Groundhog Day is traditionally observed in the United States and Canada on 2 February each year. It’s a fun way to “predict” when spring will arrive.
However, you may be more familiar with the film, Groundhog Day, starring Bill Murray.
In this 90s classic, Murray plays an unlikeable character who is stuck in a time loop and forced to repeat the same day over and over again. He only breaks free of this relentless monotony and frustration when he changes his ways to become a better person.
If you find yourself stuck in your own version of Groundhog Day, repeating the same unhelpful money habits, read on to find out how to break this cycle and give your financial wellbeing a welcome boost.
3 unhelpful financial habits and how to break them
1. Saving as an afterthought
If you only save whatever you have left at the end of the month, you might be missing a trick.
Once you’ve paid all your essential costs – such as your mortgage and household bills – as well as spending on social events and lovely treats, there might be very little left to bolster your savings pot.
This ad hoc approach to saving could mean that it takes longer than expected to reach your financial goals.
On the other hand, you could proactively budget to save a certain amount each month. Treating your savings as a bill like any other might encourage you to plan your spending around your savings, rather than vice versa.
“Paying yourself first” in this way could also help you build an emergency fund that you can draw on if any unexpected costs arise.
If you struggle to stick to a regular savings habit, consider automating your savings so that you move a percentage of your income to your savings account each month as soon as you receive it.
You might find it beneficial to seek advice from a financial planner who can review your finances objectively and identify opportunities for cutting back on spending and saving more. They could also help you explore different options for making the most of your savings, such as moving some of your cash into investments.
2. Ignoring your debt
According to figures published by Finance Monthly, the collective personal debt of UK residents in May 2024 was £1,852.5 billion, which represents an increase of £205 million compared to May 2023.
The average debt per adult (including mortgages) was £34,537 as of May 2024 – around 96% of the average annual income at the time. This means that the typical adult in the UK owes nearly as much as they earn in a year.
Of course, debt is not always a negative. Considered borrowing could be a valuable tool for progressing towards your goals, such as buying a property for yourself or your children.
However, if you rely heavily on credit cards or high-interest loans, your debt could rapidly spiral out of control as the interest accumulates. This may negatively affect both your financial and emotional wellbeing.
While it might be tempting to ignore your debt, unfortunately, it won’t go away on its own. Burying your head in the sand could also mean that your debt has more time to grow.
To break this unhelpful habit, you might want to consider:
- Creating a budget to avoid overspending in the future
- Setting spending limits for potentially expensive forms of borrowing, such as credit cards
- Prioritising your debts and paying off those with the highest interest rates or largest balance first.
If you’re struggling with unmanageable debt, a financial planner can provide tailored support that accounts for your specific circumstances and goals. For example, they can help you decide whether consolidating your debts might be a useful strategy for taking control of your finances.
3. Automatically increasing your spending in line with your income
“Lifestyle creep” occurs when you gradually increase your living expenses and non-essential spending as your income rises.
Of course, it’s OK to treat yourself if you receive a salary increase or an unexpected windfall. Indeed, you might feel that you’ve earned a lifestyle upgrade.
However, letting your spending “creep” up without having a financial plan in place could mean that your extra income rapidly disappears each month. As a result, you might miss out on the opportunity to save and invest towards your long-term goals.
Achieving a balance between satisfying your short-term desires and accumulating wealth for the future may be tricky.
Fortunately, we can help.
If you want to make the most of an increased income or windfall, our experienced financial planners can provide the support and guidance you need to plan for the future without sacrificing the lifestyle you desire today.
By working with us, you could build helpful money habits that support your financial and emotional wellbeing.
To find out more, please get in touch. Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Approved by Best Practice IFA Group 15/01/2025
