5 good money habits for peace of mind

How financially savvy are you? Or rather, how savvy do you think you are? We all know there are many good habits we could be doing to improve our finances, but how often do we do these regularly? With bills rising and wage increases lagging behind somewhat, there has never been more pressure on household incomes to afford to live and pay for the essentials. This is where having good money habits can help you out.

Being financially savvy with money offers great peace of mind and therefore, in turn, is very good for our health, especially mentally. Having money worries can cause stress, anxiety and depression. It can also ensure we are living healthily by being able to afford to make healthy choices such as choosing organic, keeping warm in winter and preparing for our future retirement and end of life.

This post will cover some good money habits you can adopt today to improve your finances in 5 years. These habits are things that most people already know about – but it never hurts to be reminded! So what are these important habits? Let’s look at the five good money habits you need for 2022 and beyond.

Auto transfer to savings

Have a direct debit set up to automatically transfer a portion of your wages into your savings when it clears in your account. In a digital age, this has never been easier, and after a while, once you get used to the money being moved from your account, you will find you don’t even notice the drop.

Make sure you are putting away a realistic sum you can afford to avoid having to keep dipping into it and allow it to grow as you need it to.

As well as saving for your future or a large purchase, it’s important to have an emergency fund to cover anything that pops up unexpectedly. For example, large car repairs or a boiler breakdown, taking us nicely onto the next point.

If you struggle to save by yourself then check out an app like the Chip savings app who make saving easy for everyone with their AI technology.

Have sinking funds

Sinking funds are funds set aside for specific purposes – such as emergencies, your child’s education, or that trip you’ve been dreaming of. It can even be for Christmas or other regular events that can be quite costly and sometimes tempt us into debt if we are not prepared with some sort of savings such as sinking funds.

Sinking funds help you save more money and help you avoid debt and the stress of where you’ll find the money from when these things come around. You might be tempted to use that fund for something else, but consider the consequences. Be strict and only use it for its purpose unless it’s an absolute emergency. When you deplete your sinking fund for the wrong reasons, you will find yourself short should you suddenly find yourself in need of the funds for the original purpose and back to being stressed out and potentially debt!

For example, one of the best sinking funds is for emergency repairs or appliance replacements for the home. These are typically larger purchases or expenses most people struggle to pay out of their regular wages. So if your fridge breaks down and you need to get the parts to fix your fridge; you will have some or all of the cost in your sinking fund.

Start investing

Investing is a great way to make your money work harder and give you the chance of earning more money. It’s not as hard as you might think, either! There are many different investing methods – from stocks and shares to property.

For those who want a low-risk option, index funds might be the best option. Index funds follow the stock market and give you a fixed return on your investment. You can even invest in these funds with as little as £50 or £100! So if you’ve been sitting on savings for a while, now could be the time to invest it so that your money continues going up over time.

There are many apps that are making investing accessible to everyone nowadays, even complete beginners. There are also companies that offer free shares just for you signing up and depositing £1 into your account.

Check out these free share offers:

• Orca free share up to £200
• Freetrade free share up to £200
• Trading 212 free share up to £100

They allow you to cash out your free share after so many days, such as 30 days but do check the terms for each offer, if you want to, or you can leave it to see if it grows.

If you plan to invest your own money then make sure you seek professional advice as your capital is at risk when you invest.

Shop around for better deals

With the rising cost of living, it can be challenging to keep up with expenses and still have enough savings, right?

The good news is that there’s a way to save on many household bills. Sites such as The Money Saving Expert or Confused.com are handy to compare what you are currently paying for your home expenses and find cheaper alternatives.

You’ll want to do your research and shop around before purchasing or renewing things like home or car insurance. You might even find that you’ve been paying too much for something all this time! 

Keep your debt levels low

Debt is a necessary evil for many people. You need it to buy a house or a car, and sometimes you need to take out a loan to invest in your business. But some debt levels can be too high – and those are the ones you want to stay away from.

Too much debt can put unnecessary pressure on your finances, which could even lead to bankruptcy. It’s essential to keep your debt level low so that you can avoid feeling overwhelmed by it or having it lead to any other problems.

What’s the average debt level for most people? If you’re taking on credit card debt, personal loans, and car loans, your interest rates should be below 10%. If these rates go higher than 10%, then that could indicate that your debt levels are too high. 

Additionally, if you’re struggling with making payments on time or the minimum payments just aren’t cutting it anymore, then your debt levels might be growing as well. If this is the case then you need to assess your monthly budget and make cutbacks to get your debt levels down. If it’s not possible then you need to seek professional advice such as from Citizen’s Advice to help you with debt management techniques or further assistance.