Let us begin by exploring the term ‘wellbeing’, financial wellbeing being a subset of this much larger topic. Unfortunately, the term has become slightly clichéd: a catch all for all manner of tenuously linked ideas and the current zeitgeist of marketing. Whenever I see a high street bank or a financial institution using the term, it always makes me cringe. The irony that I’m writing from within this sphere is not lost on me!
In the context of this piece, I’m using wellbeing as a proxy to describe the overall level of happiness and satisfaction you have in your life. Sounds simple, but with the challenges of modern life, less so in practice.
Research indicates that the following areas make up the currency of a ‘life that matters’. They do not include every nuance of what’s important, but they do represent the five broad categories that have meaning to most people.
The five areas to wellbeing are:
- Social – the quality of your social relationships
- Career – how you occupy your time or simply liking what you do every day
- Physical – good physical and mental health plus enough energy to get things done daily
- Community – the sense of engagement you have with the area where you live
- Financial – your relationship with money
Although these areas are generally universal across faiths, cultures, gender and nationalities, everyone must follow their own path towards attaining a sense of personal wellbeing. A key point for wellbeing comes from having these five areas in balance – albeit that the weightings will change over time and are often aligned with various milestones in life. I often see clients redirect their energy towards volunteering or charitable endeavours when they approach the end of their working career, be it to give something back or to maintain a sense of purpose.
Likewise, too much focus on accumulating money at the expense of spending time with family and friends will likely reduce wellbeing, not increase it. It is all too easy to fall into the trap of ‘if I just earned that bit more, I’d be able to spend more time with X & Y’ – it can become a vicious circle.
Improving each of the areas seems broadly within our control. Often, however, the financial aspect seems to be the most challenging or is used as a rational reason not to do something.
There is a great deal of research which suggests money itself does not make us happy – it is how we use it that matters. A Harvard study on happiness highlighted the largest contributor to wellbeing is the quality of social relationships.
To me, financial wellbeing is about how we can help you use your money to support the other areas of wellbeing and specifically those which are important to you. It is also about providing a framework to provide you with the peace of mind. This is achieved by ensuring your financial affairs are structured effectively and, crucially, aligned with your longer-term aspirations. As such, it is important to consider various aspects of your situation and look at the constituent parts.
The five pillars of financial wellbeing
A fundamental aspect to achieving financial wellbeing is to have a plan. Your ‘plan’ should not be ‘rigid’ but more of a set of guidelines – it needs to be able to flex with your ever-changing circumstances. As you move through various life stages, aspirations and motivations will inevitably evolve.
Ideally, therefore, your ‘plan’ should encompass five key areas, which can all be linked to you attaining your specific financial wellbeing:
- A clear path to achieve identifiable objectives.
- Control of your daily finances.
- Financial options in life.
- The ability to cope with financial shocks.
- Clarity and security for those we leave behind.
In order to structure your finances in a way that is right for you, it is necessary to first decide what it is that you want from your future. The key to financial wellbeing is not having the life others think you should have, but the life you want. It is therefore essential that the starting point to any plan is to understand more about your aspirations, your goals and what motivates you. Your finances can then be aligned with helping you achieve these goals and provide context to your decision-making framework.
Control of your daily finances
Having an awareness and control over your daily finances helps to give you clarity. This then allows you to identify and spend money on areas that are both important to you as well as make you happy. It is equally beneficial to help identify aspects of your finances that may hinder your ability to achieve your personal objectives.
As part of your ‘plan’, if you can identify how much you need for your basic lifestyle (including leisure activities and holidays), then any income above this level can be ‘spent’ on your personal wellbeing and objectives. This could be on things which make you happy, such as dinner with friends(Social), dedicating time to volunteering (Community) or on bringing your ideal future closer like saving for early retirement or being debt free (financial wellbeing).
Financial options in life
This element is often best achieved using some form of interactive cashflow modelling. Cashflow models allow you to make assumptions about your current and future financial circumstances. It is most effective when your personal aspirations and objectives are linked to, and underpin, the financial decision-making aspects of your ‘plan’. It can be incredibly useful to test ‘what if’ scenarios and see what impact these could have on you achieving your aspirations.
As your timeframes are likely to be long (career, retirement, ultimately to death) any modelling will inevitably be wrong. At each review though, your ‘plan’ can be updated to reflect changes in your circumstances. It is the ongoing process which is crucial not the initial ‘plan’. It should become instrumental in future decision making and should be reviewed regularly.
The ability to cope with financial shocks
Financial shocks can come in many forms, such as unemployment, illness, premature death or inevitable drops in investment values. The relative impact of each of these scenarios will alter throughout life but their impact can and should be prepared for, at least financially.
Having the confidence and peace of mind that you and your loved ones will be looked after, should the unexpected happen, is a key component of ‘Financial Wellbeing’.
Clarity and security to those we leave behind
One of the only certainties in life is death. It is imperative that within your ‘plan’, you have dealt with the key legal aspects and considered your affairs. Most people want to ensure what they have worked hard to build passes on those they choose (rather than the Exchequer).
A financial coach for achieving financial wellbeing?
Advisers should aim to help you achieve the best life possible with the money you have. All advisers should work in partnership with you, putting your life at the centre of the conversation. Your adviser should take time to understand you, your background, philosophy, needs and objectives, so that they can help you put your money to good use. Whilst there are financial aspects to much of what we do, our primary role is to help you translate the financial aspects to achieve a ‘Return on Life’ rather than simply focus on a ‘Return on Investment’. A large part of my role is to understand how we can help you deploy your money in the best way to achieve this balance.
If we can understand more about your values, we can also seek to include those within your ‘plan’ where appropriate. People tend to spend their time or their money (or both) on things that they value. If your finances can help you achieve more of what you value, in turn, that should result in a more rewarding and happy life going forward.
The key to financial wellbeing
Financial wellbeing is only one part of the jigsaw and should not be viewed in isolation. On its own, it will not provide that elusive meaning in your life – but it can help along the way. It’s the cornerstone of the five areas of general wellbeing as modern society often requires finance to enhance social, community, physical and career driven activities. However, many aspects of these areas also require little financial influence and rely more heavily on personal relationships and intrinsic motivation. It’s when all of them are acting in harmony and balance that you will find true fulfilment in life.
Other information on this subject that you may find interesting:
What makes a good Life? Lessons from the longest study on happiness, Robert Waldinger (Director of Harvard Study of Adult Development)
https://www.financialwell-being.co.uk/thebook/, Chris Budd -The Financial Wellbeing Book (all proceeds to the Penny Brohn UK cancer charity)
 Wellbeing by Rath & Harter & https://www.gallup.com/workplace/237020/five-essential-elements.aspx
 The Financial Wellbeing Book – Chris Budd
All authors have considerable industry expertise and specific knowledge on any given topic. All pieces are reviewed by an additional qualified financial specialist to ensure objectivity and accuracy to the best of our ability. All reviewer’s qualifications are from leading industry bodies. Where possible we use primary sources to support our work. These can include white papers, government sources and data, original reports and interviews or articles from other industry experts. We also reference research from other reputable financial planning and investment management firms where appropriate.
Saltus Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority. Information is correct to the best of our understanding as at the date of publication. Nothing within this content is intended as, or can be relied upon, as financial advice. Capital is at risk. You may get back less than you invested. Tax rules may change and the value of tax reliefs depends on your individual circumstances.
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