What is financial wellbeing and why is it important?

Since the COVID-19 pandemic, people have become increasingly aware of the importance of wellbeing, both physical and mental health.

According to research from the Financial Conduct Authority, a third of working age adults feel overwhelmed or stressed when dealing with financial matters. Given the impacts financial worries can have on emotional, mental, and physical health, sleep quality, and workplace productivity, we believe financial wellbeing is the most important aspect of a healthy life.

The pillars of wellbeing

What does financial wellbeing mean in practice?

Financial wellbeing is about feeling secure and in control. It’s about making the most of your money from day to day, dealing with the unexpected, and being on track for a healthy financial future. In short: financially resilient, confident and empowered.

Having your finances organised and being in a comfortable position can help you feel more in control of your money, giving you one less thing to worry about and shielding you from some of the causes of poor mental health.

Why financial wellbeing matters more than ever

Financial wellbeing has surged in importance due the cost-of-living crisis, economic uncertainty, and widespread levels of financial stress across society. Recent ONS data shows that 25% of the adult population are one unexpected bill away from hardship. And according to the Money and Pensions Service, over 8 million people need debt advice and a further 13 million are at risk financially.

How do you improve financial wellbeing?

Achieving financial wellbeing is a gradual process of building financial confidence, stability, and control over your money. It’s about putting the right structures and habits in place, so your finances support your life, rather than create pressure. Here are our top financial wellbeing tips.

1. Get a clear picture of your financial situation

This is the scary part. Before we can start to build a better future, we need to confront what fears us. What money worries keep you awake at night? Is it managing debt payments? Is it fear for retirement? Is it exasperation that your income doesn’t seem to go very far?

Clarity in itself can reduce anxiety. When you know the facts, you can make better, more confident decisions.

2. Build a budget

Review all sources of income and all your expenditure. Make two lists: an “in” column and an “out” column. Now separate the outs into essential and non-essential spending. Is there any essential spending where you can shop around for better deals? Check price comparison websites for utility and insurance deals. Can you trade down brands for household necessities and food?  Can some of your non-essential spending be diverted to tackling debt or saving for the future? Every penny helps. This article on the 50/30/20 rule can be a good way of looking at your spending habits.

Use a budget planner to plot when important financial events occur, such as when direct debits leave your account and when insurance policies need to be renewed. A budget isn’t a restriction: it’s a plan that gives every pound a purpose.

3. Get problem debt under control

Debt is the biggest financial concern for many and always scores highly in surveys about financial anxiety. But it’s important to identify the difference between ‘good’ debt and ‘bad’ debt as we explain in this article. If you’re struggling, seeking debt advice early can stop debt escalating. The Citizens Advice Bureau offers free, confidential debt advice to help people find a way forward. Structured plans and support can ease stress and improve circumstances quickly. 

4. Plan for emergencies

If you would be caught out by an unexpected invoice of £850, think about setting up a rainy-day fund. Having gone through the first exercise, calculate how much you spend each week or month on the essentials. Aim to hold about six months of this essential spending in a deposit account to guard against the worst. Like losing your job or being too ill to work for a period of time. And investigate income protection policies that replace your post-tax income, as we explain in this article.

At the same time talk to a solicitor about drawing up a power of attorney so someone can look after your affairs for you if ever required, and a will.

5. Plan for the future

Financial wellbeing includes feeling able to shape your future. Every hope and dream comes with an associated cost, and it’s better to plan for the big-ticket items in advance than worry about how you’ll pay for them later. A large holiday, maternity leave, and a new car are examples where planning in advance can make something more manageable.

The biggest item on anyone’s long-term financial strategy should be a plan to fund their retirement. Make sure you are getting the most out of employer contributions to any workplace pension, and take advantage of tax relief where you can.

Where can I find help with my financial wellbeing?

Many employers now recognise the role of mental wellbeing in the workplace. Some offer employee assistance programs including financial education. And the Money and Pensions Service offers free and impartial money guidance.

Online investing platforms are also a good source of information and education around good financial habits. For example, Charles Stanley Direct is more than an online investing platform. It also offers savings accounts, tools, educational insights and videos, and offers one-to-one coaching and simple financial plans.

Talking to a financial professional can guide you through life’s financial changes and challenges. If you have complex concerns, speaking to a wealth manager could help bring things into focus and establish a solid plan for meeting the future head on.

By identifying and keeping in mind what makes you happy, you could be on the path to achieving better long-term financial wellness.