Financial wellbeing for 2020 and beyond

By Stephen O'Toole on Tuesday, 11 February 2020

January has come and gone. No more predictable news pieces on the hike in rail fares, the reasons behind blue Monday, or how we can make this the year we achieve personal transformation.

Making changes to your life, and ultimately becoming the best version of yourself, is something that most of us want to achieve. But too often our best intentions for a new year fall by the wayside (or in my case, off the wagon). Is January abstinence - whether from drinking, shopping or eating out - just a short term way to shake off the excesses of the preceding Christmas binge, rather than the start of any meaningful journey towards long term change?

Take for example the classic new gym member in January who is trying to lose weight and improve their overall fitness. They pay their money, hit the treadmill and cut down on the takeaways - but the change they desire won’t be apparent after a few weeks. By the spring these people are nowhere to be seen!

Our relationship with money

The same could be said for your personal finances - so often the thing that takes the worst beating of all over the Christmas period. On Christmas Day, I watched with a mixture of horror and delight as my three-year-old son tore into his presents under the Christmas tree. On Boxing Day, we took a pit stop at McDonalds in the middle of shopping at the sales. Needless to say the day after he was playing with the toy that accompanied his happy meal, rather than the gifts that Santa delivered.

We live in a consumerist society, and that is not going to change anytime soon. Chris Budd, founder of the Initiative for Financial Wellbeing, recently told Professional Adviser that as a nation we spend much of our time comparing ourselves to others, focusing on the search for wealth rather than the purpose - all backed up by a constant stream of advertising telling us we will not be fulfilled unless we buy more products.

We spend more of our lives worrying about our finances than anything else. We all have complicated relationships with money, and many of us would like to change that relationship to improve our overall wellbeing.

The financial component of overall wellbeing

The concept of ‘wellbeing’ or ‘wellness’ is something that I first came across in 2014, when I started working in financial services marketing. Many clients hero the term in marketing campaigns to help explain the holistic nature of benefits derived from their products and services. The fact its utterance has become so common is very much a sign of our uncertain times. The Financial Times columnist Jason Butler explains it is comprised of the following 5 elements in his book Money Moments:

  • Career (how you spend your time)
  • Social (relationships and love)
  • Physical (good health and energy)
  • Community (engagement with where you live); and
  • Financial

The same book defines financial wellbeing as follows:

“Financial wellbeing can be defined as a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow enjoyment of life.”

So how can this utopia be achieved? The first thing to realise is that we cannot aim for perfection - but covering the following 4 bases should help you align your finances with your long-term needs and wants.

Create goals

The word ‘goals’ can be a loaded term. Most of us don’t know exactly what we want to do in the future, so how can this have an implication on our finances? But goals can be as short term or as long term as you like - the important thing is that you have them.

It can be something as mundane as paying off your credit card bill, or saving towards a life event such as a deposit on your first home. How about categorising them into short term (3 months or less), medium term (3 months to a year) and long term (1 year or more). There is of course the longest of long-term goals - your pension - but let’s leave that subject for another day.

Once in place, the key thing is to make your daily life decisions in the context of the goals you have created. Quickly you will be able to ascertain your real disposable income, and enjoy spending guilt free.

Stop procrastinating

Here in the UK we suffer from a real inertia when it comes to making any changes to our finances. In fact a recent Hargreaves Lansdown article reported that this inertia could be costing some savers dearly - their survey revealed that many of us are saving by convenience, with nearly half of respondents keeping their savings with their existing bank, despite the average instant access savings account paying paltry interest of 0.41%.

The consumer finance champion Martin Lewis recently appeared on the This Morning programme and went one step further, stating that millions of UK customers are earning ‘insulting’ levels of interest on their savings. This comes off the back of the news that the Santander 123 account - at one point one of the best-value and most innovative accounts on the market - is dropping its rate to 1%.

Martin Lewis is right when he says savers need to become much more active with their money. The stance should be aggressive and disloyal - shifting from best rate to best rate in what looks to be a low interest rate environment for the foreseeable future.

Outside of China and the US, the UK has the largest banking sector in the world, with a wealth of products that can help meet nearly every customer outcome. So start making decisions - taking advice from your peers, or older friends, family and colleagues that may have already achieved some of the goals you have set - and enjoy an active relationship with your finances.

Brace for a shock

Being able to cope with financial shocks - for example a sudden loss of income or unexpected bill - is the foundation of financial wellbeing. But it appears a significant number of people in this country are nowhere near where they need to be.

The Guardian reported some shocking statistics on the state of the nation's financial health in January. Apparently 11.5 million of us have less than £100 to fall back on, with 9 million using credit cards or payday loans to meet essentials like weekly shopping and energy bills. Given the UK manufacturing sector has shed nearly 500,000 jobs in the past decade, and the UK high street 140,000 jobs in 2019 alone, these figures are cause for alarm.

So what can be done? For those lucky enough to be in full-time employment, building up a sufficient cash reserve as a rainy day fund is a key first step. This should be anywhere between 3-6 months worth of average expenditure, depending on whether you have a partner in work or are reliant on one source of income. In addition, any bad debts that are accruing punitive interest should be cleared first before you begin to save.

Be generous

So you have created your goals, made your decisions on savings and investments to help reach them, and started to collect a rainy day fund on the side. But don’t forget to be generous with your remaining cash and spend guilt free!

We make consumption and spending choices every day, some small and some large. Personally, I have discovered in recent years that spending money on experiences with people, rather than products, has helped maximise my happiness. Achieving a type of financial freedom, allowing you to afford wants as well as needs, is the ultimate destination for 2020 and beyond.