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What Is Financial Wellbeing?

Good evening venturous, beautiful people. Let’s talk about what is financial wellbeing and why I believe is important for getting the best of us. Depending on the source of your reading, financial wellbeing will come under different names, such as financial wellness, fitness, literacy, confidence or resilience to a more generic name such as a healthy relationship with your finances.

What Is Financial Wellbeing?

Financial wellbeing, according to the Money and Pensions Service, means feeling confident and having a grip on your money, not just for today but also for the future. It’s about being able to handle your current expenses, cope with unexpected surprises, and making sure your financial future looks bright.

A more general definition: it means having the knowledge and confidence to make the most of your money. Both on a day-to-day basis, and through planned and unplanned events.

Some Interesting Stats for Financial Wellbeing

  • A recent survey conducted by CIPD found that 25% of people in the UK are facing significant financial difficulties, which are impacting their job performance. This percentage increases to nearly one-third (31%) among individuals aged 18-24 and those residing in London (32%).

  • A 2021 study by Money and Mental Health found that in UK over 1.5 million people are experiencing both problem debt and mental health problems

  • As per Money and Pensions Services case study, as many as 24 million adults don’t feel confident managing their money

  • Over 1/3 of people are unprepared for unexpected financial costs or a loss of income.

Easy Steps To Take To Get On The Right Financial Wellbeing Path

Budgeting and spending

From my experience, a first step to take when comes finding a resolution to any problem is to understand where you are, admit you are looking to improve your situation and draft a goal to aim for.

In a similar approach, to get on a right financial fitness path, a first step is to create a budget. It empowers you to take charge and make conscious choices about where you should and want to spend your money.

This includes essential expenses like rent or mortgage, utility bills, and transportation, as well as things that bring you joy. Are quite a few budget planner apps or spreadsheets that can assist you in visualizing your spending patterns and identifying areas where you might want to make adjustments.

The key is to regularly allocate time for planning your expenses, such as every time you receive your income. Probably for most of us, is the end of the month before we are getting our payslip.

A second step would be to plan your expenses and to track your actually spendings. Creating a plan is the simpler step your can take. However, sticking to your plan is the difficult part. You are going to get tempted to overspend in so many occasions, but stick to your guns. The final reward is greater than the small “benefits” you get from buying yourself something nice or by going out one extra time.

Paying attention to the when and where of your spending can assist you in managing it effectively. Additionally, it enables you to identify areas where you might reduce your expenses.

Regardless of the size of your budget, avoiding overspending is a crucial habit to cultivate (I know is really difficult not to, but deploy your discipline). It’s all about understanding your boundaries and making thoughtful choices with your money to prevent any feelings of guilt.

Borrowing and saving

This is probably one of the most important steps you need to take in order to get on the right path of financial wellbeing: keep your borrowing habits at bay and save as much as possible you can, even if is just £50 a month. The habit of saving will help with your discipline and confidence.

Taking out a loan isn’t necessarily a negative move. When utilized wisely, debt can actually benefit your financial situation.

For instance, borrowing money to purchase a house can potentially enhance your financial standing in the long run, especially if the house increases in value, as long as you can comfortably manage the repayments.

However, it’s important to refrain from borrowing more than necessary. It’s best to steer clear of borrowing money for everyday essentials like groceries or bills, especially if you’re using high-interest forms of credit such as short-term loans or overdrafts. This approach can help you avoid encountering more significant financial challenges down the road.

Think of budgeting as the nutritional balance for your finances, and saving as the workout routine. Similar to exercise, beginning with small, regular efforts is an excellent way to begin. You might establish a savings goal or strive to allocate a bit more money each month to cover annual expenses.

You can reserve a portion of your income with each salary or use a mobile app that rounds up your spending, setting away the spare change into a savings account. The crucial point is to make it a consistent practice. Having clear goals and saving for concrete objectives is an effective method to stay inspired.

I’ve started with a £50/month direct debit and increased the amount every time when my income changed. Also, to make it a little bit more engaging, I’ve revisit the amount every time I’ve reached my goal. For example, I’ve used £50/month until I’ve reached £600 and after that I’ve moved to £60/month until I’ve reached £1320 and increased to £100/month until I’ve reached £2520. You get the picture.

Financial decisions

This step is more like a preference than a necessity, as is related to finding the best deals out there. If you can do it is better for you and you are squeezing the value from every pound. However, sometimes it can become overwhelming and time consuming and for the sake of saving a couple of pennies.

Nevertheless, looking always for a better deal should be in your view, just don’t become a cheap individual just for the sake of saving a couple of pennies. Probably, will be quite a lot of backlash on this point of view, but I would argue that the time spent looking for the best deal on every acquisition can be used to improve your main source of income or to create a second one.

I’m sure this is nothing new, but I will reiterate it. Online comparison platforms provide a solid starting point. However, it’s crucial to prioritize quality, both in the product or service and in the provider, to ensure that you’re not just chasing the lowest price but also getting value for your money.

Take your time to explore options and be patient for deals when making one-time purchases. Also, think about when particular products or services might be available at their lowest prices. Consider flights as an example – conduct research to determine if it’s more cost-effective to travel on specific days and how far in advance you should book to secure the most favourable price.

Looking ahead

One of the last steps you need to take for getting on the right financial wellbeing path, is getting prepared for the unexpected.

Many of us encounter the surprise of an unforeseen expense from time to time. It might be an unexpected issue with your home that isn’t covered by insurance, or perhaps it’s something you inadvertently overlooked, like renewing your car insurance.

It’s a wise move to anticipate the unexpected, and the best way to do that is by establishing an emergency fund. Ideally, this fund should cover 3 to 6 months’ worth of your living expenses. With such a safety net in place, if an unexpected event occurs, you’ll have savings to rely on.

You can find a lot of emergency fund calculators, such as this HSBC one. It is a handy tool that can assist you in determining how long it will take to build up your emergency fund. You can use it to establish a timeline to work towards your goal. Alternatively, if you need to accelerate the process of building your emergency fund, you can figure out how much you should save each month to reach your target swiftly.

Some Extra Resources For Understanding Financial Wellbeing

Episode 4: Finding The Path To Financial Wellbeing by Financial Wellbeing

7 Podcast to Listen for Financial Wellbeing by Stylist

4 Steps to Financial Wellbeing by Ovation Finance

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