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How to get into good financial habits in 2017

Top ideas for making changes you can keep to

At the start of a new year, it's tempting to make resolutions to change behaviour – and getting on top of your finances is a common one.

However, research shows that most people who make resolutions fail to keep them – with half of us giving up in the first month. It may be better to forget resolution-making and focus instead on developing good habits – making smaller and less drastic changes that are easier to sustain.

Forget resolution-making and focus instead on developing good habits

Here, we give you some ideas on how to make sustainable changes to your financial behaviour. Our aim is to make it easier for you to manage your money better in 2017 and beyond – giving you more time to enjoy life rather than worry about money.

1. Set a focus and a budget

If you're looking to get to grips with your finances and develop better habits, a great starting point is to work out what your current situation is and choose specific areas where you can improve. Just half an hour's investment could save you hundreds of pounds.

Over half of UK households keep a regular budget, with most of these saying it gives them peace of mind about how much they are spending. It can also enable you to spot areas where you can make savings (see below), making you less likely to be in debt and putting you in a better position to save for a holiday or other treat.

The Money Advice Service's handy budget planner  Link opens in a new window helps 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.

2. Spend less

Once you've identified which areas you need to focus on, you could turn your attention to spending less.

Little expenses here and there can quickly add up – a daily £2 coffee, for example, adds up to over £700 a year. Even a £20 monthly beauty treatment costs £240 annually.

But the flip side is that just one small change in behaviour can potentially save you hundreds of pounds a year.

A daily £2 coffee adds up to over £700 a year

Even with essential purchases, there are ways to get a better deal. Just a few minutes' work can save a considerable sum and can get you on the road to starting to save. Good habits to get into include:

  • Shop around. Whether you're doing a supermarket shop or making a big electrical purchase, check out what competitors are offering. You could use a comparison site or app to do the hard work for you – PriceRunner  Link opens in a new window compares the price of over 4 million electrical items from dishwashers to laptops every day, directing you to the best deal, while mySupermarket  Link opens in a new window compares today's prices across 14 supermarkets with the aim of finding you the cheapest price on your shopping.
  • Don't impulse buy. Think carefully before making a purchase – especially if it's a big one. If you sleep on it, it may seem less appealing in the morning.
  • 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.

When it comes to utility suppliers, regularly checking that you're getting a good deal from your supplier and that your own usage is efficient are great habits to get into. Consider the following suggestions:

Gas and electricity – changing supplier if you're not in-contract is easier than you think and can save the average household £200 a year, according to the regulator Ofgem. Find a list of Ofgem-accredited price comparison sites on the Energy Shopping website  Link opens in a new window

Using less energy is another easy way to save money. The Energy Saving Trust's website  Link opens in a new window has tips and ideas, from quick ways to save energy daily in your home (such as switching off appliances on standby, only filling a kettle with the water you need and fitting a water-efficient shower head) to how to find out whether bigger projects such as cavity wall insulation could be beneficial to you.

Changing gas and electricity supplier can save the average household £200 a year

Home phone and broadband – uSwitch estimates the average household can save £69 a year by switching supplier when your broadband contract ends. To find out what deals are currently available for your postcode, use a price comparison site such as Broadbandgenie  Link opens in a new window

Remember not to just look at price – match the deal to your needs and check whether line rental is included. If you choose to switch, you can do so directly through a price comparison website, or you can chose to get in touch with your new supplier directly.

You can also save money by avoiding calling at peak times – check your tariff for when these are. Paying by direct debit is also cheaper than waiting for a monthly invoice, and means you won't forget to pay.

Mobile phone – when you're coming to the end of your contract, get into a habit of looking into whether you could save money by switching to a contract more in line with your call and data usage pattern.

Ofcom-approved Billmonitor  Link opens in a new window helps you match your usage to the deals currently on the market, calculating whether switching would benefit you. Which? estimates that 70% of consumers could save £159 a year by a having a contract better suited to their needs.

Water – if you don't have a water meter, you may be able to save money by switching to a meter. Use a water usage calculator such as the Consumer Council for Water's  Link opens in a new window to find out. The Money Advice Service reports that switching could save you around £100 per year.

Switching to a water meter could save you around £100 a year

Regardless of whether you have a meter or not, read tips on how to reduce your water usage (as well as your energy bills, if you use less hot water) n the saving water section  Link opens in a new window of the Energy Saving Trust's website. Habits such as turning off the tap while you brush your teeth and only using your washing machine with a full load can all help you reduce your water usage and costs.

Car – with fuel costs on the rise again, it pays to plan ahead when filling up. Find the cheapest fuel prices in your area on the  Link opens in a new window website. The Money Advice Service estimates that saving just 5p a litre on the price of petrol or diesel could save the average driver £100 a year.

Changing the way you drive can also save you a significant amount of money. One AA test found that the average driver could go 10% further on a tank of fuel by changing a few habits, including accelerating gently, changing up a gear earlier and avoiding unnecessary breaking – see the AA website  Link opens in a new window for the full list of habits.

Public transport – if you use public transport, planning ahead can help get you the best deals. Advance tickets are usually available up to three months before you need to travel, and are often cheaper.

For longer journeys, it's sometimes cheaper to 'split' your ticket – buying several tickets for different segments of the journey (but remember, you must stop at each of the stations on your tickets). In London, get an Oyster card – it can be used on the Tube, on buses and on most local overground trains, and is cheaper than buying paper tickets. A short Tube journey in Central London will cost you £4.30 in cash but just £2.70 on an Oyster Card.

If you need an incentive to get into the cycling habit, a tax-free bike – which you may be eligible for under the Cycle to Work scheme  Link opens in a new window – could sway you.

Holidays – identify how much you have available to spend on your holiday by using the budget tool  Link opens in a new window described in section 1 above. Then shop around, in high street travel agents as well as comparison sites. Being flexible on your travel dates (such as by avoiding school holidays and bank holidays, and travelling mid-week) can also help you get a better deal. Momondo  Link opens in a new window estimates future flight prices to help you find which may be the cheapest.

For suggestions on how to get the best value on your holiday spending money, see our article "Travel money tips for better trips"  Link opens in a new window

Interested in travel insurance?

See what travel insurance packages we offer  Link opens in a new window

To say thank you for being a Virgin Money customer, we will give you £25 cashback  within 90 days when you directly purchase Virgin Money Annual Multi-Trip Travel Insurance. Terms apply.

3. Prioritise debt

If you're concerned about paying back money you owe, especially if you've over-indulged over Christmas, don't bury your head in the sand.

Prioritise your debts in order to work out which to pay off first and help clear them faster – and potentially help you save money on interest payments. Priority debts are those that carry the most serious consequences if you don't pay them – for example, mortgage or rent, council tax and gas and electricity bills – and not necessarily those with the highest interest rate.

Don't bury your head in the sand over debts

The idea of having a nest egg in a savings account is appealing but as a rule of thumb it's generally regarded as wisest to pay off your debts (except for any mortgage) before you start to save. This is because you will rarely be able to earn more on your savings than you will pay on your borrowings.

If you're worried about debt, there are a number of bodies that can help you. StepChange  Link opens in a new window is a debt charity that gives free advice on problem debt based on what's best for you, while Citizens Advice  Link opens in a new window offers free, independent, confidential and impartial debt advice through their web chat service.

4. Start to save

Having money left over at the end of the month can seem unachievable, but it's surprising how a habit of putting aside small amounts can mean savings can quickly add up. This could mean you have a surplus each month without having to give up the things you love.

Even small amounts can add up. Get into the habit of emptying loose change into a jar. Even £1 a week adds up to over £50 a year – so saving small amounts regularly is a great way to build up a pot of money over time.

Empty loose change into a jar. Saving even £1 a week adds up to over £50 a year

You could also look at the suggestions in the Spend less section above to see which may be right for you.

If you're in search of more areas to cut down on your spending, a good way of finding out where your money is going is to keep a spending diary for a week or two. Write down everything you spend – even the small amounts – to help you identify areas where you may be able to cut back.

It's also a good idea to work towards building up an emergency fund that could tide you over for a while if you lost your job, or had an unexpected bill – such as if your car or boiler broke down. Ideally this should be enough to cover your outgoings for three months. If you have debts, however, use the money to clear these first, provided you have access to emergency funds such as a credit card.

When you've accumulated an emergency fund, you could set a savings goal. This is a great way to focus on longer-term financial ambitions – research shows that people who set one save £500 a year more than those who don't.

Name your goal (eg new laptop, exotic holiday, wedding – even simply a rainy day) then work out how much you need to save each month. Weigh up what you can afford against how long you want to save for – if saving for a £400 laptop, for example, you could save £100 a month for 4 months, or £50 a month for 8 months.

As you accumulate an emergency fund and a savings pot, you could consider putting your savings into a savings account. Since the introduction of the Personal Savings Allowance in April 2016, you don't pay tax on the first £1,000 you earn from savings (or the first £500 if you're a higher rate taxpayer) – giving you even more reason to save.

5. Encourage your children to save

One of the most important lessons you can teach your children is how to manage money. It's never too early to start – in fact research shows financial habits are learned from as young as seven.

In teaching them good habits you may even prompt yourself to start a few new ones too!

You could ensure your child knows that money is an important part of everyday life (and one that it's important not to shy away from as they get older) by ensuring they know it isn't magically dispensed from cash machines – it's earned from the jobs you or your partner do.

Teaching your children good habits may prompt you to start some too

You could lead by example and let them see you weigh up the pros and cons of each option that you're considering buying, so they know that the dearest option isn't always the best – other factors such as quality are important too.

As soon as they're old enough to understand that money can buy things, consider giving your child a regular allowance so they can have their 'own' money. It doesn't have to be a lot, but should be enough to cover modest purchases such as magazines and sweets, and leave a little left over so they can learn to save.

Give them their pocket money at regular, consistent intervals so they can work out what their income will be over a specific period. You could give your child their allowance in small denominations, such as five £1 coins rather than a £5 note, to make it easier for them to put money aside.

Giving your children pocket money could even save you money in the long run

You may even find that giving them pocket money saves you money in the long run, as by being 'in charge' of their own treats they appreciate the expense and learn to prioritise what is most important – which is a good life skill in itself. Managing their own money will also help them to learn patience, responsibility and boost their confidence – as well as helping their maths.

For more on this and many other tips on helping your children learn how to manage money, see our article "How to help your children manage money"

6. Overpay on your mortgage

If your mortgage deal allows you to do so, getting into the habit of overpaying your mortgage every month, even by a small amount, will ensure you pay off your mortgage early and can give you considerable savings. Even with mortgage interest rates so low, the savings can still be significant.

On a £150,000 mortgage at 4.5% with 25 years remaining, for example, overpaying by £100 every month will reduce the interest by over £20,000 – 20% – and the repayment term by four and a half years.

Overpayments of just £50 a month on the same mortgage would reduce the interest by over £11,000 and shorten the repayment term by two and a half years.

If you have a single larger sum, you could also save money by making a one-off overpayment. On a £150,000 mortgage at 5% with 25 years remaining, for example, paying off a £5,000 lump sum would reduce the interest by £11,500 and the repayment term by 18 months.

You can work out how much you could save on your mortgage by paying it off quicker by using our overpayment calculator  – simply play around with the overpayment figures to see what this could mean for you.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Making overpayments on your mortgage can be a big decision to make though, so it's important to weigh up the pros and cons first.

If you have more expensive debts – such as credit cards, store cards and unsecured loans – you should consider paying those off first.

And if you don't already have a pension, it's important to think about paying into one with any 'spare' money before you consider making mortgage overpayments. The earlier you start, the sooner your retirement pot will start to grow.

If you are already paying into a pension, however, and can find a savings account that pays a higher rate of interest than the rate you're being charged on your mortgage, it might make more sense to put your money into that account.

Before making mortgage overpayments you should also check you are leaving some money in reserve – enough to live on for three months is a frequently-suggested amount. Depending on your mortgage deal, you may also be charged for paying your mortgage off early or making a monthly payment which goes over your agreed monthly limit. Check your mortgage deal to get an accurate picture of how charges could cut into any savings.

Of course, flexible mortgages – including offset mortgages – allow you to overpay your mortgage and then draw back the money if you need it, all without charge.

7. Think about retirement

With the maximum basic State Pension (currently £155.65 a week) 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 if you would like to retire before you get too old to enjoy your retirement.

Most people get into the habit of making monthly contributions to see their pension pot steadily increase in value. Pensions are a tax-efficient way to save because the government tops up your contributions with tax relief – and, if you have a company scheme your employer may pay into the scheme too. Effectively this means your savings are likely to grow more rapidly. Pensions are a longer-term savings goal, however – you cannot normally access your pension fund until the age of 55.

Regularly saving even modest amounts into a pension could add up over time

The Money Advice Service's pensions calculator  Link opens in a new window is a useful tool which can help you understand your future pension income. It's also a good way to see how regularly saving even modest amounts in a personal pension could add up to over time.

Interested in a pension?

Find out what pensions we offer  Link opens in a new window

Remember, the value of your investment can go down as well as up and you may get back less than you invest. You do not have the right to cancel stock market based investments like the Virgin Stakeholder Pension that are sold over the phone.

To say thank you for being a Virgin Money customer, we will give you £50 cashback  when you take out a new Virgin Personal Pension online. Terms apply.

8. Make the most of your money in the longer term

Once you have got any debts under control, have accumulated an emergency fund to cover outgoings for around three months and begun to save regularly, you could consider whether investing could be right for you.

Investing is when you buy an asset, such as a share in a company, with the expectation that it will increase in value in the future and generate income through dividends. Historically, investments have outperformed cash savings as over time inflation can potentially erode purchasing power meaning you would get less for your money – although of course the past is not a guide to the future and with investments you may get back less than you invest.

However, if you’re investing you should be prepared to invest for at least five years. This is because over the long term you have the potential to receive a higher return on your investment (though you need to be prepared to accept that your money is at greater risk than with cash savings). So it's important to consider what your savings goals are – if you're saving to buy a new car next year, you may be better off putting your cash in a savings account.

If your savings goals are between five and ten years away – for example, if you're saving for your ten-year-old child to go to university – you could consider a mix of savings and investments to spread your risk. If your savings goals are more than ten years away – university for your toddler, for example – you may be able to get greater returns by investing.

If you're new to investing, a Stocks & Shares ISA can be a great place to start. They are tax-efficient – you won't pay tax on growth in value or income from your investment – and you can invest up to £15,240 during the current tax year (2016-17). You can choose which funds you invest in – UK-only, or world-wide, for example – depending on your appetite for risk. Many offer you the option to pay in a lump sum or regular amounts and you may be able to access your funds at any time.

Interested in investing?

Find out about our Stocks & Shares ISAs  Link opens in a new window

Remember, the value of your investments can go down as well as up and you may get back less than you invest.

To say thank you for being a Virgin Money customer, we will give you £50 cashback  when you take out a Virgin Money Stocks and Shares ISA online. Terms apply.


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