We all try to take care of our emotional and physical well-being, but have you given the same consideration to the importance of your financial well-being? We believe that this requires just as much attention.
A financial well-being scheme has been launched by Government Ministers with the aim of converting Britain into a nation of savers over the next ten years. How do your own finances currently measure up?
The most recent figures released from the Office for National Statistics measure household debt covering the period from April 2016 to March 2018. Household debt amounted to a total of £1.28 trillion and 91% of this has been attributed to property debt such as a mortgage or Equity Release products. Excluding property related debt, the mean household has financial liability of £9,400 which equates to a 9% increase in comparison to the previous two-year period.
With rising debt, many families have understandably found it harder to save. Research has indicated that 11.5 million people have less than £100 of savings as a safety net. Credit cards and pay-day loans are relied upon by nine million to meet essential outgoings. This has the potential to leave these individuals in a vulnerable position should they experience a financial crisis or are faced with unexpected bills. Even a small expense can have long-term ramifications should you be forced to borrow in order to cover it.
Why the decrease in savings?
Following the 2008 financial crisis, many workers have found that while wages have remained static, their outgoings have continued to rise in line with inflation. With stagnant wages and the rising cost of expenses, the results are a significant, and worrying, shortfall in disposable income.
By 2030, the Government aims to turn the British population into a nation of savers, cutting the number of households who have previously relied on credit cards for day-to-day expenses. It also plans to reach 6.8 million children by extending financial education in schools, compared to the current 4.8 million. Whilst the target is a positive step for improving financial well-being, at present there has been a lack of information available on exactly how this will be achieved.
What is financial well-being?
Well-being is something we hear about often at the moment. More people than ever are looking at ways they can improve their holistic well-being, defined as the ‘state of being comfortable, healthy or happy’.
Whilst the maintenance of your physical and mental health is important, you shouldn’t neglect your financial health. After all, stress can often be due to financial pressure, whilst being financially independent can provide the opportunity to focus on what makes you happy and content with your life. Financial wellness is about security and the personal freedom to make the choices that allow you to enjoy life to the full.
So, how would you score your financial well-being?
- Do you have an emergency fund in place? Firstly, how would you manage if faced with a financial shock? For a variety of reasons. even the best-laid plans can run off course, often when you least expect them to. With this in mind, having an emergency fund you can rely on is essential for financial well-being, ensuring a good quality of life. This provides a level of financial protection should you be faced with an unexpected bill or if you find yourself unable to work for a period of time. Ideally, you should have between three and six months of funds to cover outgoings in an account which is readily accessible when you need it. Having an emergency fund in place is the foundation of financial well-being, and can give you peace of mind.
- How comfortable are you with the ratio of your income and outgoings? Budgeting is one of the basics of financial planning. If you’re uncomfortable with how your books are balancing, this will have an adverse effect your financial well-being. Managing outgoings in alignment with your income is also key for the other factors on this list, ensuring you have some spare funds set aside to meet both your short- and long-term goals. If you’re concerned about your regular expenses, it’s worth devoting some time to identify where your money is going. You may find that cut-backs can be made in certain areas, or your financial stability may actually prove to be better than you had believed.
- Is your current level of debt manageable? At various stages in your life, debt is to be expected. However, this isn’t all bad. The Office for National Statistics have highlighted that over 90% of the debt in the UK is property-related. A mortgage is essential for many of us in order to get a step on the property ladder. In addition to this, there are likely to be times when there is a need to take out a loan or access other forms of credit. Credit can be incredibly beneficial and at times may be your best option. Having a good understanding of your commitments is key to ensuring you can meet them. The core to maintaining positive financial well-being is effective debt management.
- Are you saving for the long term? Whilst the focus of the Government scheme is on building up a strong savings pot for the short and medium-term, it would be prudent to also look further ahead. Will your level of savings be sufficient for retirement, for example? If you are still in employment, retirement might be something you’ve given little consideration, but this is a significant milestone that you should be preparing for throughout your working life. The reassurance that you’ve been diligently saving for your life after work can improve your financial well-being when looking at the bigger picture. If you have already taken retirement it’s important to appreciate how your income may change over the years to come and what adjustments can be made in order to maintain your desired lifestyle.
- Do you have confidence in your financial decisions? Finally, you should feel confident in the financial measures you’re taking and the significance of these for your future.
Frances Boiling, Chartered Financial Planner at Pembroke Financial Services, Independent Financial Advisers based in Shoreham and serving clients throughout Sussex says “Well-being exercises are undertaken to enhance fulfilment and happiness- both for the present and in the future – and this should also reflect through to your financial well-being. Getting your finances under control and ensuring your accounts are healthy can potentially increase your prospects and give you a greater sense of comfort. If you have money worries, it can have a negative impact on many other areas of your life. For your overall well-being, it’s essential you feel confident in your financial decisions. Financial planning is our job and an area we can certainly help with.”
Professional advice from an expert can help you to confidently move forward with financial decisions, as well as gaining a better appreciation of how your wealth can be expected to change over time.
How many of the above points did you answer with a positive ‘yes’?