5 ways to get your finances as fit as possible

Remember the good old days when a can of drink and a trip on the bus cost pennies, not pounds? Well, soon we could be feeling nostalgic about how much the things we can’t avoid buying – such as groceries, transport and energy – were priced only a few months ago.

Inflation, the measure of how much more our essential goods and services cost than last year, has risen to its highest level for 30 years. Meanwhile, energy bills are predicted to go through the roof, with fears the price cap on gas and electricity will rise by 50 per cent in April. 

Life is getting unavoidably pricey and we are all feeling the pinch.

The temptation is to make like an ostrich and bury our heads, ignore our bank balances and hope for the best. But now, more than ever, we can’t afford to waste any cash. It’s time to get your finances as fit as possible for 2022. Here’s where to start.

Get real about your budget

  Understand your numbers: what’s coming into your bank account, what’s going out, what bills you’ve got to pay, and how much the interest rates on any debt actually cost you. It sounds obvious, but it can be hard to stay on top of this month in, month out.

Have you got subscriptions rolling over that you forgot about after signing up to a free or discounted trial? Are you chipping away paying minimum payments on a credit card? Both will be costing you more than you realise and diminish your ability to save. 

Download a budgeting app, such as Emma, that helps you spot any recurring payments, or Money Dashboard, that lets you see all your accounts in one place for a helpful overview of your true financial situation.

Everyone should have an emergency savings fund in cash. Ask yourself what would happen if you had an unexpected expense like a car that needs fixing, or if you lost your job.

Financial advisers suggest you save the equivalent of three to six months of essential bills to avoid getting into debt during times of hardship. 

Decide how much you need to save before you get paid, and move that sum away from your current account as soon as your salary lands. Out of sight, out of mind. If you have any cash left over, invest it to try and beat inflation, which erodes cash savings.

You can invest up to £20,000 per tax year in a range of funds, but remember that you should be prepared to leave any money you invest alone for several years and that no investment is without risk.

Do this now: Work out how much you can afford to save, and transfer this amount as soon as you’re paid. 

Adjust your money mindset

The pandemic has created a lot of financial tension, with many businesses struggling, and extended periods of furlough cutting wages and job cuts in hard-hit sectors like hospitality. However, one silver lining of lockdown and restrictions is that there hasn’t been as much opportunity, or peer pressure, to spend.

As our social life opens back up, try to build on that mindset. Ask yourself what you have not missed over the past two years, and could continue to cut out. And what did you miss? Cocktails with your closest friends, day trips to the sea? How can you make sure you save for and spend on just the things that matter to you the most?

Rachel Rowley, Financial Adviser and Coach, says so much of budgeting is about psychology, not spreadsheets. 

“There are some amazing stories of how we have embraced saving and lifestyle changes in lockdown. But the reality is, many of us have switched the way we spend but not learned better habits along the way. Instead, we’ve just diverted what we’re spending on. One way of telling is if you’re now on a first-name basis with your delivery drivers.”

She recommends several strategies to ‘hack’ your mindset. 

“Create a future vision board for your financial improvement and position it somewhere you’ll see it every day. Keep it in your regular thoughts – it will subconsciously shift your mindset. And check your financial balance every morning. Make it part of your routine, after you get up, brush your teeth and shower.”

Do this now: Check your bank balance every morning and focus on what you really want to spend money on.

Have no-spend days 

Each new year, the hashtag #NoSpendJanuary appears on social media, where people challenge themselves to cut back and only spend money on the absolute essentials of food and bills. But, as with reducing alcohol intake or pledging to get fit, saving little and often can be more sustainable than going in too hard. Instead of setting yourself up to fail, try the money 5:2.

Take two days a week where you don’t shell out beyond your basic living costs, and spend normally the rest of the time. This ‘money diet’ should help you take more notice of where your money is going, understand where temptation lies, and become a more mindful spender.

Savings challenges are also cropping up online. You can put aside nearly £1,500 over 12 months with the 365 money-saving challenge. Start with £1 on a Monday, £2 on a Tuesday, through to £7 on a Sunday, then reset back to £1 on Monday again. It quickly adds up over the year.

You can similarly accumulate nearly £700 with the penny savings challenge, squirrelling away 1p on the first day right through to £3.65 on the last day of the year. Online banks including Monzo and Starling feature pots that you can move money between, to help automate this process.

Do this now: Start a savings challenge and set yourself a no-spend day each week.

Become a sustainable shopper

 Buying more than we need – be it clothes hanging in our wardrobe with the labels still attached, or herbs in plastic pots we throw away because we didn’t actually get around to cooking with them – is not only bad for our wallets, it’s bad for the planet.

Being a more sustainable shopper will cut your bill. Mindful Chef is a good delivery service that helps you to reduce food waste. By only having the exact ingredients for your daily or weekly meals delivered straight to your door, you can ensure you’re not overspending on food you won’t use and also do your part environmentally.

Lauren Bravo, author of the book How To Break Up With Fast Fashion, says we should all be sticking to the #secondhandfirst rule. ‘Before buying any new item of clothing, always see if you can find a pre-owned version first, whether that’s searching resale sites like Depop, Vinted, eBay and Vestiaire Collective; having a rummage in a charity shop; renting it via an app like By Rotation or HURR; swapping it through a platform like Nuw or Bandi; or even just borrowing it from a friend.

If you’ve exhausted those options and still ‘need’ the garment, then go ahead and shop, but often you’ll find the craving has mysteriously passed.

“Fast fashion isn’t just a burden on the environment but a drain on our finances, too. We might tell ourselves that each hot trend is so cheap that it doesn’t matter, but the truth is, all those impulse buys add up.”

Do this now: Before you buy any new clothes, consider whether you could get them second-hand or rent them first. 

Ask for a pay rise

Rising inflation means your pay is shrinking in real terms, so your salary won’t buy you as much as it did. Now may be the time to take a deep breath and ask for a salary boost.

It can be an extremely daunting process, so do some research into how to structure your approach to your boss, and where you might pitch your request. Sites such as LinkedIn Salary can give you a guide to average salaries in similar professions. 

Think about what your boss might say, why they may not want to give you more money and how you can calmly counter their arguments. It’s easy to feel that our salary is tied to our self-worth and we get what we ‘deserve’, but try to separate yourself and your personality from how much you earn. Look objectively at the skills you have and the value they bring to the business. 

“Another benefit of a pay rise is that you will get an increase in your pension contribution,” adds Lottie Leefe, wealth planner and founder of the Dura Society, the financial wellness consultancy.

If you do succeed in getting more money, her top budgeting tip is to pretend that you didn’t. Lifestyle creep is where, as our earnings rise, our spending does too, alongside a taste for more expensive things. “Try to keep living as you were,” she says.

“Put your additional salary to one side and watch your savings grow.”

Do this now: Research how to ask your boss for a pay rise. 

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