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What Is Financial Wellbeing?

Posted by Scott Millar, Financial Planner

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Financial wellbeing is how people feel about the control they have over their money. It's about achieving a sense of security, feeling that you are in charge of your day-to-day finances, and having enough money to make a choice about the life you live.

The two key aspects of financial wellbeing are having financial security, both now and in the future and understanding what makes you happy, and setting money goals to achieve that happiness.

Having a sense of control over your finances and being in a comfortable financial position means one thing less to worry about.

Identifying what makes you happy, and keeping this in mind, will help you improve your financial wellbeing over the long term.

Financial wellbeing isn’t about how much money you have

A study from Aegon recently revealed that earning more money doesn’t make people worry less.

More than 1 in 3 top earners worry about money

The same survey also found that having a strong vision of your future self is likely to have a direct bearing on your debt-to-income ratio. This may be because having an established goal that will make you happy means you’re more likely to manage your debt better.

Key takeaway

Great financial planning is about you, your family and your life goals and should increase your overall sense of wellbeing.

Our planning process helps us identify the goals and responsibilities that are important to you. Together, we’ll create a plan to bring your ideas to life. To achieve this, we combine a relaxed and personal approach, proven processes, and forensic attention to detail.

Financial wellbeing can be broken down into five core elements

Chris Budd, author of The Financial Wellbeing Book – Creating Financial Peace of Mind breaks things down in to five separate elements:

  1. A clear path to achieve identifiable objectives
  2. Control of daily finances
  3. The ability to cope with financial shock
  4. Financial options in life
  5. Clarity and security for those we leave behind.

Let’s look at them in turn.

A clear path to achieve identifiable objectives

Work out what makes you happy and how to achieve that happiness. People don’t necessarily derive happiness from the amount of money they have to spend.

Research has shown that only 38% of people have considered in detail what makes them happy or gives value to their life.

Have you considered what brings you happiness or purpose?

Age group

% of people who have given “a lot of” or “quite a lot” of thought to this question

65 – 74

35%

55 – 64

42%

45 – 54

36%

Source: Aegon

Wealthier people are more likely to think about what brings them joy and purpose

Happy people spend their lives doing two types of activity:

  • Joyful activities – things you enjoy doing or which you find relaxing. Playing a sport or eating out with friends
  • Purposeful activities – things that engage you or provide a useful purpose. Volunteering in the community, caring for others, or applying your DIY skills.

Joy = instant hits of happiness

Purpose = meaningful activities

Watching team sport

Volunteer work

Socialising with friends

Mending a broken shelf

Travelling

Raising children

Balance is important. If you know you spend more time on things that fall into the purpose camp, and not enough on the joyful stuff, consider how you could make a shift and rebalance to even things up.

Knowing your life goals and what you want in the future can help you save for them and create a financial plan that invests in your future self and financial wellbeing.

Key takeaway

Lifestyle financial planning links the financial plan and investments with your personal ambitions.

Being the richest person in the graveyard is pointless, so we encourage you to enjoy the time you have on this earth.

For many of us, life consists of priorities, difficult choices and considered compromises. Our decisions often end up being a trade-off between several competing demands. Our job is about helping you consider the big issues in a way that helps you identify what matters most to you.

Control of daily finances

Know what you have coming in and going out. This covers the essentials like your mortgage or rent, bills and paying for food.

But setting aside money for the things that make you happy is important too.

An awareness of when and where you're spending can help you keep things under control. Being conscious of your income and outgoings can also help you identify areas where there's a potential to save.

40% of people have less than £100 to spend at the end of the month

No matter what income you have, people worry about money. Rather than always striving for "more", focus on what makes you happy over the long term. This positive mindset can help ease those worries.

Anthony Villis, Managing Director at First Wealth, has been a financial adviser for twenty-five years and knows from experience that money does not make you happy.

“I have worked with clients in the past with oodles of cash who are constantly downbeat and miserable and worry about every aspect of their lives,” he says, “and I know many people who have very little in terms of financial assets but live incredibly joyful, happy and enriched lives.”

Key takeaway

A lot of us fall into the trap of thinking that success will automatically result in happiness, or that they’re the same thing. But it won’t, and they’re not.

Chasing success can be exhausting, frustrating and even detrimental to your health. And many ambitious people forget to keep in mind what success looks like, or even define it properly in the first place, and end up burnt out.

The ability to cope with financial shock

Have an emergency rainy day fund, ideally a minimum of three to six months’ income, in an easy-access savings account.

We've all experienced the shock of an unexpected bill. Something you didn't see coming, like a problem with your house that isn't covered by insurance. Or something you couldn't account for, like unexpectedly losing your job.

Having an emergency fund means you'll have something to fall back on. Simply knowing it's there will give you peace of mind.

Money isn’t everything but struggling to meet everyday costs or to keep a bit saved ‘just in case’ can make us worry.

Even if you feel financially secure in all other regards, having a freedom fund gives you future options, and you’ll probably sleep better too.

A third of people don’t have a rainy day fund

Research shows that financial worries cause:

  • Sleepless nights (26%)
  • Anxiety (45%)
  • Difficulty finishing everyday tasks (16%)
  • Relationship troubles (45%)

If you’re among this group, start setting aside a bit of money each month. This single small act can improve your financial wellbeing and give you more freedom from worries.

Key takeaway

Write down your exact financial goal, for example, "I want to save six months’ expenses in a separate easy-access savings account by January 2023". Stick the note on your fridge or somewhere it will regularly remind you of your target.

This can help you stay on track to achieve it, especially if you add:

  • A date so you can work out how much you can afford to save
  • A fixed point you’ll make the payment into your savings account
  • Automatic payments – set up a standing order to send the money to your savings account.

Take the boredom out of budgeting by combining it with something you enjoy. Listen to your favourite music as you work or combine it with a glass of wine or a cup of tea and an indulgent slice of cake.

Financial options in life

Another way to look at your emergency rainy day savings is to treat it as a freedom fund that will give you future options. This is a big part of achieving financial wellbeing.

Identifying what makes you happy leads to better financial wellbeing. Whether you dream of taking a career break, setting up your own business or enjoying an early retirement, the more money you save, the more flexibility you'll have, and the more options will be open to you.

Start saving as soon as possible. If you already have your emergency rainy day fund, start saving for your future aspirations. Your personal circumstances will dictate whether you save into a high-interest cash account or invest it. Think about the size of your goal, the timescale you have to get there and your appetite for risk.

Having a concrete picture of your life in the future can improve the financial decisions you make.

The findings from Aegon reveal that a more concrete vision of your future self makes it more likely for you to be a top contributor to a long-term saving vehicle, such as a private pension or an investment ISA.

This is true for high and low earners. With a defined plan, you’re more likely to put extra money into long-term savings whatever your income level.

Source: Aegon

The Aegon study also found that men are more likely to have a concrete picture of their future self than women – although this difference reduces closer to retirement.

Source: Aegon

Key takeaway:

Think about long-term saving goals with specific targets for things you want in future life. You have the power to achieve the lifestyle you want – for yourself, and for your family.

We aim to inspire ideas, create confidence and give you the freedom to live life. We tailor our services to meet your exact needs and help you plan your investments and savings to create and maintain a lifestyle you love.

We’ll gather information to gain a deep understanding of your current assets and liabilities. By taking the time to analyse your situation, we identify all the possibilities and opportunities to create your personalised financial plan.

Clarity and security for those we leave behind

One certainty in life is that we all experience difficulties. Consider what financial buffers you might need in place. For example, you may want income protection in case you’re unable to work for an extended period, or critical illness cover to cover living costs or high medical expenses should you become critically unwell.

Having the right protection in place can give you peace of mind and improve your ability to navigate yourself (and any family members) through financial shocks. This is a core element of good financial wellbeing.

Although they can often be the most difficult, it's important to have conversations about your end-of-life plans. Only around two in five adults in the UK have written wills.

Key takeaway

Establishing the right level and type of protection is important for giving you and your family peace of mind. A detailed financial plan will incorporate this into your strategy and be revisited at regular intervals to ensure the protection is still required and provide adequate cover to meet your needs.

As Chartered Financial Planners we are experienced in intergenerational wealth planning. We will help you navigate the complex interrelationship between wanting to help your family now, while ensuring you have enough to live on for the rest of your life.

People with high financial wellbeing are satisfied with their overall standard of living

Thriving individuals manage their finances well. This creates financial security, eliminates day-to-day stress caused by debt, and helps build financial reserves.

These people spend their money wisely; they buy experiences that provide them with lasting memories.

Instead of only spending on themselves, they give to others. And they have the financial freedom to spend more time with the people whose company they enjoy most.

If you would like to discuss how we can help you increase 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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