Six simple steps to transform your financial life in 2018

Changing a few financial habits doesn't always have to be painful. Photograph: PA
Changing a few financial habits doesn't always have to be painful. Photograph: PA
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On average, it takes people five months to repay the debts they rack up over Christmas, according to research from Nationwide Current Accounts. But by acting quickly in the New Year, and changing a few financial habits, you may find you can get back on track more quickly – and the transformation doesn’t always have to be painful.

Here, Sarah Coles, a personal finance analyst at financial services firm Hargreaves Lansdown, suggests six simple ways to transform your financial life in 2018...

1. Have a money makeover

Take stock of your financial life. Consider your overall pension and investments position. Review how much you’re paying in, whether that’s enough to meet your goals, and how to free up more cash to invest. Take a look at performance too, so there are no nasty surprises waiting when you finally come to cash in your investments.

2. Clear away any clutter

Tidying up your finances, along with any discarded Christmas wrapping paper, will make life easier. If you have built up several pensions, Isas, and a handful of individual shares over the years, you may either have a complex filing system or little idea about what you have or where it is.

Dig out the paperwork on your old pensions, check whether there are any valuable guarantees or expensive penalties for switching. If you’re free to switch, consider whether it may be worth moving them into a single, more modern pension, which may be cheaper and have more investment options.

3. Consider giving up what you don’t love ahead of what you do

The small luxuries in life, such as morning coffees and after-work takeaways, may be the obvious candidates for the chop in your new, healthier financial regime, but if they are a great source of joy, losing them will be a constant battle – increasing your chances of failure.

Before you give up the things you love, it makes far more sense to give up what you don’t love at all - like paying more than you need to for utilities, or buying expensive grocery brands – so see if you could pay less simply by shopping around.

4. Consider dividing your cash into portions and building a savings portfolio

Remember, it’s wise to keep around three to six months’ worth of expenses in easy access accounts as an emergency fund – in case you suddenly need access to cash.

Once you have that in place, for periods of between one and five years, you may want to consider looking at fixed rate bonds, which could potentially offer higher rates in return for tying your money up.

5. Build regular investment habits

Make this the year that instead of putting off investments, or rushing to meet the Isa deadline, you commit to investing little and often. This is less painful than trying to find a lump sum.

6. Be realistic

Saying “I’m going to retire at 50” may sound great, but if you’re being unrealistic you could become disillusioned and run out of momentum. Set realistic, achievable goals, build a budget around them, and save a sensible, affordable sum every month.