We’ve all got bad habits. Most of them are nothing more than annoying. (Humming, whistling, drumming fingers, cracking knuckles, etc).
Some, however, could be costing you money. You could be throwing your hard-earned cash away without even realising it. That’s got to be worse than tapping your feet or clicking your pen top. So, to help you bite the bullet (rather than your nails), in this guide we explain how to identify the bad spending habits you may have and why they are important. We also provide our top tips for breaking out of these potentially damaging habits, from cutting out your daily coffee shop coffee to avoiding using your overdraft.
What are spending habits?
As the name suggests, spending habits simply refer to the routine behaviours and patterns you follow when making financial decisions. This can cover anything from how often you go shopping and the types of items you buy regularly, to whether you pay with cash or credit card and how frequently you eat out or make ‘luxury’ purchases. Although some spending habits may seem harmless on the face of it, over time, they can add up and lead to significant financial strain. This is why understanding your spending habits is the first step toward better money management.
Why do spending habits matter?
Put bluntly, spending habits matter because they directly affect your financial health. If you are consistently overspending, relying on credit, or making impulse purchases you cannot afford, you can find yourself in a spiral of debt and a lack of savings.
Indeed, irresponsible spending habits not only lead to debt, they also make it more difficult to climb out of debt once in it – this is one of the major trends that leads to consumers needing to seek professional financial help in the form of a formal debt management solution. Over time, this can negatively hit your credit score and, as a result, your ability to secure loans or mortgages in the future.
Do mortgage lenders look at spending habits?
Yes, some mortgage lenders do assess your spending habits when considering your application. In order to determine whether or not you are able to manage your spending and debt responsibility, and in turn likely to make mortgage repayments consistently, lenders will often assess your bank statements, credit card usage, and overall financial behaviour.
Naturally, examples of regular excessive spending, frequent use of overdrafts, or high credit card balances are all red flags to lenders, and can suggest to them that you may struggle with additional financial commitments. For this reason, maintaining healthy spending habits is essential in the months (and even years) leading up to the moment you apply for a mortgage.
How to change your spending habits
Changing your spending habits is not as easy as it sounds. You may find yourself in a position of almost subconsciously falling into debt, whilst at the same time wondering where all your money goes at the end of the month? Well, the first place to look is your bank statement. Indeed, you might be shocked to find how much of your monthly income slips away through daily, seemingly mundane and insignificant purchases.
To get you started on changing your spending habits, check out our tips below. We have listed some of the biggest culprits when it comes to small purchases that really add up. First up, arguably the most common cause of needless overspending – food and drink costs:
- Caffeine: Cappuccino, Frappuccino, Mocha Cortado, Flat White – whatever combo you go for, that coffee is costing you big time. At an average of £3 a shot, one a day is costing you £21 a week, £84 a month, more than £1,000 a year! Can’t sweeten that one.
- Food: Subway for lunch, pizza after the pub, fajitas with the footy team, chippy tea when you’re tired, Big Mac just because, takeaway with your mates because it would be rude not to… Fast food. Ditch it. Quick win.
- Snacks: Packets of crisps when paying for petrol, chocolate bar with your daily newspaper, fizzy drink to cope with an afternoon slump, croissant in the coffee shop. It all adds up. Time for a snack attack.
- Water: If you find yourself constantly buying bottles of water, consider forking out for a cheap refillable container. Top it up from the tap, chill it in the fridge, and feel smug as well as hydrated.
- Alcohol: Booze and you lose. Only you know how much of your hard-earned cash ends up in a bar rather than a bank. Small changes can make a big difference. Cutback on the number of nights you go out drinking. Cutback the number of drinks. Just cutback.
Aside from food and drink, there are several other spending habits that might be quietly costing you. These include:
- Staying in debt: The longer you have money on a credit card the more money you’re wasting. So chuck as much as you possibly can at the repayments every month. And try to stop using it.
- Going overdrawn: Every time your bank account nudges into the red, even if it’s only a couple of pounds, you get charged for it. That could equate to you working for two hours for zilch. Ouch!
- What’s in a name? Usually not a great deal. Branded products might look better, but that’s just a sneaky sales tactic. More often than not, own-brand products are just as good, they’re just not as flashy. Avoid the posh packaging and save a packet.
- Same stuff – cheaper price: Things like electricity and gas are the same, no matter who supplies them. But the prices can vary massively. Don’t stick with the same provider because it saves you the hassle. Get it cheaper by shopping around and finding a provider that’s right for you.
- Don’t hang on to your clutter: Your junk could be another man’s treasure. So, if you’ve been meaning to have a clear-out for ages but just haven’t got around to it, get it sold and make yourself some extra cash. Just don’t go and spend it on more clutter.
If all this sounds like hard work, just think of the money you’ll be saving. And, when all else fails, remember the mantra: Bad habits are there to be broken!
