Two thirds of the British public believe that they are money savvy. 75% of them claim to pay their bills on time and around 50% seek out promotional offers to avoid paying full price. More than 40% say they watch their bills to see if they could get a better deal and 38% say they clear their credit card balance in full each month.
So far, so good.
But even someone who has their eye on every penny they spend might not be as clever with cash as they think they are.
Here are seven things you really need to know to prove you’re as savvy as you think:
1. You know you need an emergency fund
It’s not enough to just pay your bills on time, having savings is the difference between being financially secure and financially at risk. If you’re savvy, you save.
Even people on a low income should aim to keep saving to ensure you have a bit of a security net in case of an unexpectedly high bill or other expense.
2. You know how to keep yourself safe
If you’re truly money savvy you take steps to keep your cash safe, such as checking reviews and ensuring you only deal with regulated investment platforms.
You know that it’s never a good idea to respond to cold-calling salespeople. You know that it’s important to read the small print before signing up to anything.
You know that the best protection from a financial disaster is to be careful where you stash and spend your money in the first place.
3. You know what you can afford
A sign of true financial savviness is knowing how much comes in each month and how much goes out.
Most people have a clear idea of how much they earn each month, but not everyone knows how much they then pay on bills and essentials like groceries and travel.
Only by understanding income and outgoings can you know how much you have left to spend on discretionary stuff like socialising.
Without understanding your budget, monthly spending becomes a guessing game and that’s when it’s easy to get into trouble. Knowing what you can afford to spend is essential.
4. You know your financial goals
Even if you’re paying your bills on time and saving some money each month, if you don’t know what money goals you’re aiming for then you can’t describe yourself as money savvy.
Maybe you are saving for a home, maybe for a holiday, maybe for a bigger financial plan like launching your own business or helping with university fees. But unless you know your goals, you can’t work towards them. It’s a key part of being financially savvy.
5. You know that paying off debt is better than saving
Everyone needs to have some savings stashed in an easy access account to cover rainy days. That’s just an essential part of managing money.
However, if you’re saving more than an emergency fund (most people recommend this should be at least three months’-worth of salary) then you need to stop and take a look at your finances.
If you have debt like credit card debt or a loan then it’s almost always worth paying that off before stashing extra money in savings, because the return on your savings will almost certainly be less than the interest you’re paying on your debt.
6. You know that overpaying debt is key to financial freedom
If you have debt, that doesn’t mean you’re not a money savvy person. Credit is simply a fact of financial life for many people.
But how you deal with that debt plays a key role in whether you are money savvy or not. Paying back the minimum on a credit card, for example, is a really unsavvy move as it means the debt lasts longer and you’ll pay far more in interest.
You may also be able to bag an interest-free period by switching credit card debt to a card with a 0% balance transfer offer.
If you take out a loan then it’s essential you consider the length of it and whether it’s likely you’ll still be able to afford repayments throughout its lifetime.
7. You know about Open Banking
New in 2018, Open Banking means that bank customers can make full use of their own data to help them manage their affairs better.
There’s a huge range of fintech firms offering apps that are powered by Open Banking regulations that mean your bank has to share your data with approved companies, if you tell them to.
You might want to use an app that helps you save an affordable amount into an account each month, one that checks your bills and helps you switch, or even one that simply compiles all your savings and current accounts into one dashboard so you can keep on top of your balances.
8. You know your credit rating
Being aware of your credit rating is a really money savvy thing. It tells you how likely you are to be accepted for the best credit deals like loans, mortgages and credit cards.
If you need to use credit then that’s a key part of knowing which rates you’re most likely to qualify for.
But even if you don’t want to apply for credit, it’s still a good idea to regularly check your credit rating. It’s like checking in on your financial health – looking at how lenders would view you and whether they consider you risky or not.
It’s also a good way to ensure that no fraudsters are taking out debt in your name, which could cause you problems down the line.
9. You know your appetite for risk
If you’re truly financially savvy then you know how much risk you’re comfortable taking with your cash.
If you’re making investments then you should have considered your personal attitude to risk, your investment goals and how long you’re investing for, your personal circumstances and what you could afford to lose.
Before you make an investment plan, it’s important to understand how much risk you can afford and are comfortable with. FSCS protects you if you are mis-sold or given bad advice by a company that then goes bust – up to certain limits. But it doesn’t protect you if your investments simply perform badly.
Don’t forget that if your money is saved into a regulated bank, building society or credit union then it’s automatically protected (and therefore, compensated) up to £85,000 for free by FSCS, so the only risk is that the money isn’t keeping up with inflation.
10. You know you should switch to save (and you actually do it)
Customers are rarely rewarded for their loyalty, whether it’s an insurance product, utility or any regular bill. If you want the best deals then it’s a really good idea to regularly check your providers, compare the cost with other providers and switch to the better deals.
This may not be the most fun you can have, but it can easily add up to hundreds of pounds savings a year.
Just be careful to check whether or not you are still tied into a contract period, because then you might face penalty fees for switching away.
11. You know that your finances are protected
This is a pretty reassuring one to know. Savers and investors in the UK benefit from a compensation fund of last resort known as the Financial Services Compensation Scheme (FSCS).
It protects you when financial firms fail. It’s probably best known for savings, but they protect so much more. From mortgages to investments, endowments to insurance, FSCS is designed to give you confidence in a whole range of financial institutions. So far this year, FSCS has compensated people to the tune of £372 million.
There are limits to the amount of compensation you can claim and it doesn’t cover all products like Christmas Clubs or peer to peer lending schemes, so it’s good to check if you’re covered.
For more information on FSCS and the different financial products they help protect, you can visit their website at www.fscs.org.uk