The start of the year marks the time when people try to give up their bad habits – from smokers quitting for good to ditching junk food and getting in shape. But, whether or not you’re a smoker, why not also consider quitting any nasty financial habits you’ve picked up and learning better money habits?

Not sure you even have any? Well, some of those habits might have become so ingrained that you don’t even realise you have them, notes Sarah Coles, a personal finance analyst at Hargreaves Lansdown.

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So what are the warning signs, and how can you develop better money habits for 2021? Here, Sarah shares her expert insights and advice…

How to have better money habits in 2021

1. The symptom: Casually dipping into debt

You don’t have to go terribly overdrawn for particularly long for this to start making a big dent in your finances.

How you can get a better money habit: If you regularly dip into your overdraft, the answer lies in drawing up a household budget, and identifying the regular costs you can cut. This may mean shopping around on essential bills and groceries, or cutting out those things you don’t get much value from, such as gym membership or expensive media packages. If you’re a repeat offender, consider setting up text alerts in online banking, which will text you if you’re running the risk of going overdrawn.

2. The symptom: Only paying the minimum amount back on your borrowing

The minimum payment required on your credit card can easily lull you into a false sense of security. But by paying the debt down at a snail’s pace, you could be racking up shocking interest charges.

Better money habits - pay off credit cards

How you can get a better money habit: If you have expensive debts like credit cards, it’s essential to pay them off as quickly as possible. If you have a significant balance, it may be worth switching in order to cut interest payments in the interim. However, if you switch, it’s vital to see this purely as a mechanism for debt repayment. If you’re tempted to rack up more borrowing, you’ll end up in an even more expensive position.

3. The symptom: Forgetting about your savings

According to a 2015 study, some 80% of easy access savings accounts hadn’t been switched in the previous three years. Neglecting savings is an expensive habit to fall into because, over time, the rates on these accounts are likely to have become less competitive – especially if a bonus was applied at the outset.

How you can get a better money habit: Even in this era of low-interest rates, it pays to make a date to regularly check what you are earning on your savings, and if the rate is no longer competitive, make a switch.

4. The symptom: Not making the most of tax shelters

Are you making the most of the tax advantages offered by pensions and Isas, for example?

How you can get a better money habit: At the start of each tax year, it’s worth taking stock of your savings and investments, and asking yourself whether you really need to be paying tax on them.

5. The symptom: Putting plans off

Long-term goals like retirement saving may seem a long way off, but every day you save makes a big difference. It’s not just the years of contributions you will miss by putting things off, but the effect of compounding returns – which is jaw-dropping.

Make sure you start saving for retirement

How you can cure the habit: There are always too many demands on your money, but as a general rule, it pays to invest as much as you can afford for retirement, as early as you can afford to do so.

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