This piece was written by one of our contributors; founder of Vestpod and host of The Wallet – Emilie Bellet
Most of us think green smoothies, meditation and candlelit baths when we think of wellness, but have you ever thought about the role your personal finances play when it comes to your wellbeing? Financial health is intricately tied to your overall health: when your money is not managed properly, it can be a source of great stress. Plus, we all know how much better we feel when we exercise and eat a balanced diet — so it’s only natural that building similarly healthy and positive money habits will make you feel financially well, feeding into an all-round happier you.
But what do we mean when we talk about ‘being financially healthy’? Financial health is not about how much you earn. Instead, financial wellbeing is about your financial confidence and knowing that you have enough for today and tomorrow. While the specifics might look and feel different to different people, being financially healthy means being able to meet ongoing financial obligations (paying your rent and bills, childcare costs, etc.), feeling secure about your financial future (buying a home or retiring early), and comfortably making choices that allow you to live your life to the fullest (going on holiday, learning a new skill).
So how do we go about developing and maintaining good money habits to improve our financial wellbeing? Below are 5 tips to help you be more financially savvy.
1/ Review your spending habits and identify your money personality
Everyone has different spending habits, so before you start working on your financial plan and budget, it can be helpful to identify your money personality. Whether you’re a super saver, social spender, or a head in the sand ostrich, figuring out your deep-seated attitude to money can help you better understand your strengths and weaknesses, and therefore inform your budget and financial strategy. Make sure that you review your spending on a regular basis by setting a regular monthly ‘money date’ with your bank account(s). Looking back at your spending decisions, try to see if they’re sustainable and whether you may be prone to emotional spending. This way, you will be able to see what makes you happy and how to use your money in a more positive way.
2/ Look into your debt
While not all debt is bad (eg. student loans and mortgages), short-term debts tend to be expensive and can land you into serious trouble if you’re not careful. Credit cards, overdrafts, and various short-term loans can quickly add up, so you need to make sure you pay these off ASAP. To tackle your debt, it’s a good idea to put in place a debt repayment plan. Many free debt advice organisations can help offer you expert advice to understand the situation you are in, so if you’re struggling with figuring out how to tackle your debt — reach out for help. It’s also important to remember that your debt doesn’t define you, and that it’s nothing to be ashamed of! The key is not to bury your head in the sand and just get started with paying it off.
3/ Set a budget
If you want to work toward your financial goals and rein in your spending, you need a budget. Whether you choose to use an Excel spreadsheet or a budgeting app, it’s vital you regularly track your income/expenses to help you feel more in control of your finances. This is especially relevant as we’re slowly coming out of lockdown, and our spending may start to increase. To create a budget, you should gather all your statements (preferably quarterly), highlight everything you classify as ‘needs’ (eg. food and bills), and ‘wants’ (clothes and takeaway), and see where you can cut down. As a guide, you can use the 50/30/20 budgeting rule: spend 50% of your income on essentials, 30% on wants, and 20% for savings/investments.
4/ Review your goals
Where do you see yourself in short, medium and long term? Think about what your ideal life looks like, and write it all down. Financial goals will remind you why you are on your particular financial journey: when you visualise your goals, you’re less likely to feel like you’re depriving yourself. It’s never too early to start and even if you don’t have a lot of spare cash, small efforts will compound over the long term. You can start by building an emergency fund – aim to have a few months’ worth of living expenses in case something unexpected happens. Emergency savings can be a life saver, and will help you avoid getting into debt. Saving is hard, but we usually find saving easier for the short rather than the long term. Try to regularly squirrel your money away for your next holiday, but also towards your retirement. It’s important to calculate how much you need to save or invest on a monthly basis for you to reach your goals in the preferred timeframe, and to stick to your budget as much as you can. Using SMART goals, which means that they are Specific, Measurable, Achievable, Realistic and Time-Bound, helps you stay on track.
5/ Think long term
Sure, it’s fun to spend and save for the immediate and short term, like buying a new coffee table or going on a much-needed holiday, but we shouldn’t neglect our future selves in the process! The sooner you start planning for your long-term future, the better your chances of enjoying the perks of compound interest. With interest rates on easy access savings accounts being abysmally low (coupled with growing inflation), keeping your savings in cash means your money might lose spending power over time. When it comes to long-term goals, investing is the best way to make your money work harder for you, and investing in the stock market isn’t as scary as it sounds! Look into simple, automated investing apps, read up on free online investing resources, and talk to others about money management… you’ll be surprised how quickly you’ll build up your confidence!
By and large, people are healthier and happier when they are confident about managing their finances. By understanding how money works, you can make smart financial choices for yourself, your family, and your future. So try to pay attention to your financial wellbeing like you pay attention to having your 5-a-day…and reap the benefits of a fuller and more satisfying life!