There are always things you can do to improve your finances. The best way of improving your financial situation is to develop smart financial habits to keep your money on track to achieve your financial goal.
Your financial goal can be anything from saving up for a holiday, saving enough to put down a deposit on a house, or having enough money in your pension to allow you to retire early.
1. Set up a budget
A key step in controlling your finances is to create a budget. This is one of the key financial habits you need to adopt in order to take control of your finances, by allowing you to compare your income with your costs enabling you to decide how much of your debts to pay off or how much money you want to save for the future.
You first need to work out how much income you make each month. This will include your wage, any interest received, and any other income or benefits you receive.
The next step is to calculate your expenses each month. You can either estimate this but for accuracy, you should spend time looking through your bank records to work out how much you are spending on various costs each month.
It is probably easiest if you group similar costs together so you may have costs for food, clothes, heating, mortgage payments, regular savings plans, and so on.
By comparing your income with your costs you will be able to see if you have spare money left over each month. Alternatively, it will show you how much you are overspending each month so this will let you know the amount of money you need to reduce your spending by each month.
Reviewing your bank statements on a regular basis is a great way of identifying any unnecessary costs that can be canceled if not being used such as gym memberships. This will also keep your money on track.
2. Work out your net worth
To calculate your net worth you need to first work out the value of all your assets including house, car, investments, and then deduct from this figure the value of all your debts such as a mortgage, loans, and credit card debt. This number could be positive or negative. Like budgeting, once you know your net worth you can take action to improve it.
If the number is positive it means you have more assets and liabilities. This means you can focus on boosting your investments to keep growing your net worth.
If the number is negative it means you have more debt than assets. Don’t panic if this is the case as it just means you need to focus on reducing your debts to get your net worth under control.
Calculating your net worth regularly is another one of the financial habits that you need to adopt if you want to monitor your money and keep your savings on track.
The average net worth of someone in the UK is just over £300,000 according to the ONS but remember this is just an average number, and this will vary depending on your age and where you live in the UK.
3. Manage your credit ratings
Having a good credit score plays a major role in allowing you to improve your financial position. A good credit score will increase your chances of getting a better deal on your mortgage or car loan.
You should check your credit score at least once a year so you can see how it is performing by obtaining a copy from Experian or Equifax.
Checking it also allows you to correct any mistakes that may have been made by credit agencies. Reviewing the credit report also allows you to identify any fraudulent activity, such as new loans taken out in your name without your knowledge.
4. Register on the electoral roll
By law, you must be registered to vote if you want to take part in elections and referendums. You can register online, or by completing a paper form and returning it to your local Electoral Registration Office.
The electoral roll lists the names and addresses of everyone who’s registered to vote in the UK. It is updated annually so you should register as soon as possible if you have not done so already.
Banks and other lenders use this information to verify your identity and address when you apply for credit. Having a permanent address also helps to boost your credit ratings.
5. Get a part-time job or a side hustle
Part-time work can be a great way to earn some extra income. It can help you achieve a better work-life balance, as well as give you the opportunity to develop your knowledge and skills.
While many part-time roles are hourly positions, some have flexible hours and can be more lucrative than full-time jobs. In addition, part-time workers can often receive health benefits and overtime pay.
Many people in the UK are now starting side hustles to allow them to earn some extra money. You can find online work on sites like Fiverr and Upwork. The gig economy in the UK is constantly growing as more and more people try to earn some extra money.
If you prefer an offline side hustle then you could make money dog walking or selling coffee amongst other money-making ideas.
Some jobs and side hustles are easier to get into than others, so be sure to do your research before taking on any extra work.
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6. Check your tax code
There is no point you working harder to make extra money if the tax man is going to overcharge you in tax so make sure you check your tax code.
There are more likely to be mistakes with your tax code if you have a second job or receive a second income like a pension so make sure you use the tools available online to check you are not paying too much.
To check your tax code you should look at one of your payslips and find your tax code. You can then use an online tool at gov.uk to check if you are paying the correct amount of tax.
7. Start spending less
One of the quickest and easiest ways to improve your finances is by cutting back on your spending. This could mean switching to a cheaper energy provider, opting for LED light bulbs or swapping to a shared apartment instead of a single room.
Saving money is important for a number of reasons, whether it’s to fund a holiday, buy a new car or just live comfortably in the future. It is also a good idea to set up an emergency savings fund, which can be used for any unforeseen costs such as needing a new boiler, or roof repair.
Once you’ve built up a decent-sized emergency fund, you can then start to save for other things such as a holiday or buying a home overseas. It’s important to be careful of when you spend this money though so that it doesn’t end up getting spent on non-emergencies.
Ideally, an emergency fund should be equivalent to three months wages as this will give you a decent financial cushion.
8. Pay off your debts
The interest charged on credit card debt and loans is generally higher than the income you receive on your bank savings. This means it is more beneficial for you to pay off your debts rather than starting to save money.
Credit cards are one of the most common forms of debt in the UK. The amount you owe can snowball quickly so it is important that you deal with these debts promptly. Check to see if it is possible to transfer your debt to a card offering an introductory interest-free rate as this can really help to reduce the amount of interest you owe and provide you with some breathing space.
You can pay off your debts in a number of ways, including paying less than you owe or tackling the highest interest rates first. You can also ask your creditors to freeze interest and charges while you work out a plan for paying off your debts.
If you’re struggling financially, there are a number of ways that you can get help. You can talk to your GP, and there are also debt organisations you can contact for advice and support.
A financial problem can lead to a range of issues, including depression and anxiety. Getting help for these problems can make all the difference.
9. Start saving more
If you are debt free then you should look to start a regular savings plan so the money is taken out of your account automatically. This removes the temptation to spend it rather than save it.
Interest rates have been increasing recently so make sure that your savings account is paying you a competitive rate of interest. Many older savings accounts tend to pay very little whilst newer accounts with banks such as Atom, Chase, and Zopa all pay significantly higher interest.
10. Check for lost bank accounts
Many people have money sitting in old bank accounts and cannot even remember having the account as it became lost when they moved house or simply forgot about it.
It is therefore worth taking a couple of minutes to think about if this could apply to you. If it does then you should contact mylostaccount as this was set up by banks and building societies to make it easier for people to find their lost accounts.
11. Make sure you are adequately insured
The right insurance policy can help protect you and your family against the unexpected. It is important to make sure you are covered for your expensive items, such as a replacement car, jewellery, and antiques, as well as smaller claims that can crop up from things like theft, fire, and flooding.
There are lots of different insurance companies and policies offered in the UK so it may be worthwhile using a price comparison site to sift through these quickly to find the best deal for you and your family.
Conclusion on financial habits
If you can follow the advice above on financial habits to keep your money on track then your financial position should start to improve and it should be possible for you to achieve your financial goal.
Don’t stop with just this article you should go on to improve your financial literacy and learn more about money if you really want to develop good financial habits.
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