Financial wellbeing has become a hot topic in the world of personal finance – and rightly so.
Research suggests we’re failing to plan for our future, we don’t know what makes us happy and we’re spending a lot of time worrying about money, trends that have no doubt been exacerbated by the pandemic.
Financial advisers too have been taking more of an interest in financial wellbeing, and pension provider Aegon just this week published some extensive research on the subject, defining financial wellbeing as: “how people feel about the control they have over their financial future – and their relationship with money. It’s about focusing on the things that make their life enjoyable and meaningful – both now and in retirement.”
In short, it’s about how we use money to live a meaningful life.
Thinking too hard about living a “meaningful life” – even without adding money to the equation – is almost enough to send me into a full-blown existential meltdown, and I’m not alone. It appears most of us are woefully inadequate at developing a healthy and happy relationship with money.
More than 19 million people – more than a third (36%) of people living in the UK – are struggling with their financial wellbeing, Aegon found, and around five in six of us could be taking action to improve that.
Aegon’s research placed equal weighting on what we might think of as traditional money factors (income levels, budgeting skills and affordability of debt) and mindset factors, like people’s willingness or ability to consider their future self, put in place a financial plan or think carefully about what really makes them happy.
Surprisingly, the mindset factors were the area where most people had the biggest room for improvement. Fewer than half (38%) of people had only a vague idea of where they wanted to be financially in 10 years’ time, and sadly just over a quarter (28%) of us had only a vague sense of what gives us joy or purpose.
Money & happiness
The research also threw up some surprising findings about wealth and its relationship with happiness.
Popular media, senior bosses and even rappers would have us believe that more money equals greater happiness, but apparently, that’s a misnomer. Aegon’s research found earning more income doesn’t make people’s worries go away, with more than half (55%) of average earners and more than one in three top earners reporting they still worried about their finances.
Of course, there’s a line somewhere, and healthy finances are a key component of financial wellbeing. But with that said, chasing big bucks because we think we should certainly isn’t the recipe for happiness, as a group of bankers at Goldman Sachs in the US found recently.
The first-year analysts were working more than 100 hours a week, and their mental and physical health, as well as their relationships, had deteriorated as a result. In the end, the undoubtedly handsomely-paid Goldman grads begged to have their working hours capped at 80 hours per week, saying they would likely quit in six months if things carried on as they were.
Financial wellbeing knows no salary in the world is worth working 105 hours a week unless your work – all 105 hours of it – brings you a meaningful life.
Improve financial wellbeing
The good news is that our relationship with money can be improved, and Aegon has provided us with five steps to improve our financial wellbeing:
1 – Put happiness first. Be conscious of things that give you sustained happiness, and ensure you are spending time, energy and money on those things with your future happiness in mind.
2 – If you’re a person who compares yourself to others, make sure they’re realistic comparisons, instead of comparing yourself to others who appear to have better financial lives (I find this one can easily be remembered by asking that you stop trying to keep up with the Kardashians…)
3 – Picture your future self and lifestyle. Spend time regularly visualising your future self and what you might be doing. Paying attention to our future selves can help to keep us on track to achieve our investment and pension goals.
4 – Make a long-term plan and write it down.
5 – Hold your nerve in a crisis. Sure, we’ve had enough crisis to last a lifetime in the last 12 months, but what Aegon is actually talking about here is markets. When tempted to change your long-term investments, remember why you started saving so you don’t panic and do anything you might regret. Even using statements like: “Next time markets drop in value, I will remain calm and think of my long-term goals,” can prepare you for a financial crisis.