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Financial wellbeing the key to improved mental health?

Planning & protection

28 June 2022

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Sarah Tory

Repeated studies have shown that financial wellbeing is intrinsically linked to improved mental health.

Research conducted by the independent charity Money and Mental Health Policy Institute, suggests that a poor financial situation will have a detrimental effect on an individual’s mental health, producing physical and psychological symptoms such as loss of sleep, poor concentration, and reduced motivation.

Yet according to the latest Financial Capability Survey, 39% of adults in the UK (20.3 million), don’t feel confident managing their money.

Facing up to your financial situation and making small changes to your financial planning can have a big impact on your current wellbeing as Fairstone Chartered Financial Planner Sarah Tory explains at the start of World Wellbeing Week (June 27).

 

Financial wellbeing

The last two years have very clearly highlighted the importance of physical, mental, and financial wellbeing. As a financial adviser, financial wellbeing for my clients is my goal; it’s why I get up and turn my laptop on.

Financial wellbeing is known by many names, financial literacy, financial wellness, financial confidence, or financial resilience – my personal favourite. But in simple terms, financial wellbeing is about having a good relationship with your money and feeling secure and in control of your finances, both now and in the future.

You certainly don’t need to have pots of money to have financial wellbeing; simply understanding what you have and knowing the position you are in, is a major part of getting started on your wellbeing journey.

 

Gradual process

Many studies show that people who experience financial wellbeing are less stressed about money and this in turn has positive effects on their overall mental and physical health. Of course, this seems obvious but how do you get to this point, without the obvious answer of having way more money than you need?

Like physical and mental wellbeing, financial wellbeing can be a gradual process and introducing small but frequent changes can bring the best results. So just like you are unlikely to run a marathon after two months’ training, you are unlikely to have this financial stuff all sorted by opening an ISA and putting £20 in it.

As is the case with most ‘grown up’ tasks, it is regular attention and understanding of the basics that drives the best outcomes.

 

Budgeting

And the lynchpin of financial planning and financial wellbeing is budgeting.

Financial anxiety and stress are compounded significantly by not facing your position straight on. I do know that for many households right now, money is a bigger worry than perhaps a couple of years ago and there is help there; moneyhelper.org is a great place to start with budgeting help and advice.

And having a good understanding of what you have coming in and going out is key.

Once you know your budget, you are in the best place to move forward. Having a budget allows to see where the weaknesses are and to cope with the unexpected. For example, what if a large bill such as a car repair came along? Is there a buffer within your accounts that could cope with this? If there isn’t, can you make any adjustments to your budget to increase reserves for these occasions?

 

Life cover

If you have a family or any debts, then that adds further strain on your finances and making sure you have life cover should the worst happen gives huge peace of mind. It’s also worth bearing in mind that the cover you have in place needs to be reviewed regularly and getting a financial adviser to assess what and how much cover you need is a good idea. You may even have life cover with your employer that you aren’t aware of so it’s worth checking.

Once you have a greater idea of what is coming in and what is going out and how the unexpected might affect any plans, you can look to the future. This is the good bit where you can really start to visualise future financial health. People who write down their life goals are much more likely to achieve them, and it is the same with money. Having an idea of what you want means you can then build the plan to get there.

 

Cashflow modelling

A good part of my job is doing cashflow modelling. This is a financial planning tool which reviews a person’s existing assets and calculates what income might be achievable, and if it isn’t enough for them, what might they need to save now to get there.

It also shows a person’s assets over their lifetime and can highlight if/or when a person’s money might run out. Specialist programming also allows an adviser to overlay potential scenarios such as a stock market crash. What this means is we can give a clear understanding of a person’s position and what may or may not be achievable.

 

Approaching retirement

Having a clear account of your position now and in the future can give meaningful financial wellbeing. I have several clients who approach me as they would like to retire and doing an exercise such as cashflow modelling can show them if retiring now is an option, or if they need to reduce their spending in retirement to stop work now or save a bit more and work a few more years.

Quite often when I complete this exercise it can be very reassuring, and I let my clients know they can in fact stop working. And do you know what most of them do? They continue working. Why? Because they don’t have to. Working when you don’t need to be is emotionally very different to working because you must, and having achieved financial wellbeing, physical and mental wellbeing then become the factors in continuing to work.

 

Route map to financial wellbeing

  • Set aside an hour a month for your finances – get a cuppa, get your statements out and see what has come in and what has gone out. Keep a budget.
  • If there is more month than money, see if there are areas that could be cut back on and commit to doing so if you can. If it is more concerning and you can’t see the light get help quickly. Speak to people you owe money to straight away and seek out specialist help such as Citizen’s Advice.
  • Understand your financial resilience. What if things go off plan? Is there a savings buffer in place? Do you have life cover, critical illness covers and cover if you couldn’t work for a long period of time? These are all specialist areas where advisers can help.
  • Keep an eye on long term goals. Are your pension savings coming along as they should, and have they been reviewed? Assess in detail what you have in place and how much they might give you when you retire.

 

Find an adviser that meets your needs

Facing your finances can seem very daunting. But getting a plan in place and regularly reviewing this will take away a huge part of that fear and put you very much in control.

Why not take this week to give it a go?

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