we develop habits by doing the same things repeatedly, which become an intuitive behaviour rather than something that takes real effort.
Automating bill payments, setting up direct debits, or triggering an immediate deposit to your savings each time a paycheck hits your account are all great ways to take the strain out of financial responsibility.
5. Prioritise Saving as a Contingency
Having a savings account may not seem a priority, and as before, you should work on debt repayments before contributing to a savings account.
However, once you have cleared short-term debts, a savings pot can make a huge difference to the outcomes.
Say your car breaks down, or you have a big maintenance issue at home – your savings give you the resources to deal with an emergency and move forward.
Most advisers suggest having about three to six months worth of savings to cover all of your general outgoings. Still, any savings value will build small interest earnings and provide backup in a crisis.
6. Use Insurance to Protect Yourself
Simply taking out a suitable insurance policy could easily cover some of those scenarios we just thought about.
You don’t need hundreds of policies (and the resulting premiums!) but should consider insurance for those costs you know you won’t be able to manage comfortably.
Pet insurance, car insurance, buildings and contents, critical illness and life insurance, may all provide welcome financial support when you need it most.
7. Read Every Bank and Credit Card Statement
Let’s face it, bank statements aren’t the most engaging read – but knowing what you have spent is important, especially with the ongoing risk of card theft and bank account cloning.
Make sure you scan your monthly bank statement and check your credit card bill before you make a payment, as a great habit that will stand you in good stead if anything unexpected crops up.
8. Pay Attention Even to Small Expenses
Much of the time, we decide not to invest time in our finances because it seems too big of a job, with too many variables and moving parts.
If you make it a normal habit to stop and think before spending, you’ll be surprised how quickly you can reduce your outgoings.
Things like cancelling subscriptions you don’t use, turning the lights off when you leave, and using your discount codes or loyalty points when you shop will make it easier to save.
Whatever your financial plans for the year ahead, following these eight steps to build great money habits will be an excellent starting point.
As you get used to saving, budgeting and reviewing your income, you will often see new opportunities to grow your wealth, such as investing or moving savings to a high-yield account to keep up the momentum.
It all starts with small, incremental changes that become habits and make good decision-making a natural part of your day.