SFE YP blog | The Importance of financial wellbeing
Nathan Thompson is Head of Service Design at Aegon
The impact and experience of the COVID-19 outbreak has been different for everyone, as has how we have reacted, but there's no doubt it's been a difficult time for us all. We've faced many different challenges across all aspects of wellbeing since the beginning of the pandemic and have, in several cases, heightened pre-existing struggles or worries. Wellbeing is made up of lots of different dynamics, and in this blog, we will explore financial wellbeing.
What is financial wellbeing?
Financial wellbeing is how people feel about their control over their financial future and their relationship with money. It's about focusing on the things that make their life enjoyable and meaningful – both now and in the future.
Financial wellbeing is an essential but often overlooked element of your wellbeing. Poor mental health can make managing your finances harder, and feeling stressed about money can make your mental health worse, so it's vital to take action when it comes to financial wellbeing.
Money and mindset
Many of us worry about not having 'enough' money. But rarely determine or define how much is enough and why that is the case. One way to look at it could be how much disposable income we have available after we've paid our everyday bills – or worrying if we're saving enough.
We can look at financial wellbeing by concentrating on two aspects:
- Financial resilience – having enough to pay for what you need now and in the future.
- Focus – paying attention to what makes you happy.
Paying for housing, our bills and eating well – life's essentials is important, but so is setting money aside for things that make us happy, like dinner with friends, or holidays, although tight budgets can hold us back. 4 in 10 of us have less than £100 to spend at the end of the month, which can make money a worry.
Knowing what we want our life to be like in the future (having a concrete picture) can improve our financial decisions. For example, if you really want to achieve something like getting on the property ladder, you're probably more likely to consider saving than spending. The more concrete your vision of your future self, the more likely you will be a top contributor to a long-term saving vehicle, like a private pension or stocks and shares ISA. This is true for both lower and higher earners.
Clever plans consider what brings us joy, our purposes, and money goals (how we get to a position where we can achieve those things financially). Our plans will probably change, but that's okay. You may love going to music festivals today but could be more interested in travelling later on. Just having a starting point is good.
The importance of a written plan
Writing goals down helps us achieve them. Keeping plans updated as your circumstances change also keeps them current and on track. When writing your long-term plan, consider these key points:
- Joyful and purposeful activities you want to do in 5, 10, or 15 years. 'In 10 years I want to be able to work part-time so I can begin writing novels'.
- Your money goals, maybe to buy a house, pay off your credit cards, or have enough to retire early.
- What you want to tackle and in what order. By when can you pay off debt or your mortgage? By how much will you boost your rainy day fund?
- A personal statement to focus your mind on what you want to be and to do in the future. Maybe, 'In retirement, I want to have enough saved to see more of the world and live closer to family.
Once we work out what makes us happy and fulfilled, we could also realise we need less money and things than we think.