Better Off, Better You Part 3: Changing Your Lifestyle

As you may know by now, Better Off, Better You is focussing on getting you into a better financial position for this year. Hopefully, you’ve already read part 1 about setting your budget and part 2 regarding cutting costs. If not, it might be best to go and have a look at them before reading on.

Once your finances are in order and you’ve reduced your bills, why not consider making lifestyle changes? These can help secure your long-term future and save you even more money.

I’m not a fan of big lifestyle changes because this often means making large sacrifices or missing out on something you love. The whole focus of my blog is trying to make small changes. We only live once and I think it’s important we enjoy it as much as we can. But I still strongly recommend that you consider looking into many of these changes.

Start an emergency fund

People tend to underestimate the importance of an emergency fund, but it can go a long way to keeping your finances in check. Life is full of surprises and they’re not always pleasant. But what would you do if you had a large, unexpected bill to pay? We often turn to short-term lending options such as a credit card or overdraft, which can cost a small fortune in interest payments.

Creating an emergency fund should stop you from relying on expensive solutions. And it might help you to sleep easier at night. How much you need depends on you, but £1,000 is a good starting point. Some people like to have a month’s worth of wages, whilst others prefer three.

And you don’t need to grab a large amount out of thin air, but transfer small amounts every few weeks. My favourite way is to use a finance app like Chip. This links to your bank account and calculates how much you can save, automatically transferring small amounts every few days. This way, you don’t notice the money leaving your bank. Within a few months, you should be in some way to have a good emergency fund.

Tackle your debt

Once you have an emergency fund behind you, it’s time to start tackling debt. Now, there are plenty of ways to do this, but it’s always best to look at paying off your most expensive debt first. This tends to be debts such as credit cards, overdrafts or high-interest loans. As these are cleared, you’ll pay less in fees and have even more free money to put towards being debt-free.

Make the most of your pension

If you’re currently employed, you should already have a workplace pension. A pension is there so you have a bit more money when you retire rather than relying on the relatively small state pension.

Contributing to a workplace pension comes with a couple of significant advantages. First, you don’t have to pay tax or national insurance contributions on any money you put into the pension. For most of us, that’s around 30%. And not only that but your employer will also top-up your pension by a certain percentage.

Generally, the more money you can put into a pension, the better.

Start saving towards the future

Although a pension has some significant advantages, it can only usually be accessed once you reach 55. And even then, you could be penalised for taking it before your state retirement age.

You may consider setting up a direct debit for a separate savings account. Although you won’t receive the tax benefits of a pension, your savings can usually be accessed at any time.

There are two popular types of savings account – cash and stocks & shares. But with interest rates so low for cash accounts, I prefer to opt for stocks & shares options. Currently, my accounts have returned in the region of 9% each year.

My first is a Lifetime ISA with Nutmeg. Available to open if you’re under 40, it gives you a 25% bonus from the government on any money you deposit. You can pay in £4,000 per year and don’t need to pay tax on the income. However, if you access the money before 60, you will need to pay a penalty. Take a look at how my Nutmeg LISA is performing.

I also have a Fidelity stocks & shares ISA. Here, I can deposit up to £20,000 per year without paying tax on the income. But unlike my LISA, there is no government bonus. However, there are no penalties when it comes to withdrawing.

Of course, stocks & shares can go down as well as up, so they are not for everybody. If you want to put your money away into a cash account, then make sure you shop around to get the best interest rate possible. But you will generally struggle to see much more than 1%.

Another savings account worth looking into is the Help To Save scheme set up by the government. It’s only available to people who receive certain benefits but it does mean you can earn as much as 50 pence in interest for every £1 you save.

Smaller steps to take

The above options are long-term and so need your total commitment. But to help you on your way, why not make some more minor lifestyle changes too?

Scrap deal sites

Deal sites are everywhere. Whether they’re on social media or they have their website, they promise to deliver you the best deals and bargains. And don’t get me wrong, you can occasionally find some absolute steals there. But I have two problems with them.

First, they will probably encourage you to buy something you don’t really want. I’m sure you’ve heard of FOMO (Fear Of Missing Out), and when we see something that we see as a bargain, we’re drawn into buying it. And nine times out of 10, it’s not something we need.

Secondly, they’re set up to make money. So these deal sites are keen on promoting products that make them money, even if it’s not always the best deal.

Avoiding deal sites could save you a lot of money if you find it hard to resist temptation.

Put off impulse purchases

In a similar vein to deal sites, try to avoid buying anything you don’t need – which involves both offline and on. If there’s something that takes your fancy, then give yourself seven days before you commit. And, if you still want to buy after a week, it might be worth going ahead. Otherwise, move on and ignore it.

Use cashback sites

Still, on the topic of shopping, cashback sites are something you certainly should use to help save/make money. All you need to do is click on a link before you visit your shop of choice and you’ll earn some money back. They’re free to use and the only issue is remembering to click on that link. I can make over £100 per year just from these sites.

If you’ve never tried them, look at how cashback sites work.

Change your supermarket habits

A large amount of our monthly spending goes on grocery shopping. But if you’re willing to make some sacrifices, you could drastically cut this bill.

A simple option would be to change from main brand companies to a shop’s own. Although you may think that the quality isn’t quite as good, you’ll often find that the same company makes the food just with a different label.

Make sure that when you shop, you have a list and you stick to it. But if you see something on your list that’s on special offer, try to buy as much as possible. There’s no telling when it will be on offer again.

If you can, leave your shopping until later in the evening. You’re far more likely to find reduced (yellow sticker) food, which can often be offered for as much as 90% off. And a lot of this food can be frozen.

And never shop hungry – you’ll be far more likely to add food to your trolley that you don’t need.

If you shop at some leading supermarkets like Tesco, Sainsbury’s and Asda, think about using Lidl and Aldi instead. You could save almost £15 from a £56 shop. That’s over 25%. Even if you travel a bit further, it should save you money.

If you’re really dedicated, you could even check out where you can find the cheapest products before you leave your house and visit multiple shops to ensure you get the best value.

Stop upgrading your phone

Many of us have fallen into the trap of needing to change our mobile phone every 18 months to 2 years. And with most phones costing between £700 and £1,000 each, that’s a lot of money to pay out, even if it is just a monthly payment.

But take a moment to think is it worth it? What does that new phone provide that your old one doesn’t and what could you do with an extra £1,000?

If you think your old phone is nearing the end of its life, you can pick up refurbished phones from stores like Amazon for under £100.

Energy saving

Finally, think about reducing the energy you use around the home. Not only will it save you money, but it will help the environment too.

Changes you can make include:

• Decrease waste by installing some energy-saving devices.
• Installing LED bulbs – could save up to £200 per year.
• Install a smart thermostat to save up to £60 per year.
• Consider fitting draught excluders, cavity wall insulation, loft insulation and new windows. How much you save depends on your current set-up, but you could reduce heating bills by up to 40%.

I went a little over the top by installing solar panels, but I calculated it would take around ten years to make my money back.

If you have a water meter installed in your home, look at some simple ways to reduce water usage.

Hopefully, by now, you will have your finances in order, cut some of your costs and move towards making some lifestyle changes. The fourth and final part will look at ways to earn extra money.