Ministers have launched a financial wellbeing scheme with the goal of turning Britain into a nation of savers over the next ten years. How do your finances stack up?

The most recent figures from the Office for National Statistics measuring household debt cover from April 2016 to March 2018. In total, household debt was £1.28 trillion, with 91% of this being attributed to property debt such as a mortgage or Equity Release product. Not counting property debt, the mean household has debt of £9,400, a 9% increase when compared to the period two years earlier.

As debt has risen, many families have found it harder to save too. Research indicated that 11.5 million people have less than £100 of savings to fall back on. Nine million also use credit cards and payday loans to meet essential outgoings. It could leave these individuals financially vulnerable should they experience a financial shock or unexpected bills. Even a small expense can have long-term implications if you’re forced to borrow to cover it.

Why have savings decreased?

Over the last decade since the 2008 financial crisis, many workers have found their outgoings have continued to increase in line with inflation. However, wages have been stagnant, falling behind the rising cost of expenses.

The government now plans to turn Britain into a nation of savers by 2030 and cut the number of households relying on credit cards for day-to-day expenses. It also aims to extend financial education in schools, reaching 6.8 million children, compared to the current 4.8 million. Whilst the target is a positive step for improving financial wellbeing, there’s little information available on how this will be achieved.

What is financial wellbeing?

Wellbeing is something of a trend at the moment. More people than ever are looking at ways they can improve their overall wellbeing, defined as the ‘state of being comfortable, healthy or happy’.

Whilst your mental and physical health is important, you shouldn’t neglect your financial health. After all, financial worries can cause stress, whilst financial independence can give you an opportunity to focus on what makes you happy. Financial wellbeing is about having a sense of security and the freedom to make choices that allow you to enjoy life.

So, how does your financial wellbeing score?

1. Do you have an emergency fund?

First, how would you cope with a financial shock? Even the best-laid plans can run off course for a variety of reasons. As a result, having an emergency fund you can fall back on is essential for financial wellbeing.

This gives you some financial protection should you face an unexpected bill or if you’re unable to work for a period of time. Ideally, you should have between three and six months of outgoings in a readily accessible account when you need it. An emergency fund is the foundation of financial wellbeing and can give you confidence.

2. Are you comfortable with your income and outgoings?

Budgeting is one of the basics of planning your finances. If you’re not comfortable with how your books are balancing, it’ll affect your financial wellbeing. Managing outgoings in line with your income is key for the other factors on this list too, ensuring you have some spare money to put to one side to meet your other goals, both short and long term.

If you’re worried about your day-to-day expenses, it’s worth spending some time looking at where your money is going. You may find that there are areas where you can cut back or that you’re actually in a better position than you thought.

3. Can you manage your current debt level?

At points in your life, debt is likely. It’s not all ‘bad’ though. As the Office for National Statistics highlight, over 90% of the debt in the UK is related to property. For many of us, a mortgage is essential for getting on the property ladder. On top of this, there may be times that you need to take out a loan or access other forms of credit.

Credit can be incredibly useful and at times the best option for you. The key here is to understand your commitments and ensure you can meet them. Effectively managing debt is core to maintaining positive financial wellbeing.

4. Are you saving for the long term?

Whilst the government scheme focuses on building up a savings pot for the short- and medium-term, you should be looking further ahead too. Are you saving enough for retirement, for example?

Retirement might be something you’ve thought little about if you’re still in work. But it’s a milestone that you should be preparing for throughout your working life. Knowing that you’ve been diligently putting money away for your life after work can improve your financial wellbeing when you look at the bigger picture.

If you’re already retired, it’s important to understand how your income may change over the coming years and what you can do to maintain your lifestyle.

5. Do you feel confident in your financial decisions?

Finally, you should feel confident in the financial steps you’re taking and what this means for your future.

When you undertake wellbeing exercises, it’s to enhance your happiness and fulfilment both now and in the future. It’s the same with financial wellbeing. Getting to grips with your money and ensuring your accounts are in good health can boost your prospects and how comfortable you feel.

If you’re worried about money, it can impact on many other areas of your life. For your overall wellbeing, it’s essential you feel confident. This is an area of financial planning we can help with. Working with an expert can help you proceed with financial decisions with confidence, as well as gaining an understanding of how your wealth will change over time.

How many of the above did you answer ‘yes’ to? If you have any gaps in your financial wellbeing or questions about your financial plans, please get in touch.