5 positive financial habits to build
Saving and budgeting takes a little bit of dedication and time to get right, but the development of good savings habits can become second nature over time and help make a real difference to your future.
Here are some questions to ask yourself, if the answer is yes to any of them, don’t worry you’re not alone.
Do you ever run out of money before the end of the month?
Do you worry about the possibility of unexpected expenses that you can’t afford?
Do you just wish you didn’t have to worry about money?
If your finances aren’t in the best shape now, that doesn’t mean they have to stay that way. If you’re not happy with your current financial situation that means it’s time to make some changes to your spending and saving behaviour to help achieve better results.
To help kick start this process, we’ve put together five habits for you to consider getting into.
1. Pay yourself first
Before you pay any bills, develop a habit of paying yourself first. That means saving a portion of your earnings into a savings account or retirement account before you do anything else with your money. It’s great to start somewhere – saving something is better than nothing.
The important thing is that you’re building a new habit around saving. After you’ve paid yourself, the rest of your earnings could be used to pay bills and purchase the things you need.
2. Spending less than you earn
It may seem like common sense, but 10 per cent of British adults spend more than they earn on a regular basis and another 28 per cent sometimes go over budget¹. The problem is that if you routinely spend more than you earn, you could be building up more and more debt.
In many cases, that may mean turning to a credit card and not paying off the balance each month leaving you with potentially exorbitant fees and interest rates that can take years to pay off.
When considering spending on something you want – always ask yourself if you genuinely need it.
3. Don’t let your emotions affect your financial decisions
For many people, money habits are tied to emotions and how we feel. It’s easy to fall into the trap of spending money when disappointed, or angry, or even happy. While emotions are important, they aren’t helpful when it comes to making financial decisions.
Develop a habit of taking your time and making level-headed, rational decisions about money rather than allowing your spending, saving, and investing habits to be dictated by the way you’re feeling at a moment in time.
4. Control your debt
Debt is not necessarily always a negative, in some cases debt can be a positive stepping stone to help get you closer to a more prosperous future. For example, a mortgage is a form of debt - purchasing a home could be a necessity for you. Similarly, borrowing money to enhance your education in a way that could allow you to get a better paid job. You might even be borrowing money to set up a business.
On the other hand, using credit cards, for example, to cover extra spending is generally considered a bad use of debt, as the repayment terms and interest payments can often be onerous as well as expensive if it’s not paid back on time. It’s generally considered good practice to avoid carrying a credit card balance over from one month to the next, as over the longer term this can often become very expensive, very quickly.
5. Spend some time with financially savvy friends and family
Sometimes the people you spend your spare time with can have a positive impact on your financial habits.
If people around you are always purchasing the latest tech gadgets, dining out, taking luxurious trips, and putting things on finance – then it’s important not to be tempted to keep up with them, as it will derail your good intentions and may drive you into further debt.
However, if you’re spending time with people who are more committed to saving and investing than to possibly frivolous spending, you may be more likely to stick to your goals and improve your financial situation.
How to build new habits into your daily life
Often people tend to find that their positive intentions slip for a couple reasons. Either they attempt to do too much too soon, or they don’t quite understand how habit forming is structured – and how to use it to their advantage.
If you want to know more about the best way to form lasting habits, there are lots of books and podcast episodes on the topic you can check out.
In the meantime, if you want to start making some changes, consider the following:
Know your why – what’s your reason for making the changes?
Set realistic, measurable goals that are achievable.
Break up bigger goals into smaller actions.
Don’t make too many changes at once.
Use rewards as a motivator (within reason) to treat yourself once you meet your goals.
Soon enough, these good habits will become hard to break.