9 Brilliant Tips for Building Credit and Becoming Financially Fit
Each year, people set the goal to become better at handling their money. Just like with goals to exercise more, people can fall short of their aspiration to become financially fit. The good thing is that this is rarely due to a lack of ability - instead people lack the strategies and techniques necessary to make it happen.
Define Your Financial Fitness
Before you start creating a plan to become financially fit, it’s important to ask: what is financial fitness? Whilst physical fitness may involve bench pressing 50kg for some or improving mobility for others. Financial fitness may include goals like building credit and reining in spending habits, or paying off debts and creating a budget.
A plan to become financially fit is different for everyone. It will vary from person to person and depend highly upon what stage of life you’re at. Your goals may be different to others and the way you go about becoming financially fit has to work for you. That’s why it’s important to plan your own path to financial fitness, rather than copying someone else.
Keep this in mind as you utilise the nine tips below. Remember, you can alter and adapt these tips to suit your own needs and circumstances. Whilst some tips may not directly apply to you, the principles they're based on can help you on your journey to build credit and become financially fit.
Related Article: Beginner’s Guide to Building Credit the Right Way.
Nine Tips for Building Credit and Becoming Financially Fit
1. Understand What Makes You Spend
Understanding what drives your spending habits is important. To do this, consider how the following factors influence your personal expenditure:
- Where are you spending? Consider where you spend the most. Can you save money each day simply by taking a route to work that doesn't go past your favourite coffee shop?
- How are you feeling? Think of how you feel when you’re about to spend. Are you tired, sad or hungry? Paying close attention to these cues could help alter your spending habits.
- Who are you with? If your friends have bad spending habits, they could be influencing yours. Pay careful attention to how your spending habits change when you're with friends compared to when you're alone.
2. Split Your Paycheck Between Current Account and Savings
One common piece of advice is to 'pay yourself first.' If money in your hands has a habit of disappearing quickly, depositing a portion of your salary directly into a savings account is a smart way to set money aside for your future. And a sure way to become financially fit.
Alternatively you may consider setting up a standing order to transfer money to your savings account automatically. By using a standing order, you're making sure to put money away for a rainy day.
3. Pay Off Your Debts
Debt can be your worst enemy on the road to financial fitness - taking money from your personal budget each month and constantly accumulating interest. The longer you put off paying off your debts, the worse they become. You’ll give yourself a huge helping hand when you pay your debts off. Here’s why:
- Paying off debt early reduces the amount of interest it can accumulate.
- Paying off debt in full and on time is crucial to building a healthy credit score.
- Once you've paid off your debt, you can direct more money to other areas of your budget.
Paying off your debt is like removing resistance weights. Becoming financially fit can be a breeze after shedding them.
4. Visualise The Money You Spend
The ease of swiping a card can make it easy to ignore how much you’re spending. When prices and your account balance are simply numbers on a screen, it’s more difficult to be aware of their significance. To combat this, trial these methods to make your money feel more concrete:
- Imagine it as cash. When you use cash, it’s visible that you have less and less as you spend it. As a result, cash carries far more emphasis than the plastic card in your wallet.
- Think of the time it took for you to earn the money. Ask yourself, is the purchase really worth the number of hours you worked to afford it?
- Calculate your daily budget. When you break down your earnings and expenses by the day, it reframes costs and provides fresh insight into your spending habits.
5. Pay Your Bills on Time and in Full
Your payments and payment history can significantly impact your credit. Late payments can cause serious damage to your credit score and set you back on your path to becoming financially fit. Therefore, paying your bills on time is one of the best things that you can do for your credit. Consistent and on-time payments will help you to:
- Avoid late fees, which can be painfully inconvenient and high in cost.
- Avoid accumulating excess interest on credit card payments.
- Build your credit score through showcasing a strong payment history.
You can set reminders for yourself in a calendar or phone to avoid forgetting your upcoming payments. Additionally you can receive bill alerts from the Pave App. You can also sign up for auto-pay; mortgage, energy, mobile and other bills of that type will most likely have an auto-pay option. All you have to do is budget your money!
Quick Tip: If you decide that auto-pay is the right option for you, it is important to make sure that auto-bill does not dip into your overdraft.
Related Article: Improving Your Credit Score for a Mortgage in the UK.
6. Add Friction to Reduce Impulse Buying
If you've ever bought anything online, you've probably seen the message 'Save Payment Information'. While this feature is convenient, it might be a bit too convenient. By refusing to save your card details on online shopping sites and apps like Deliveroo and UberEats, you make it harder to buy on impulse. Here are other ways to reduce the desire to make those impulsive purchases:
- Instead of keeping cards in your wallet, keep them tucked away in a safe place so that you have to find them before using them.
- Enforce a waiting period for purchases over a particular price point. Enlisting the help of your partner or friend can help hold you accountable to this. While you wait, consider whether the purchase is aligned with your goal to become financially fit.
- Unsubscribe from shopping-related mailing lists. One tap is all it takes to stop a constant stream of temptation flooding into your weekly inbox.
7. Take a Note From the Minimalists
The minimalist approach offers a great path to becoming financially fit. Before you make a purchase, take a moment to consider the following:
- Think of how you'll feel about the purchase after a week, a month, or even a year. Will you still value it as much as you do now?
- Is the purchase necessary at this stage in time?
- Think of the way you felt the last time you made a similar purchase.
Considering these things might shift your perspective on the purchase. They may lead you to realise that you don't need or want to make the purchase, or they may confirm that you do. Either way, it will help you to spend intentionally and be confident in your purchase decision.
8. Save For an Emergency Fund
Sadly, for all the planning you can do, things can still go wrong. If you aren't financially prepared, an unexpected expense can blow your budget through no fault of your own. There are countless reasons to start an emergency fund. Here are a few:
- Help pay off debt: Let's say you're paying off a loan, but one month, money is tighter than usual. Having an emergency fund you can dip into will allow you to continue your payments despite a slight hiccup.
- Car maintenance and repairs: A costly and unexpected maintenance or repair payment can force you to make late payments elsewhere and damage your credit. In this instance having an emergency fund could come in handy.
- Medical expenses: In the case of an unexpected medical injury, having an emergency fund in place can help cover costly expenses or even supplement lost income while you recover.
Building a safety net or starting an emergency fund is pivotal in your journey to becoming financially fit. It allows you to stay true to your planned budget even when the unexpected strikes.
9. Sign up for a Credit Builder App like Pave
Building credit can be hard, but Pave makes it easier. By reporting monthly payments to major credit agencies, Pave has helped a community of over 300,000 people improve their credit scores. If your goal to become financially fit involves improving your credit score, sign up for Pave and put your plan into action today!
Related Article: What is the Average Credit Score in the UK?