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The term Financial Wellbeing has recently appeared in many articles and blogs, especially now, when our world has been turned upside down. There are very few people out there whose finances have not been affected by recent events one way or another.
What exactly is Financial Wellbeing?
I believe financial wellbeing is an integral part of overall wellbeing, as important as health and social connections. I expect some readers will immediately think: ‘No-way, health is much more important than money’. Please let me explain. When I’m talking about Financial Wellbeing I’m not talking about how much or little people have. Financial Wellbeing is more than that. It means security, it means control, it means we are at peace with the concept of money.
So yes, Financial Wellbeing is as important as health because without at least a basic level of financial wellbeing we would not remain healthy for long. The stress that the lack of financial security brings will sooner or later take its toll on our health and overall wellbeing.
There are a few facets of financial wellbeing, all interlinked with each other. These are: Assets (things that you own), Income (what monies you receive each month), Spending (self-explanatory) and Debt (what you owe to someone else). All of these will impact on how secure you feel should something negative and unexpected happen.
Level of your financial wellbeing.
People often mistake Financial Wellbeing with being ‘rich’. To me the balance between income and spending and the alignment of both to life’s priorities is much more important than a specific size of number on a bank statement. Some ‘rich’ people may have a very low level of Financial Wellbeing because they have an unhealthy relationship with money or their wealth is all tied up in one place with a very high risk of losing it all. On the other hand, some ‘poor’ people have a high level of Financial Wellbeing because they have enough money for the things they truly want out of life. Their income comes from various sources and their financial security is increased by the strength of their social connections.
So how do we achieve the right level of Financial Wellbeing? That, as always depends, on what we want out of life and how risk averse we are. Where do you sit at the moment? Where would you be if something unexpected happened? How long could you keep your current lifestyle going (or indeed a reduced one) if you suddenly lost your income?
First Step - How much do you already have?
It is always good to know where you stand. Try the following exercise, it’s very simple but you may be surprised by the outcome:
Take a piece of paper and list down the items that you own. These will be items of high value and will include: your house, car, any investments (shares, bonds, property), pensions and monies in savings accounts. Try to be prudent and not overestimate the value of your home or the car. The aim of this exercise it to get a realistic picture.
Then list anything you owe to anyone else – mortgage, car loan, consumer loans, credit card balances, anything you owe to friends and family. You should include the total sums owed, not what you pay each month.
Subtract the debts from what you own and you will end up with a figure that represents your net worth. Many people, after doing this exercise, realise that they are better off than they thought but may also find that their 'wealth' is inaccessible.
What about the day to day?
Now compare how much you receive each month with how much you spend. If self-employed with large seasonal differences in income you could look at yearly sums.
On a sheet of paper list all income from all sources. Include your salary, self-employed income, dividends and interest from your investments, rental income if you own a property and any other regular income.
Have a look at your last bank and credit card statements and list how much is leaving your accounts – mortgage, loan repayments, everything. At this point you are interested in the total rather than any categories. Understanding spending patterns and ways to reduce spending/increase income are areas deserving separate articles.
Once you know the ins and outs, what is the final sum? Are you living within your means and enjoying the things you spend your money on? Or are you accumulating debt and relying on the occasional windfall from somewhere to keep out of trouble? Just talking to your partner or friends may be sufficient to take the right action to bring balance to your finances but to some extent there is still a taboo here in the UK when talking about money. This is where a Financial Planner or a Financial Coach may come in handy?
There is another very important question to ask and that is how secure is your income. The more sources of income you have as a family the more resilient you are should something go wrong with any of them and the more financial wellbeing you will feel. The old ‘eggs in one basket’ proverb comes to mind.
Your emotions and your relationship with money – an integral part of financial wellbeing
When you think about money, what emotions does it produce? Do you start sweating with stress by just thinking about money? Is there a sigh of relief at the end of the month when you get paid? Or is everything fine?
If the thought of money is producing a lot of stress, I strongly suggest you speak to someone who can help, such as a counsellor or a financial coach or if you’re in debt a Citizens Advice Bureau is a good starting point. There is a clear link between debt and mental health so please don’t suffer in silence.
Where are you on the financial wellbeing scale? Let me know your thoughts at firstname.lastname@example.org
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The dilemma between time & money is as old as society. Both are in essence two sides of the same coin. We exchange time for money by going to work/running our businesses, and we exchange money for time by buying a washing machine for example.
Both time and money are very similar on many levels. Even the language we use when talking about them is similar. We talk about spending, saving, wasting and less often investing time & money.
What we do with both time and money should always reflect our values, beliefs and desires. If it does we tend to be happy, if it doesn’t it leaves us with a feeling of ‘something’s missing’.
It’s all in the balance
We all want to strike a balance between time and money. We may not realise this because the importance of the balance tends to come to life precisely when that balance missing. Plenty of time and not enough money for our basic needs, we get into debt and trouble. Plenty of money and no time to enjoy it, we end up miserable.
The power of choice
People often tell me: ‘But I can’t work less, I have a big mortgage to pay’. Yes, on the face of it this is a statement that rings true. Is there anything we can do to change it though? Here in the UK the vast majority of us are very lucky in that we have at least some degree of CHOICE. Everything in life is a choice. We do things because we want the results, or we don't want the pain. I don’t have to pay the mortgage, I do it because I don’t want to lose the house I’ve chosen to live in. I don’t have to pay taxes, I pay them because I don’t want to end up in jail.
Realising and accepting that we have a choice in most of what we do helps us recognise that we have control over much more in life than it seems at first. This realisation enables us to take action.
Now is a good time
How are you choosing to use your time/money? Is it in line with your values? A time of big changes (right now!) is exactly the right time to look at your spending/saving/investing/wasting of time and money, to ask the hard question of what’s important and to look at your spending. Here are a few pointers to start off with:
As it’s been said before, we all have 24 hours in the day, every day. Remember, it’s in your power to choose how to use them. Get in touch here.