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Academy Course #1: Build Financial Fitness: Start with This Simple Daily Habit

118118 Money Team  •  November 27, 2024

118 118 Money is here to help you achieve Financial Fitness. We have developed the 118 118 Money Financial Fitness Academy to help. Achieving financial fitness takes commitment and daily awareness. But once you build these smart money habits, making smart choices will feel natural.

Today, we’re going to focus on the basics of financial awareness – starting with monitoring your bank account and understanding how money flows in and out. This daily habit is essential to taking control of your finances.

Review your Bank Balance Daily

One of the first steps toward financial fitness is understanding your MoneyFlow. To master your money today, start every morning by reviewing your bank balance. This starts at the most basic levels by examining the credits that are coming into your current account and what debits are going out. And it is best to do that by hand. Every single day. It’s easy to assume that if it’s on your bank app that it must be right. But mistakes do happen, and it’s essential to know where every pound is going. There should be no surprises. 

Checking your bank account every day may seem old-fashioned in the days of artificial intelligence, but doing it by hand helps you to stay alert to what’s really happening. This is one of the first steps on the journey to financial fitness. Build your financial future, manage personal finances and improve your credit score in the process.

Manually Balance Your Bank Account Monthly

Once you’re in the habit of daily account checks, build on this by balancing your account at the end of every month. This monthly review is an opportunity to stay on top of your finances, catch errors, and set yourself up for the following month. Again, look for any surprises and give yourself time to deal with them.  Here are some steps to include in your monthly routine:

  • Review All Transactions: Go over each transaction from the past month. This will help you spot unnecessary expenses, any surprise charges, and ensure that all expected rebates or refunds are actually credited to your account. Sometimes, rebates and refunds don’t process automatically, so its important to verify. Also, check if you are spending more this month on any bills than you were in the past. Be alert to merchants raising prices. Watch out for new charges on your account.
  • Assess Your Financial Health: Each month, review your budget and spending trends. Are you spending too much on certain categories? Are there areas where you can cut back? Regular check-ins help you adjust before overspending becomes a habit.
  • Set Spending Alerts: Set up spending alerts on your bank accounts or credit cards to warn you when you are approaching your budget. This proactive approach will prevent accidental overspending.
  • Limit Cash Withdrawals: To curb impulse spending, set a weekly cash withdrawal limit. Once you set this limit, try to stick to it. This will help you think twice about each purchase and foster more mindful spending habits.

By deliberately and manually balancing your accounts each month, you will know where you are spending money. You will see where you might have impulsively spent more than you should have and you can adjust going forward and reinforce your habits. Consciously reviewing your decisions over the last month will give you a deeper understanding of your habits and triggers.  That focused review is lost when you just rely on technology.

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Review Your Credit Card Spending

Do the same for every one of your credit card accounts. Look and categorise your spend. Carefully review your statements to understand your spending patterns. Categorise your purchases, separating “needs” from “wants”. When it comes time to find areas where you can save money, focus on those items you wanted but did not need. Think about what you might have avoided and why you purchased it so that you can be better prepared next tim. Look for fraud. Look for double charges. We frequently see certain restaurants who charge us twice for the same bill. Sure, it is an oversight, but if we did not look the restaurant would likely not refund it.

While you review your monthly credit card statements, look specifically at your subscriptions. Did any increase in price? It seems that every month they raise prices or change their terms. Do you need them all of the subscriptions each month? We have a friend who rotates her subscriptions. She gets to watch all the new shows, but instead of paying for all the subscriptions for the whole year, she only pays for one at a time. That will frustrate the streaming companies who roll out their new shows one episode at a time to get you to keep paying month after month. She only joins once all the new episodes are out so she does not need to wait in suspense and still she gets to see them all.

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Tackle Debt with a Plan

Think about your monthly credit card payments. To reach the goal of debt-free living or to just pay off debt faster, you should ask yourself if you can afford to pay more than the minimum each month. Paying 2x the minimum will lower your overall interest costs over the long-term by a lot.

If you can pay your credit card bill in full – even for one month - you will save interest costs. If you only pay the minimum each month, then the card company will charge you interest from the day you make each new purchase. But if you clear your account for even one month, then you get a grace period – an interest-free period on new purchases until the due date on your statement passes. That is worth a lot of money. It also shows lenders that you are taking steps to improve your financial health and that you have plan for financial success.

Keep a Running Total of Your Incomings & Outgoings

Maintain a running total of your incomings and outgoings so that you know your MoneyFlow on a daily basis. Know when your Salary or Wages come into your account. Know when your bills are due – typically most bills arrive on the same date each month (only varied by weekend dates) so it’s easy to anticipate cash needs. Plan 30 days ahead and, if necessary, adjust your spending to ensure you can cover everything on time. If an unexpected expense comes up, you’ll have the flexibility to delay a non-essential purchase rather than scramble for a loan. This planning helps you make wiser choices and keeps you from panic-borrowing. It also helps you take control of your finances.

Aim to End Each Month with a Surplus

One of the simplest financial goals you can set is to end each month with a little more cash than when you started. Even a small amount, like £4, adds up over time. If you manage to save just £4 each month, by the end of the year, you’ll have £48. More importantly, by spending less than you earn, you avoid needing to borrow which is a crucial achievement in itself. While this will not help you get out of debt fast, it will slowly reduce your debt and help you become financially fit.

Forecast Your Monthly Spending

Your baseline goal should be spend less than you earn each month and to pay all of your bills on time. All means all. We cannot always achieve our goals, but a goal is a goal for that reason. It cannot be compromised.

To help you spend less than you earn, start by forecasting your monthly expenses. Use last month’s spending as a guide, and factor in any changes, like a new job or a recent move or a new child. Take the time to consider any irregular expenses that might come up, such as annual memberships or seasonal costs, and add them to your forecast.

Use Extra Cash Wisely

If you do find yourself with extra cash – perhaps from a bonus or small windfall – resist the urge to splurge. Financially fit people put unexpected income to good use, whether it’s paying down debt or creating some savings. It’s okay to reward yourself with something small, like a coffee or treat, but use the majority of your bonus or windfall to make progress on your financial goals.

In time, as you build a savings buffer (aim for at least one month’s income), you’ll start to feel more secure and prepared for unexpected expenses.

There is no simple guide on how to stop living paycheck to paycheck. There is no fast fix. If you want to know how to achieve financial fitness, we are here to help. But it takes commitment. It takes daily focus. It is important to build your financial future on a solid foundation for the long-term. It needs to be built to last. It’s not about how to save money fast or take short cuts.

If you have not read our article titled “Build a Brighter Financial Future: Start Your Journey to Build Today”, click here to access it. This article will help you understand how taking control of your finances can be empowering. It will also help you think about how to make conscious, SMART and ACTIVE choices with your spending. Stop obsessing over your credit score and focus on improving your underlying financial behaviours.

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