6 benefits of improving your financial wellbeing

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For customers

We’ve spoken a lot about the importance of financial wellbeing over the last year as we want you to feel confident and empowered when managing your money. If you haven’t thought about your financial wellbeing yet, or would like a reminder, we’re showcasing 6 benefits from our Financial Wellbeing Index. These benefits should show you how improving your financial wellbeing can positively impact your situation in some way.

What is financial wellbeing? A quick recap

When we talk about financial wellbeing, we refer to how you feel about the control you have over your financial future – and your relationship with money. This includes your ability to respond to financial unpredictability and unexpected expenses.

Those with healthy financial wellbeing can meet their long-term financial goals and make informed choices that allow them to enjoy a meaningful life, both now and in retirement.

To help break it down further, you can think of financial wellbeing in two parts:

  1. Financial resilience – having enough to pay for what you need now and in the future.
  2. Focus – paying attention to what really makes you happy.

 

So, what are the 6 benefits of improving your financial wellbeing?

1.  Adopting a money mindset

Mindset has a big impact on behaviours and long-term financial outcomes. Therefore, adopting a money mindset is an important factor in determining how good your financial wellbeing is.

To help you refine your money mindset, our research found that we all need money building blocks and mindset building blocks to build up our financial wellbeing1. Money building blocks focus on paying for what makes you happy, both now and in the future, while mindset building blocks is about paying attention to things that matter to you. Do any of these building blocks look familiar?

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Using these building blocks and being proactive about your finances should help you create a focused money mindset. You’ll probably start to understand the money basics, be able to identify how to turn bad financial habits into good financial habits, evaluate where and how you can save money and think about what your future self would thank you for doing something today.

The more you start to think about money and the lifestyle you want to live, both now and in retirement, you’ll probably adopt an always on money mindset. This is one step closer to improving your financial wellbeing.

 

2. Feeling more in control of your finances

Financial wellbeing is created by knowing the basics – bills, expenses, savings, insurance, debts – are all under control and taken care of as part of your financial plans. It’s also about opening more choices for you and your life by taking control of your money matters.

As we all have different expenses to juggle, it’s easy to focus on paying for the here and now rather than saving for the future. If you feel that you need to find a happy medium with your spending now whilst trying to save for the future – try ‘mindful spending’.

Mindful spending is a more thoughtful, intentional approach to using money rather allowing our emotions to control our spending. It means spending in a way that aligns with your goals and values and makes you feel happier and more purposeful2.

To work towards becoming a mindful spender:

  • Start by setting goals
  • Track your spending with intent
  • Implement a pre-purchase waiting period
  • Remove the ease of buying things
  • Create a budget

Top tip: When you write down what you spend now and how that could change in the future – take inflation into consideration. As time goes on, the prices of things tend to increase so having an extra safety net in place can be useful.

 

3. Focusing on what brings you joy and purpose

Financial wellbeing allows you to enjoy the here and now, but it also helps you work towards the future you have in mind.

Our research found that happy people live their lives doing two types of activities, in a roughly equal share:

  • Joyful activities – things you enjoy or that relax you. This includes playing a sport you love or going out for a meal.
  • Purposeful activities – things that make you feel competent, useful or engaged. Such as working in a job caring for people, putting your good DIY skills to use or helping out your local community.

Focusing on what brings you joy and purpose should help you to set short and long-term goals. As you start to define your long-term goals, it’s useful to have a concrete picture of your future self as you’re more likely to stick to your long-term plan.

Some things to consider:

1.Ask yourself where you would like to be in 3 years’ time – do you want to buy a house, do you want to go on a luxurious holiday or do you want to have saved some more money for your retirement?

2.Think about how happy you are just now and how happy you would like to be in the future. Using our financial wellbeing table, score yourself from 0-5 on the following questions:

  • Think about three times you felt really happy – what were the reasons?
  • Three times you felt useful – what did you achieve?
  • Now think about the whole of last week, and anything you spend more than three hours doing – how does this make you feel?

Whatever it might be, set goals that are specific to your wants and needs – don’t compare yourself to others and what they might be doing or able to afford. You have to focus on what brings you joy and purpose.

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4. Helping women bridge the money inequality gap

While women are just as likely as men to know what gives them joy and purpose, our research found they score lower on having a financial plan and a clear picture of their future self1.

As women often have disrupted work patterns, career gaps and work part-time – their financial plans are often put on hold due to more pressing and immediate priorities. Even though there is a gap between men and women’s finances, there are solutions which can help bridge the inequality gap and help women to get on track to improving their financial wellbeing.  

Possible solutions:

  • Take more time to think about the longer-term, rather than just the short-term. What really brings you joy and purpose?
  • Seek financial advice – a financial adviser could help you create a financial plan and get you get on track to improving your financial wellbeing.
  • If you have a partner – talk to them about your situation and share possible solutions to improve your situation. Could you create a joint financial plan by reviewing your expenses and identifying how to save more money?
  • Get savvy – there are lots of saving apps out there so make use of the resources and tools available. Our financial wellbeing tool could also help you.

 

5. Being able to cope with a financial shock

Having a financial safety net in case something unexpected happens, is a key part of financial wellbeing.

Putting a small portion of savings to one side – a rainy-day fund – will allow you to feel confident that a sudden financial shock, like the freezer breaking down or having to make repairs to your car, will not throw your finances off track or push you into debt.

Financial shocks will happen. The trick to overcoming them is, to simply, think ahead. A money safety net can create peace of mind. By saving little and often into a rainy-day fund can help us weather any financial shocks that might come our way. As well as this, having the right insurance and protection cover in place based on your personal situation could also help bring you better peace of mind.

 

6. Having a long-term financial plan in place

Ultimately, it all comes down to having a financial plan for life in place. It can’t be reiterated how vital it is to take the time to sit down with your finances and understand how to get them in order.

Consider these key points when you’re writing your long-term plan:

  1. Joyful and purposeful activities you want to do in 5, 10, or 15 years’ time. This might look something like, ‘In 10 years I want to be able to work part-time so I can begin writing novels’.
  2. Your money goals. Maybe you want to buy a house, pay off your credit cards, or have enough to retire early.
  3. What you want to tackle and in what order. Is paying off debt or your mortgage your priority? By how much do you want to boost your rainy day (freedom) fund? Consider using the retirement income calculators mentioned in the long-term savings section of our financial wellbeing index.
  4. Think about using a personal statement to focus your mind on what you want to be and do in the future. This might look like, ‘In retirement I want to have enough saved to see more of the world and live closer to family’.

Don’t forget about your pension.

A retirement fund is a longer-term financial safety net to allow you to have an income in retirement. Chances are you already have one – or multiple pension pots.  Putting aside a bit from your salary every month into a pension pot could help you live comfortably based on your needs and wants when you stop working.

 

Additional resources to help you

These are only some of the benefits of improving your financial wellbeing – our Financial Wellbeing Index has more hints and tips to help you get you on track.

You can also try our financial wellbeing tool which provides you with a range of articles, resources, videos and podcasts which are tailored to you.

 

Get help if you need it

If you're in any doubt, we recommend you speak to a financial adviser. You can find a financial adviser through MoneyHelper. A financial adviser is likely to charge for their service and should provide details of their charges upfront.

 

Sources:

1 How you can improve your financial wellbeing, page 12-15, 37. Data source, Aegon, Financial Wellbeing research carried out in August - September 2020, 10,000 respondents. Flipbook first published March 2021.

2 Money and mental health. Data source, Mind, 2020.