Despite the cost-of-living crisis and an impending recession for the UK, it’s certainly possible to achieve our financial goals by building some essential money habits. We’re excited to share these eight financial habits together with expert insights from Octopus MoneyCoach, the UK’s number one provider of money coaching.
Financial planning is for everyone
Managing your money in a healthy way is much easier when you have a plan on how you’re going to do it.
Many people start thinking about how to manage their money when they’re planning something life-changing. Perhaps buying a property, starting a family, or saving for a wedding or holiday.
Whatever your financial goals, they are more likely to be achievable if you understand what you need to do to achieve them, and how you need to do it. Mix in some determination and a nice reward at the end, and you’ll be on your way in no time.
But strategies aren’t for everyone. So, instead of thinking about complex financial strategies, you could focus on essential money habits instead.
Adopting good financial habits will help bring about long term and consistent progress towards your financial goals by helping you build a positive relationship with your money.
How to budget can be a sensitive topic, and it’s no wonder because so many of us have negative feelings about the word budgeting.
Alec Walsh, Head Coach at Octopus MoneyCoach, explains how altering your mindset about budgeting is the key to success.
Looking at your bank statements regularly is a great place to start when it comes to budgeting. Decide what expenses are necessary, such as regular bills and direct debits. Then find the expenses that aren’t essential.
This honest look at your spending habits can help you stop spending money on things that you perhaps no longer need.
Budgeting brings a sense of money calm
Equally important is the sense of control that comes with knowing how you’re spending your money, as Head Coach at Octopus MoneyCoach Alec Walsh explains:
Once you have your essential spending mapped out, you’ll know how much money you have leftover for other things, like saving.
Budgeting can be fun if you have your goals in sight and can see how you’re getting closer. And remember, there are a surprising number of ways to have fun on zero funds!
#2 Financial education
Most of us weren’t taught about budgeting and financial wellbeing when growing up.
Unfortunately, the great majority of us leave school with no idea how to save money or how to make money grow (e.g. by investing). In short, we’re not taught how to reach our financial goals.
But what is financial education? Well, it’s not the same as financial literacy. While someone may have financial knowledge, being financially literate is the ability to put this knowledge into practice.
There’s an abundance of financial resources for those who want a financial education. There are books accessible to every level of financial understanding. Why not check out the 14 best finance books of all time for some inspiration?
Alternatively, you can get a curriculum-mapped financial education text book for free. Jointly funded by MoneySavingExpert and Money and Pensions Service, Martin Lewis hopes to make financial education more accessible to people of all ages with the new book.
While it’s aimed at secondary school students, adults can also benefit from the clearly explained essential money habits it describes.
#3 Choose your circle carefully
Millionaire and motivational speaker Jim Rohn famously said:
“We are the average of the five people we spend the most time with”.
But more recent research demonstrates how we are the average of everyone we spend time with.
With this in mind, spending time with those who demonstrate good financial habits makes a lot of sense. People in your network who share your financial mindsets can help you stick to your habits and share money management tips with you.
#4 Stay motivated
Being good with money all the time isn’t always easy. Sometimes it can feel restrictive. And when that happens, it’s much harder to stay on track.
Although challenging, staying motivated is one of the most essential money habits when it comes to making financial goals a reality.
Alec Walsh, Head Coach at Octopus MoneyCoach, offers these tips to help with maintaining motivation:
#5 Pay down debts
While putting a one-off large purchase on a credit card can be convenient, if it’s not managed responsibly, then credit can lead to unmanageable debt.
In a money.co.uk survey in 2022, 15% of people admitted to relying on credit cards to pay their bills.
Given the evidence that debt and financial anxiety have a negative impact on our mental and physical health, this means that millions of people in the UK are stressed about money.
Paying down debts helps people feel more in control of their money. While debt can feel like an overwhelming problem, there are lots of places that can help.
Knowing where to get free financial help is a step in the right direction for those affected by debt. It’s important to know that support is available, and it’s never too late to get help.
Being organised with your money really helps when either tackling or avoiding debt, as Alec Walsh, Head Coach at Octopus MoneyCoach, explains:
#6 Track your progress
When it comes to forming better money management habits, it’s important to track your progress and celebrate your wins.
When you work towards measurable achievable goals, you see real progress. Much like going on a weight loss program or building muscle in the gym.
Sometimes a simple chart that you tick off every month is enough to keep you motivated. This gives you a visual of your savings adding up, which encourages you to stick with the plan.
Let’s not forget the power of visualisation. Forbes magazine suggests that it not only helps you achieve your financial goals, but can reduce stress as well.
A survey by US-based TD bank found that 59% of those who used a vision board to help achieve their financial goals were more confident.
The same survey found that 82% of small business owners who used a vision board accomplished more than half the goals they included on their board.
As well as visualisation, remember to reward yourself for the progress you’ve made towards your goals. Even a small reward can provide a boost of motivation when levels fall low.
#7 Build an emergency fund
It can be hard to save, especially with rising costs and climbing bills. In fact, having less than £100 in savings is a stark reality for 11 million people in the UK.
Building an emergency fund is an essential money habit for multiple reasons:
Having money set aside can give a sense of security and peace of mind, knowing there’s something to fall back on in case of something unexpected.
Many people are just a few paychecks away from defaulting on their mortgage or rent. Financial instability can lead to disastrous consequences.
The ability to save money requires discipline. It’s this discipline that helps with several other essential money habits, including budgeting, staying motivated, and paying bills on time.
Here’s what Alec Walsh, Head Coach at Octopus MoneyCoach, had to say about saving for rainy days:
Most financial experts suggest saving enough to cover a set number of months’ worth of living expenses.
For example, say your monthly expenses are £1800. If you wanted to have 3 months’ worth of expenses saved, you’d need £5,400 (£1800 x 3).
If this seems like a lot, bear in mind that saving regularly doesn’t have to mean putting aside large chunks of income. Even saving a small amount each month will build up over time and give a boost to our financial wellbeing.
#8 Pay your bills on time
It may be tempting to hold off paying bills until the last minute. But doing so risks late fees or penalties, which are expensive and can damage your credit score. This can damage your ability to borrow in the future.
Paying your bills before they’re due allows you to see what’s left of your monthly budget and can help you plan better. It’s also worth considering that if you have a history of paying bills early, this can be used as a way to boost your credit score.
While not a replacement for budgeting, on-demand pay can help with paying bills earlier in the month. This avoids having to pay everything all at once as soon as payday comes around.
On-demand pay gives you access to your earnings when you need it, not just on payday. It won’t affect your credit score, there’s no interest, and you won’t incur debt because you’re not borrowing money.
Habits take time to build but lead to incredible results
And finally, it’s always worth remembering the 2mm rule. The smallest changes, done regularly, yield the biggest results.
Larger financial goals take time, but they are fully achievable with sustained effort and the right support.
You could try starting small with one or two essential money habits and build up from there. It won’t take you long to learn the money habits that are essential to create greater financial wellbeing.
Before you know it, you’ll be celebrating the progress you’ve made and be well on the way to achieving a financially healthier 2023!
The information in this article is for general information only. It does not constitute professional advice from Openwage. Openwage is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the information in this document relates to your unique circumstances.
Special thanks to Octopus MoneyCoach for contributing to this article. Octopus MoneyCoach (trading name of TW11 Wealth Management Limited) is authorised and regulated by the Financial Conduct Authority, reference number 763630.
Openwage Limited does not currently carry out regulated activities and is not authorised or regulated by the Financial Conduct Authority.
Openwage is a distributor of Modulr FS Limited, a company registered in England with company number 09897919. Modulr FS Limited is authorised and regulated by the Financial Conduct Authority as an Electronic Money Institution (Firm Reference Number: 900573)