“Financial wellbeing” is a relatively new concept in the mainstream financial advice world. Indeed, in many companies it is seen as the new marketing tagline just to sell more financial products.
But financial planning firms like Magenta understand that much like exercise and eating well, your financial well-being is key to living a happy and healthy life and we wholeheartedly espouse this approach and have done for many years.
Overall Wellbeing
As an aside, it is interesting to note that financial well-being is only part of the equation for a happy life.
Harvard studied around 950 people and asked them at the beginning of the study what they thought would make them happy in life. Overwhelmingly the answers were money and success.
The university went back every two years and interviewed the same people, asking them about their happiness; were they happy, and what things were making them happy.
They have continued this study for the last 75 years and funnily enough found that neither fame nor money had any effect on happiness, but that the quality (not to be confused with quantity) of their social contact had a huge effect, even going so far as to show that those who reported loneliness died earlier.
There are 5 areas of well-being as a whole;
Career
Social
Financial
Physical
Community
It’s so important to not just focus on one area, but on all five as a balance, with social well-being as the most important factor.
What is financial wellbeing?
Financial wellbeing is often overlooked as one of the pillars of good health, but it’s every bit as important as physical, mental and emotional health.
Poor financial health has been linked to a range of nasty side effects like stress, depression, anxiety, sleeplessness, relationship break-down, drug and alcohol use to name a few. Yikes!
Good health is often about balance. Getting on top of your financial wellbeing can certainly relieve stress and give you the time and money you need to balance all aspects of your health.
So what is financial wellbeing, why is it so important and how can you improve yours? More than just earning an income, financial wellbeing is about having financial security and the freedom to make choices.
In his book “The Financial Wellbeing Book” author Chris Budd says that there are five parts to financial wellbeing:
1. Controlling daily finances
2. The ability to cope with a financial shock
3. Having financial options and clarity
4. Security for those that we leave behind
5. Creating a clear path to identifiable objectives. (We could call this financial planning.)
It’s considered normal for your financial well-being to vary over the course of your life. This is particularly true during major life events such as moving house, having a baby, changing jobs or retiring. Unexpected financial shocks can also have a big impact on your financial wellbeing.
We agree that in principle financial wellbeing is really very simple. You just work out what you want from life, then spend your money on that.
Working out what you want from life, however, is not so easy but as a starting point, spend some time thinking and talking about what will make you happy and excited in your life. You can then begin to plan your finances around the sort of life you want.
How can I improve my Financial well-being?
Developing good financial habits will help you improve your financial health over time. That includes:
Having a budget or spending plan.
Making regular cash savings.
Building an emergency fund of at least six months living expenses.
Paying down debt and maintaining a good credit rating.
Having adequate insurance.
Building up enough investments to retire comfortably.
Much like your physical and mental health, your financial health needs regular check-ups to stay in good condition.
How can a Financial Planner help?
Think of your financial planner like your family doctor: as your partner in good health. Having the right financial planner on your team can help you navigate life’s ups and downs.
A financial planner is able to support your changing needs at every stage of life. For example, in your twenties and thirties a financial planner can help you save, invest and plan for a family. They can help you consolidate and protect your wealth into your forties and prepare for retirement in your 50s, 60s and 70s.
When you go to see a financial planning professional, they’ll look at your overall financial wellbeing and develop a plan tailored to your circumstances. Again, much like the family doctor, financial planning is an ongoing relationship, not just a one-off meeting. So look for someone that you feel comfortable with and can work with long-term.
Taking the time to focus on your overall financial health and wellbeing has a range of positive effects. Feeling financially secure brings peace of mind, allows you to enjoy your leisure time and fun activities and improves your overall quality of life.
8 habits of Financially Happy People
1. They make plans to reach their goals.
Financially happy people realise they don’t have to accomplish everything all at once. So they think about how they’d like life to look in five, ten, and maybe even 20 or 30 years and then set about making plans on how to achieve these goals.
2. They spend within a budget.
Financially happy people know how much they earn each month, and they know how much they have to spend. They allot enough money to savings, then pay their necessary bills, and then make sure they don’t overspend whatever is leftover.
3. They pay off debt.
Financially happy people don’t have debt hanging over their heads. They pay down credit card bills every month and where there is necessary debt like a mortgage, it is at the lowest interest rates.
4. They plan for financial misfortune.
It might be a car accident, or tree damage to the roof, or it might be getting laid off from work. Financially organised people are prepared for financial shocks – they will have an emergency fund of at least six months of expenses and all their insurance policies will be up to date.
5. They find satisfaction with what they have.
Financially happy people don’t buy impulsively and realise that material things don’t bring happiness or satisfaction as much as financial stability, security, freedom and a great social life.
6. They’re smart borrowers.
Financially stable people research all options before taking out a loan. This way, they’re not stuck paying high interest rates for the next twenty years. They make sure they understand all the details and shop around to get the loan that fits exactly what they need, and they don’t take on a payment that’s more than they can afford.
7. They don’t avoid retirement planning.
When you’re in your twenties, retirement planning sounds crazy. It’s so far in the future that you can’t imagine needing it. Or maybe you think that it’s better to have access to that money now, instead of putting it away for forty years down the line. Financially happy people see it differently. They realize that this money is an investment, and it’s going to pay off when they need it most.
8. They educate themselves or take professional advice.
They know their limits and want to avoid serious financial mistakes so they either spend a lot of time doing research OR more effectively from a time perspective, they hire professional advisers to work with them to use their money specifically to pursue their passions in life and be happy and secure.
At Magenta client feedback over the years has consistently been that they value our service for providing them with reassurance and greater certainty that their money can be used effectively to provide them with peace of mind, no money worries, less stress and more financial freedom. There is no doubt that good financial planning encourages and maintains financial and sometimes other types of well-being, allowing clients to feel happy and get the most out of life.
If you would like to explore more on this subject, do call us for a friendly chat.