Money

Do you control your money, or does your money control you? The key to financial peace might be simpler than you think.

1. Bigger Deposits Mean Better Mortgage Deals

Saving for a larger deposit can significantly reduce your mortgage interest rates. Housing costs have skyrocketed, making home-buying unsustainable for many young people. However, presenting a bigger deposit instantly lowers your borrowing needs and convinces banks to offer you more competitive interest rates.

Banks evaluate your income and expenses closely. Teaming up with someone else, such as a partner, can often double your borrowing potential. Additionally, in the months before applying for a mortgage, keeping your financial accounts clean by avoiding lavish spending or missed bill payments strengthens your appeal as a low-risk borrower.

Saving at least 10% for your deposit instead of the more common 5% can open opportunities for improved deals. While many first-time home buyers settle for a small deposit due to limited savings, reaching the 10% threshold is well worth the effort for a cheaper long-term mortgage.

Examples

• A deposit of £50,000 for a £500,000 house secures better interest rates compared to £25,000.
• Joint mortgage applications can double the potential loan amount banks offer.
• Clean bank statements over three months increase lender approval chances.

2. Your Credit Score Can Make or Break Loan Approval

A strong credit score is another essential tool for securing favorable loans. This score reflects your financial reliability, as tracked by credit agencies that monitor your payment history, debts, and borrowing habits.

People with limited or poor credit histories often face difficulties, as lenders consider them higher risks. If you’re new to credit, start building a history by responsibly using credit cards for small purchases and repaying them quickly. Avoid late payments, as any defaults can linger on your credit record for six years.

Improving your credit score opens doors to more affordable interest rates and allows you to borrow larger sums. Surprisingly, applying for too many credit products at once, such as multiple loans or credit cards, can damage your score—so space out your applications wisely.

Examples

• Using a credit card for daily expenses and paying it off monthly boosts your score.
• Missing payment deadlines can wreck your credit standing for up to six years.
• Checking your credit report for errors can help resolve unfair blemishes.

3. Debt is Manageable with the Right Approach

Even if you’re drowning in debt, there’s always a path to recovery. The essential rule: borrow only when it’s absolutely needed and pay it back as soon as possible to minimize interest.

Debt left unchecked accumulates interest, ballooning what you owe overtime. For instance, paying only the minimum on a £3,000 credit card debt at 19% interest can cost you over £7,000 within 27 years. But by increasing monthly payments to slightly over £100, you can repay it in just three years, saving thousands in interest.

For severe debt struggles, creditors may offer flexible repayment plans if you reach out and explain your situation. Tools like online debt calculators or services from support charities make planning easier and less stressful.

Examples

• A £3,000 debt paid at £74 monthly takes decades, while £108 monthly clears it in three years.
• 3.3 million people in the UK face serious financial debt—so you’re not alone.
• Free support from services like StepChange can guide you to regain control.

4. Budgeting Doesn't Mean Deprivation

Budget management doesn’t have to mean living frugally; it’s about channeling your money purposefully. The Japanese method of Kakeibo introduces mindfulness into spending, steering you from wasteful habits to conscious financial decisions.

Start by writing down your monthly income, subtracting fixed costs like rent, and setting a savings target. The remainder becomes your weekly budget. Bonus points if you physically separate funds into different bank accounts for essentials, savings, and spending—it reduces the temptation to overspend.

This approach not only fosters saving but encourages reviewing your habits. For example, opting to make lunch instead of buying meal trays daily not only cuts costs but also enhances your spending awareness.

Examples

• Kakeibo's separation system for rent, savings, and fun shrinks unnecessary expenses.
• Making lunch instead of buying takeout saves hundreds annually.
• Choosing pre-determined spending limits eliminates impulsive shopping guilt.

5. Invest to Grow Beyond Savings Accounts

Traditional savings accounts often fail to outrun inflation, making them ineffective for long-term financial growth. Investment funds offer an alternative, pooling resources into diverse assets to minimize risk while yielding higher returns.

Investment platforms, or fund supermarkets, simplify investing by managing decisions for you. All you need to do is decide which fund aligns with your goals. Funds diversify investments—spreading money across stocks, bonds, and other assets—to reduce potential losses from market ups and downs.

While investments carry some risk, long-term contributions generally guarantee returns that exceed savings account interests. Thinking broadly, your investments can even shape sustainable industries through ethical funds.

Examples

• Many investment funds outperform regular savings accounts in growth rates.
• Fund supermarkets like Vanguard or Fidelity make investing user-friendly.
• Diversified portfolios protect against losses from single-company downturns.

6. Plan for Retirement Early

Pensions may seem unexciting, but they’re essential for ensuring a stable future. Building up retirement savings early lets compound interest work its magic, multiplying your contributions exponentially over time.

Governments incentivize pensions with tax breaks, making them much more lucrative than savings accounts. The earlier you begin, the less you would need to stash away monthly compared to starting late in adulthood.

Experts recommend saving enough to replace two-thirds of your current income during retirement. Roughly, that means saving £750 monthly to meet a target of £400,000 over several decades.

Examples

• Start pension saving in your 20s to cut the monthly burden drastically.
• Someone earning £30,000 yearly needs around £400,000 saved for 20 retirement years.
• Online pension calculators help personalize realistic saving plans.

7. Money Discussions Strengthen Relationships

Confronting financial partnerships head-on can improve trust and communication between couples. Money issues are among the top contributors to relationship conflict, making open discussions vital.

Partners often hold differing views about spending. Discuss your financial goals and expectations early while devising fair contributions for shared expenses. Practical solutions, like budgeting rules and income-based bill contributions, can prevent misunderstandings.

Regular financial check-ins can enhance your teamwork while airing concerns before they escalate. Implementing written financial contracts helps even further by creating mutual accountability.

Examples

• Couples discussing finances often resolve underlying tensions better.
• Setting spending guidelines for individual versus joint accounts prevents disputes.
• Unequal income couples committing disproportionately to bills improves perceived fairness.

8. Emotions Play a Big Role in Financial Choices

Your feelings about money dictate how you behave, from impulse shopping when stressed to avoiding overwhelming debt notices. Stress serves as both a cause and consequence of financial trouble.

Practices like mood diaries pair psychological triggers with financial behaviors, revealing patterns for better management. For instance, noticing late-night Amazon binges points to emotional energy slumps as a shopping motivator.

Professional financial therapy combines emotional counseling with practical money advice, helping stressed individuals tackle both fiscal and internal challenges.

Examples

• People in unmanageable debt are 33% more likely to experience anxiety and depression.
• Mood diaries highlight emotional spending triggers to cut unnecessary costs.
• Organizing financial paperwork creates clarity, reducing mental load.

9. Ethical Investments Align Your Money and Values

Your investments might unknowingly fund industries you dislike, like fossil fuels or firearms. Ethical funds allow investors to align their portfolios with personal principles by avoiding harm-causing businesses.

Such funds often outperform conventional markets due to rising consumer pressure supporting environmentally and socially responsible businesses. Workplace pensions now even offer positive-impact options, like gender-diverse funds.

Switching to an ethical investment is simple and meaningful, showing how individuals’ choices can influence global value systems.

Examples

• Positive-impact funds only support industries with societal benefits.
• Ethical investment funds now show returns that rival or exceed traditional funds.
• Companies like Exxon and Shell face falling investor interest due to public backlash.

Takeaways

1. Start by dividing your income using the 50/20/30 method—50% for essentials, 20% for debt/savings, and 30% for personal expenses.
2. Create a mood diary to track emotional spending triggers and adjust behaviors.
3. Research your pension or investment providers to ensure you’re supporting industries that align with your values.