Looking After Your Financial Wellbeing in 2021
Financial wellbeing is having a feeling of control over your finances. It is about having confidence in the financial decisions you make and a sense of security in the face of difficult or unpredictable circumstances.
Like physical health and mental wellbeing, you can take positive steps to improve your financial wellbeing, allowing you to enjoy life to the fullest, both now and in the future. In fact, many studies closely correlate financial wellbeing and mental health.
The recently established Initiative for Financial Wellbeing (IFW) is dedicated to helping people use their money to lead happy, healthy lives. Their research finds that firstly, “money itself does not make us happy; it is how we use it that matters,” and secondly, that “the largest contributor to our wellbeing is the quality of our social relationships.” The initiative acknowledges five main factors which contribute to an overall sense of financial wellbeing, as outlined by Chris Budd in The Financial Wellbeing Book. These are:
- The ability to cope with a financial shock
- Control of daily finances
- A clear path to identifiable objectives
- Financial options in life
- Clarity and security for those we leave behind
Here we will explore some of these factors in more detail.
A significant variable in your financial wellbeing is how well equipped you are to deal with uncertainty or financial shock. The pandemic has exemplified the need for financial resilience, both for individuals and businesses. Not only can focusing on financial resilience improve your material outlook, but it can offer you peace of mind in difficult times.
So how can you improve your financial resilience? Having a savings buffer is a key defense through choppy waters. However, according to Statistica, “as of 2017, one in eight UK adults had no cash savings,” with one third of the population having less than £2,000 saved. Many experts recommend setting aside an emergency fund – a savings pot containing between three to six months of living expenses. Similarly, a rainy-day fund can help to cover smaller unexpected expenses, such as housing repairs or vet bills. This might require prudence and sacrifice in the short term, but the benefits of investing in your financial resilience are resounding.
Tracking your budget
Making a note of everything you spend is a surprisingly powerful way to feel in control of your expenses. Putting pen to paper forces you to confront your spending habits, highlighting regular patterns, unnecessary expenditures and potential cutbacks.
Keeping note of your budget can also help you better plan for the future, giving a clearer picture of your ‘financial personality’. “If we understand how the financial environment affects us, we can better control our cash, instead of being controlled by it,” says Naomi Rovnick in the FT. As a result, we become “more rational investors and more successful savers.”
Bearing in mind that there are no right or wrong answers, consider asking yourself some simple questions – you might learn a lot about your financial personality. For example, are you prone to making spontaneous purchases, or are you more consistent with your spending? Do you feel confident investing independently, or do you prefer to seek advice? When you are frank with yourself about your financial habits, you can be more realistic when making budgets and financial objectives.
Understand your financial objectives
What are your goals in life? Chances are, they’re closely linked to your financial objectives. Whether it be owning your own house, being able to support your children through university, or retiring comfortably, outlining your broader life goals is a simple way to discern how your money can be used to improve your happiness. The IFW encourages people to ask themselves:
- What matters to me?
- Where do I want to be in the future?
- Is it within reach?
With these questions answered, you might have a clearer idea of how to spend and invest in a positive way.
Talk about money with others
According to the Money and Pensions Service, 9 in 10 adults in the UK don’t feel comfortable talking about money. However, having open and honest conversations about money with loved ones is an important step to improving your financial wellbeing. Often, it’s getting started that’s hardest part. Consider going into conversations with an idea of what you want to say and what you want to achieve, leaving less room for unpredictable turns.
Similarly, feeling confident talking about money at work, whether that’s with your employer, your colleagues or your employees can create a culture of transparency in the workplace. A healthy workplace is an open one, where everyone, no matter their position, feels empowered to talk about money. This could mean not feeling embarrassed to ask for a pay rise, negotiating a fair rate for your time as a freelancer, or discussing budgets in a way that employees understand and embrace.
Conversations surrounding end-of-life plans are often the most difficult, yet they are some of the more important financial conversations we must have. Knowing those we leave behind will be secure is a huge contributing factor to our financial wellbeing. This said, only around 2 in 5 adults in the UK have written wills.
Initiating open dialogue is a key step in alleviating worry for all parties involved. You may well find that after just one conversation, those following will be far easier – like anything, it’s about practice.
Talk to a financial adviser
Many of our financial advisers at gpfm have joined the IFW, attending regular workshops and webinars that promote financial wellbeing, helping us to help you. It is our responsibility to ensure our clients make the most out of their money, using it to lead happy, healthy lives.
This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested.
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gpfm are an independent financial planning company dedicated to the provision of personal, professional, and objective-driven advice for our clients. We have been awarded the Chartered Financial Planners title by the Chartered Insurance Institute for offering high quality, independent and informed advice that meets the needs of our clients.