How you could improve your financial wellbeing
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.
We want you to feel confident and empowered when managing your money, and know that it’s possible to improve your situation in some way.
You’re not alone
Most of us have faced some sort of financial difficulty – whether you’ve had a knot in your stomach when a bill arrived or found yourself lying awake at night running numbers in your head.
In the UK, 11.5 million people have less than £100 saved to fall back on, the Money and Pension Service found. Nine million people regularly need to borrow money for food or bills, and a third of the country say they don’t know how to plan for a comfortable retirement1.
Money worries are a major source of pressure on our mental health. According to the Money and Mental Health Policy Institute, more than half of people in debt suffer poor mental health2.
Improving financial wellbeing by understanding what it is, and then taking some simple actions can help. This is a way of setting you free from having to face daily stresses and strains related to money – and hopefully offer you greater peace of mind.
There are five parts to financial well-being:
- Control over daily finances.
- Being able to cope with a financial shock.
- A clear path to identifiable objectives.
- Having financial options.
- Clarity and security for those we leave behind
Those may sound a bit jargony. But all they really mean is:
- Sorting your life admin.
- Building a money safety net.
- Setting some goals.
- Getting the freedom to choose how to enjoy life.
- Understanding what protections you might want in place.
Let’s look at each one in turn.
1. Sorting your life admin
To enjoy financial wellbeing you want to feel in control of your day-to-day money matters, from paying bills on time to setting aside a bit each month in a savings pot.
Setting aside a bit of time to do life admin, like setting up direct debits to pay bills and writing a monthly household budget, can really help create this level of control over your money.
Building a simple list of your outgoings on one side and income on the other can show exactly where your money goes, and where you could cut back if you needed, like buying fewer takeaways or switching to a cheaper energy provider.
Being able to see where your money goes is the first step in gaining control over it – and sets you on the path to financial wellbeing.
2. Building a money safety net
Having a financial safety net in case something unexpected happens is a key part of financial wellbeing.
It means feeling confident 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 think ahead. A money safety net can create peace of mind and saving little and often into a rainy-day fund can help us weather financial shocks. 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.
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.
3. Setting goals
What do you want to achieve with your money? Maybe you aspire to own your own home. Or take a trip around the world. You could want to clear all your credit cards to become debt free. Or, build a retirement pot big enough to retire early.
Having goals and setting up a path to achieve them is an important part of financial wellbeing. Creating a plan can really help.
Your plan could consist of three parts:
- How you intend to keep your outgoings lower than your income.
- How much that will leave over each month to save toward your goal.
- How long you’ll need to save to achieve your goal.
Tracking progress towards a dream achievement lets us take control of our money, and gives us a sense of financial wellbeing.
Do I need a financial adviser?
For a more detailed plan, you should consider speaking to a professional financial adviser who can help you look across all of your finances to meet the money milestones you want throughout your life.
4. Having freedom
It may seem like financial wellbeing is a lot of restrictive rules. But the outcome is actually the opposite – financial wellbeing is about opening up more choices for you and your life.
This could mean being able to afford to take your friend out for a birthday meal rather than just sending a card, or to pick out a mid-range bike instead of the basic version.
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.
Freedom to choose to splurge sometimes, or go for the option you really want, is your prize for taking control of your money matters.
5. Understanding what protections you might want in place.
Linked to ‘having a financial safety net in place’ is protection. One of the certainties with life is that we’ll all experience some ups and downs. Think about what financial buffers you might want in place, this could be for example income protection or critical illness cover. Your ability to be able to navigate yourself (and any family members) through financial shocks is a core element to having good financial wellbeing.
What financial wellbeing is not
The internet is flooded with ‘get rich quick’ schemes promising to make you thousands of pounds in a short amount of time, or so-called ‘loopholes’ to avoid your debts. Anything that sounds too good to be true almost always is – stay away from these scams, they’ll only ever cost you money. Don’t be rushed into making a decision, your pension provider will never contact you out of the blue.
Financial wellbeing is great for your wallet and potentially your mental health. It’s not about having buckets of money, it’s about using however much you have in the best way and being able to deal with unexpected financial costs, comfortably.
Think of it like a gentle exercise regime:
A daily jog
Make small regular savings into rainy day fund and pension:
Cut down on sugar
Ditching what will hold you back, like spending on things you don’t need:
Photo reminder on the fridge
Keep on track with a visual cue of why you’re saving, maybe a photo of a beach:
Don’t deprive yourself of all ‘fun’ spending, allow yourself monthly treats:
Avoid ‘get rich quick’ scams offering high guaranteed returns:
A Pro Step
Get a personal money trainer – a financial adviser.
1 Money and Pension Service – The UK Strategy for Financial Wellbeing (2020)
2 Money and Mental Health Policy Institute – The Money and Mental Health Manifesto 2019