How to enhance your Financial Wellbeing

In recent times, awareness of the impact that physical and mental wellbeing can have on an individual’s quality of life has increased. Yet, although financial wellbeing is inextricably linked with mental and physical wellbeing, how many of us have recently asked ourselves, “How financially well am I?”

Financial wellbeing is not just a question of bank balances. Rather, it is about enhancing our ability to manage our finances so that we can build an enjoyable lifestyle for ourselves while ensuring we have sufficient resilience to withstand future financial shocks and achieve long-term security for ourselves and our families.

For many, the Covid-19 pandemic has created a sense of loss of control, resulting in distress and a feeling of uncertainty. While it is true that many aspects of the current crisis are beyond our control, we can find ways to better understand our spending habits and use this knowledge to reflect on our life goals and drive change. This may seem like a daunting task but it can be broken down into three steps.

STEP 1: Understand

When embarking on your journey to financial wellness, the first step is to work out the starting point. Many of us do not have a solid understanding of our monthly outgoings. So, the first step is to analyse how much of your monthly expenditure is essential (mortgage repayments, tax, insurance, childcare costs), how much is building for the future (saving for our children’s third level education, pension contributions, healthcare contributions), and how much is discretionary (gym membership, online subscriptions, dining out). You then need to examine the income and benefits at your disposal (earned income, employment income, state supports, employer provided benefits, etc) and ensure that these are fully utilised. How has the Covid-19 pandemic affected your income and expenditure? How long is the impact likely to last? Reviewing expenditure by category over a number of months will give you a good picture of your available cash and financial habits.

STEP 2: Reflect

This is where you ask whether your current financial habits are in line with your goals and aspirations. If not, what steps can you take to ensure that your financial affairs do not act as a barrier to your future happiness? Set short, medium and long-term goals and work out the finance you will need to achieve them. Even if your immediate goal is financial survival, this may change over the medium to longer term. For your discretionary spend, prioritise the expenses that add most to your life in terms of generating happiness. If you have discretionary expenses that don’t rate highly, consider redirecting these resources to help cover essential spend or to your savings or investments. It may be motivating to reflect on the impact this could have over a period of time e.g. over a year. When making changes ensure that they are realistic and achievable as cutting all discretionary spend is not sustainable in the medium to longer term.

STEP 3: Implement change

Evolve.  If your aim is to decrease discretionary spend, try devising a budget and setting spending limits. If your aim is to re-direct that discretionary spend, consider savings and investment opportunities. If your aim is to reduce debt, explore different repayment options. If your aim is to future proof your income, look at pension opportunities, life insurance and succession planning. Factors such as accessibility of funds, interest rates, repayment options and your risk appetite all need to be considered. Take time to do your research and seek advice if necessary.