Navigating the complex choices planning for the future brings
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.
Feeling confident and empowered
It’s important to feel confident and empowered when managing your money, and to know that it’s possible to improve your situation in some way.
Most of us have faced some sort of financial difficulty – whether we’ve had a knot in our stomach when a bill arrived or found ourselves lying awake at night running numbers in our head.
In the UK, 11.5 million people have less than £100 saved to fall back on, the Money and Pension Service found[1]. 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 retirement.
Money worries are a major source of pressure on our mental health, with more than half of people in debt suffering poor mental health[2]. Improving financial wellbeing by understanding what it is and then taking some simple actions can help. This is a way of setting us free from having to face daily stresses and strains related to money – and will hopefully offer greater peace of mind.
Five parts to financial well-being
1. Control over daily finances: Sort your life admin
2. Being able to cope with a financial shock: Build a money safety net
3. A clear path to identifiable objectives: Set some goals
4. Having financial options: The freedom to choose how to enjoy life
5. Clarity and security for those we leave behind: Understanding what protections you might want in place
Control over daily finances
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 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.
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. It means feeling 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 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 will 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 will help towards you living comfortably based on your needs and wants when you stop working.
A clear path to identifiable objectives
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 achieving 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 towards your goals; and, how long you’ll need to save to achieve your goals.
Tracking the progress of your dream achievements lets you take control of your money and gives you a sense of financial wellbeing. You should speak to a professional financial adviser to help you look across all of your finances to meet the money milestones you want throughout your life.
Having financial options
It may seem as though 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 not have to worry about money, or to go for the option you really want, is your prize for taking control of your money matters.
Clarity and security for those we leave behind
Linked to ‘having a financial safety net in place’ is protection. One of the certainties in 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 of having good financial wellbeing.
Source data:
[1] https://moneyandpensionsservice.org.uk/wp-content/uploads/2020/01/UK-Strategy-for-Financial-Wellbeing-2020-2030-Money-and-Pensions-Service.pdf
[2] https://www.moneyandmentalhealth.org/wp-content/uploads/2019/11/Money-and-Mental-Health-Manifesto-2019.pdf
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