Numerous people utilize the new year to establish new habits — going to the gym, quitting smoking, or eating more healthily are just a few of the most common. Additionally, developing sound financial habits may benefit you by increasing your money and providing you with peace of mind.
As such, here are five sound financial habits to cultivate in 2022.
Priority should be given to yourself (and your future self)
Most individuals wait until the end of the month to save any remaining funds in their accounts.
Rather than that, putting yourself first can help you save in ways that your future self will appreciate. Establish a recurring standing order or direct debit to your pension and savings accounts that are debited promptly after your earnings are deposited in your bank account. Then spend whatever money remains.
Developing this practice boosts your chances of saving enough money for the future. Additionally, it elevates conserving money from a want to a need, indicating that you place a premium on your financial well-being.
Ignore the background “noise”
It’s difficult to read a newspaper or turn on the television news without hearing doomsday economic stories. We are constantly assaulted with inflation, interest rate, and stock market statistics, from Brexit to Covid.
When you hear about the FTSE’s decline or increasing inflation, it’s natural to become worried However, it is important to remember “it is time in the markets that matters, not timing the markets.”
Our strategy is always to choose the most appropriate assets for your objectives and risk tolerance, to disregard market “noise,” and to take a long-term view. Attempting to time market entry and exit points is nearly impossible, even for veteran fund managers.
Because you never know the direction the market will go from day to day, develop the practice of disregarding short-term fluctuations and remaining invested. This will almost certainly prove to be a more advantageous technique.
Discuss your financial situation
According to the Daily Mail, just 54% of Britons were willing to discuss money with their friends and family in 2021 (source: Daily Mail)
Fortunately, this percentage appears to be growing. Additionally, the survey discovered that lockdowns had a beneficial effect on how we discuss money with our partners, with 4 in 10 respondents reporting that staying in and spending more time together over the previous year has increased our willingness to discuss finance. Being able to have open and honest talks about money with your friends and family is an excellent approach to increase your financial literacy and learn new money management techniques. It can also benefit your relationships and assist you in beginning to work on your financial objectives.
Simply said, the more you discuss money with friends, family, and (yes, even your financial advisor!), the more confident you will be in your efforts to improve your financial future.
As your earnings improve, boost your investment contributions
Have you ever noticed that your spending increases in sync with your earnings? It’s possible that you’re experiencing “lifestyle creep” in this situation.
When your discretionary spending rises in tandem with your wages, this is referred to as lifestyle creep. It might manifest as an ever-increasing desire for more expensive items or as an increasing number of routine costs draining your bank account.
Increasing your savings and pension contributions as your wages improve is a healthy habit to adopt.
Utilise all tax allowances available to you
Nobody likes to pay more taxes than they are legally required to do so. Therefore, develop the practice of taking advantage of any available tax benefits. For instance:
Use the Marriage Allowance to save £252 in Income Tax if you pay basic-rate Income Tax and your spouse or civil partner is a non-taxpayer.
If you are a higher- or additional rate taxpayer, ensure that your self-assessment tax return includes a claim for further pension tax relief.
Increase your ISA contributions, as all returns are tax-free.
Dividends should be taken whenever possible up to your yearly £2,000 Dividend Allowance.
If you’re concerned about paying inheritance tax on your estate after you die, make use of the annual gift exemptions.