Financial wellbeing means you are confident and at ease with your personal finances. You understand your day to day finances, know how to manage them and can plan ahead for the future.
Why is it important to talk about this?
Many of us don’t look after our financial wellbeing (I didn’t for long years). Money comes and money goes, some say and don’t feel a need of looking into it apart from finding a job that makes more money.
Millions of Britons don’t regularly save money, wouldn’t even be able to cover one month of expenses and don’t really know their exact expenses. Millions of people live paycheck to paycheck, even though they have very good (way above average) incomes. See this report from Lloyds bank for more info.
It is also important because finances are something we don’t talk about with our family or friends. It’s a taboo. We don’t know each other’s incomes, we don’t ask for advice. Debts in particular are a big issue of shame. Start by talking about it, asking questions, it will give you perspective at the very least . There are very supportive online communities, if you feel you have no one to talk to about money.
There is a great article in the New York Times about the taboo around talking money.
Personal finance is not difficult as in head knowledge. But it is tough to change habits.
You can compare it to weight loss. We know perfectly well how to lose weight: Exercise and healthy food. That’s not rocket science. Yet for many it’s impossible to get there and break the cycle of bad habits.
Same with finances. Live below your means and save regularly, that’s the bottom line. But there are too many temptations, things that promise us bliss and feeling complete.
Books, clothes, watches, shoes, electronics, cars, cosmetics, holidays, nights out, cigarettes, that all promises happiness and joy.
I am simplifying a lot here, I am well aware that there are many living situations (such as renting in London) which are tough and not at all your fault and make living beyond your means impossible. If your rent makes up 70% of your income there is only so much that can be done. It’s still important to be aware about them and not making things worse.
I am taking about homemade problems and these can be remedied.
There are several things to think about which will help you feeling financially well:
Control of your day to day finances
It all starts with knowing your income(s) and your expenses, everything from mortgage, insurances, subscriptions, to grocery shopping.
Does your income cover all your expenses?
Knowing your expenses, where can you possibly cut down? Budgeting helps. Setting a budget for food, electronics, fashion, takeaways, etc and stick to it.
Know when your contracts ( gal/electricity, mobile, insurances) end so you can get better deals for the new one.
Know your subscriptions (gym, Spotify, Netflix, sky, Playstation)
Be clear on your needs
Be intentional with what you buy and consume. What is important to you and brings you value?
What is a must? And what is a nice to have? What is even unnecessary?
This will help you determine where you can cut back without feeling deprived.
Your financial goals
Know your financial goals. Do you want to buy a house? Go on holiday regularly? Retire early? Have a big wedding? Be debt free?
Cope with financial shock
Less income or higher expenses, or both can always befall us. Are you prepared and confident you can deal with what life throws at you?
You may lose your job, you lose your biggest client, have unexpected expenses (car breaks down), become ill or have an accident.
Financial wellbeing starts with acknowledging your financial situation, recognising bad habits and the willingness to tackle it.
It might seem easier to save with a higher income, but lifestyle creep* is real. A financial mindset can be learned independent from income.
Financial wellbeing makes you resilient and able to cope with life’s ups and downs.
It can be learned and is a beautiful journey, as you see your debts clear and your savings grow.
*lifesytle inflation: With growing income former luxuries become necessities.