How to get into good financial habits

Taking control of your money can make a huge difference to your wallet and your future. Here are nine great ideas for developing good financial habits.

1. Assess your financial situation

Assessing your financial situation is a crucial step in achieving economic stability. Start by listing all your sources of income and tracking your monthly expenses. This will help you identify areas where you might be overspending and where you can cut back.

Next, take stock of your debts and savings.

Understanding how much you owe and how much you have saved will give you a better idea of your financial strengths and weaknesses. For instance, if you find your debts overwhelming, consider debt consolidation options or seek advice from a financial advisor. On the other hand, if your income is stable and your expenses are low, you might explore investment opportunities that can generate passive income.

2. Set a budget

Spending a little time upfront working out your current situation and choosing specific areas to save money could save you hundreds of pounds in the long run.

Consider keeping a household budget, which can give you peace of mind about your spending and enable you to spot areas where you could save money. At the same time, examining financial stability and its relation to price stability is crucial. 

List your incomings and expenses into a handy budget planner to help you identify what you have coming in and going out each month. It gives you a detailed spending breakdown, showing you where your money goes and suggesting next steps tailored to your results.

3. Spend less money

Little expenses can quickly add up – that daily €4 coffee with milk, for example, could cost you over €1,460 a year. But there is a flip side: by slightly changing behaviour, you’ll be able to save that money. And little amounts, saved frequently, quickly add up.

Even with essential purchases there are ways to get a better deal, so be sure to follow our tips and get into good financial habits:

• Shop around – if you have something specific in mind to buy, use a comparison website or free app to check you’re getting the best deal.
• Don’t impulse buy – think carefully before making a purchase, especially if it’s big. If you sleep on it, it may seem less appealing in the morning or you may be able to find it cheaper elsewhere.
• Beware of special offers – never buy something you don’t need just because it’s discounted – you’ll be spending extra money, rather than saving it.

Top tip: Gas, electricity, broadband, mobile phone and water take up a large chunk of most household budgets. But there are plenty of opportunities to save money on utility and other household costs easily. The money you save could be put towards something more exciting, like a family holiday.

4. Manage debts

If you’re concerned about paying back money you owe, don’t bury your head in the sand – instead, take control of your debts and put a plan in place or it can really begin toimpact your life and those around you.

5. Set a savings goal

You don’t need to ‘save big’ or give up the things you love to make saving worthwhile. Getting into the savings habit is much easier than you think, and a savings goal is a great way to focus on longer-term financial ambitions – people who set one typically save £500 a year more than those who don’t.

Here are our top tips on getting started with saving:

• Open a savings account – open a suitable savings account with your chosen bank or finance provider.
• Choose your account nickname—most accounts now allow you to label your account with a nickname, such as ‘Summer holiday’, which will help you stay focused.
• Set a goal—think carefully about how much you’d like to save, weighing up what you can afford to put away each month against how long you want to save.
• Start saving—get started adding to your savings account whenever you can, following your savings goal where possible.

Top tip: You could even set up a standing order each month, with the money being withdrawn just after pay day so you’re not tempted to spend it later in the month. Alternatively LHV has a growth account that sends a percentage of your monthly spend to it, called microinvestment.

6. Encourage children to save

It’s never too early to start saving—research shows that financial habits can be learned as young as seven years old.

Teaching your kids about money is one of the most important lessons you can give them, and there are lots of ways to get them involved in learning about and being money-confident.

7. Think about retirement

With the maximum basic Pillar 1 being far less than the amount most people say they hope to retire on, it’s easy to see why experts recommend you save into a pension from a young age. And many people get into the habit of making monthly contributions to their retirement, seeing their pension pot steadily increasing in value over time.

Pensions are a tax-efficient way to save because the Government tops up your contributions with tax relief – and with a workplace pension your employer will pay into the scheme too. Effectively this means your savings are likely to grow more rapidly in the Pillar 2 scheme. Consider paying up to €6,000 in a Pillar 3 pension (supplementary funded pension).

8. Invest for the future

Once you’ve got any debts under control and begun to save regularly, you could consider whether investing is right for you. Investing is when you buy an asset, such as a bond, a share in a company or units in a fund, such as a unit trust, with the expectation that it will increase in value in the future and generate income through dividends.

Historically, investments have outperformed cash savings, which can have their value eroded over time by inflation – although of course the past is not a guide to the future and with investments you may get back less than you invest.

9. Maintain Momentum

Maintaining momentum is essential for achieving long-term financial growth. Stay focused and continue making progress to keep your financial goals on track.

Review your budget regularly and adjust your spending habits as needed. This will help you stay on top of your finances and ensure you make the most of your money. Additionally, explore new investment opportunities that align with your financial goals. For example, if you’re saving for a down payment on a house, consider opening a high-yield savings account or looking into other investment options to help you reach your goal faster.

You can maintain momentum and achieve long-term financial stability with the right mindset and strategies. Remember, the key is staying committed to your goals and pushing forward, even when challenges arise.