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8 Practical Ways to Improve Your Financial Wellbeing

Posted by Claire Phillips, Financial Planning Director

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Financial wellbeing allows you to enjoy life without constant daily worry and stress about your finances. But being cash-rich doesn't automatically mean you have financial wellbeing.

It's about more than just having enough money in the bank.

Important elements that make up financial wellbeing include:

  • Having control over your day-to-day finances
  • Being able to absorb a financial shock
  • Being on course to meet financial goals
  • Having the freedom to make choices in life.

Financial wellbeing looks different for everyone, because we all earn different amounts of money and live different lifestyles. But there are a few practical ways you can improve and maintain your financial wellbeing – here are eight.

1. Review your spending

If you do only one thing, spend less than you earn.

Review your budget. Make sure you're living within your means and able to save to achieve your long-term goals.

Break things down into three categories:

  • Money in
  • Money out
  • Money left over.

Once you have a list of all your fixed costs (mortgage, rent, bills, food, insurance), you can get clarity on what you have left over to spend or save each month.

Need to cut costs? Review your bills and direct debits. Be ruthless: do you really need all those TV streaming subscriptions? Are you still paying for a monthly magazine which arrives and sits gathering dust because you never find time or inclination to read it?

This is the perfect time for a financial spring clean, so detox and cancel anything that no longer provides value.

2. Consider consolidating debts

Keeping debts at a level you can comfortably afford while leaving enough to live on will aid your financial wellbeing.

If you’re servicing high levels of debt, which is eroding your disposable income and affecting what you can afford to save each month, consider consolidating it.

Rolling multiple debts into a single loan could reduce the amount you spend in fees and interest. This could make it easier to manage your repayments since you'll have one payment to make each month rather than several.

The key is to ensure that you end up paying less than you're currently spending on interest rates, fees and charges and remain disciplined about making your repayments.

Borrow only what you can afford. You shouldn't deny yourself, but unnecessary spending on shiny status symbols may not be best for your financial wellbeing. Remind yourself of your long-term goals and how much you really want whatever you’re about to buy.

3. Build your rainy day fund

Setting aside a bit of money when you get paid each month is good for your financial wellbeing.

Many people call this their “rainy day fund”, which can be used to cover unexpected costs like having to replace your phone or losing your job.

Think of these savings as a "freedom fund". Freedom from having to borrow to pay for the unexpected, and freedom to make a change of career or move home for a new job.

Struggling to meet everyday costs can cause considerable anxiety, so while saving for your freedom fund will help you cover unexpected costs, it can also open up your options in the future.

Saving consistently and putting even small amounts of money away can make a big impact.

4. Make saving a regular habit

Once you have a rainy day fund, equivalent to three to six months' income, keep your savings habit up.

Saving even a small amount regularly can go a long way towards your savings goal and have a noticeable impact on your financial wellbeing.

Consider setting up a standing order to send a set amount of money into a separate savings account after pay day or transfer any remaining funds in your bank account the day before your next pay day.

5. Protect what you have

Make sure you have the right type and level of insurance. This should cover you, your property, your health, your income, and your investments.

You may find yourself unable to work for an extended period because of serious injury or illness. Income protection insurance will pay a pre-set amount of your salary each month, which can help cover living costs without eating into your savings.

Life insurance can give you and your family peace of mind if you pass away earlier than expected. It can help your partner or spouse pay off the mortgage and provide money to cover living expenses.

Another good use for life insurance is to protect your assets from Inheritance Tax. Put in trust, a life insurance policy will fall outside your estate for tax purposes and can be used to settle the tax bill, keeping your assets intact to pass to your beneficiaries.

6. Give to others or donate to charity

A study by Tom Rath and Jim Harter revealed that people who spent money on others had greater financial wellbeing than those who spent money on themselves.

In three separate experiments with differing amounts of money, those people who spent the money on something for themselves didn't feel happier. Those who spent money on others did.

If you are lucky enough to have your own finances sorted and have surplus income, consider gifting it to family or set up a regular donation to a charity doing work that you value.

7. Grow your money with a long-term financial plan

Life expectancy is rising, so having a long-term plan is important for your future financial wellbeing.

The best financial plans tie together the things that bring you joy, purpose, and your money goals.

Your financial plan should then align with getting to a financial position to achieve those things.

Over time, your plan will change, but that's fine. Having a starting point means you can adapt as you go, but not starting at all could leave you without financial resources to achieve your goals.

Money goals could be to:

  • Buy a house
  • Pay off your credit cards
  • Buy a round-the-world ticket and travel for a year
  • Help your children or grandchildren through university or to buy a home
  • Have enough to retire early.

Writing your goals down can help you achieve them. And keeping track as your circumstances change with the ebb and flow of life can help keep your savings and investments on course for success.

Having a clear idea of what you’re saving for will help you create a financial plan designed for success. The amount of time you have to save will determine the type of investment you might want to make.

Your financial plan should match your time frame and risk tolerance. This is something we can help with. We’ll take time to understand what's really important to you, and we'll use a financial modeling process to help you achieve your long-term goals.

8. Get help from a financial planner

Working with a financial planner can help you grow your money and structure your investments with tax efficiencies in mind.

We'll build a personal cashflow model taking your whole current position into account. This will include:

  • Your lifestyle costs
  • Planned expenditure
  • Your assets and liabilities.

We'll then assess all of this against your goals to identify:

  • What you need to do to achieve your goals
  • The protection you need to prevent a curveball derailing your plans
  • Whether you can retire earlier, make that dream purchase or gift capital to your family
  • How hard your money needs to work to achieve your goals.

You may have enough capital to maintain your lifestyle, more than enough, or not enough. We'll form an appropriate financial model and recommend ways you can allocate assets to keep your financial plan on track.

Studies show that regardless of your level of wealth, people who can imagine their future self are better at working out and sticking to a long-term financial plan.

So, start with the dream and then create a plan to achieve it.

If you would like to discuss how we can help you improve your financial wellbeing, please get in touch. Find out what we can do for you by emailing us at hello@firstwealth.co.uk or calling 020 7467 2700.

This document is Marketing Material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested

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