This week, we are joined by leading Financial Planner Jodie Phelps, who is looking at financial wellbeing: what it means and how can we achieve it especially if we are going through divorce or separation? Understanding your relationship with money is an important step when trying to achieve financial wellbeing and Jodie explores how this relationship contributes to our overall wellbeing.
What is financial wellbeing?
Financial wellbeing refers to the overall state of your financial health and happiness. It goes beyond how much money you have and instead is about your relationship with money, your financial habits and how content you feel with your financial set up.
Why your financial wellbeing is so important
- Physical and mental wellbeing are spoken about a lot but what people tend to forget is to also focus on their financial wellbeing. Your financial wellbeing has a massive impact on your overall mental wellbeing.
- Struggling financially can cause anxiety, depression, and sleep problems.
- If we are struggling mentally this then can impact other areas of our lives- careers, friendships, relationships, hobbies.
- There is a huge gap when it comes to financial education. We are not taught in school how to manage our money and important things like: what is an ISA? how does a pension work? How to best grow your money?
- Money is also a taboo subject- We are made to believe it is ‘rude’ to talk about what we earn and people feel shame if they are having financially difficulty or lack financial knowledge
- The worst thing you can do when you are worried about money is to bury your head in the sand. Unfortunately, this is the easiest thing to do!
Divorce and financial wellbeing
I recommend that everyone reviews their finances at least annually and in addition to this if they go through any big change in their circumstances eg. a new job, moving house, family breakdown.
Anyone going through divorce experience huge changes to their financial situation. Reducing income from two incomes to one, potentially an increase in outgoings, maybe a need for a new home. There are so many factors. Therefore, it is probably the most important time to review your finances and make a financial plan for your new life post-divorce, to make sure you are making the best use of your money.
Understanding your relationship with money
The first step in improving your financial wellbeing is understanding your relationship with money.
- Think about your upbringing and how money was handled in your family. Your early experiences with money can influence your attitudes and behaviours as an adult.
- What is a phrase about money that you heard your parents say? (eg. money doesn’t grow on trees, buy cheap buy twice, money doesn’t give you happiness).
- What are the things that could have impacted your relationship with money?
- Pay attention to how you feel when dealing with money. Are you anxious, stressed, or relaxed? Your emotions can reveal a lot about your relationship with money. Analyze any financial mistakes or regrets you’ve made in the past. Understanding why you made those choices can help you avoid repeating them.
- Ask yourself ‘What does money mean to me?’ Is the way you manage your money in line with your beliefs and values or are you handling your money a certain way because of what you were taught in your early years? Your values and beliefs shape your financial decisions.
- Positive outlook- conscious thoughts feed your unconscious. Tell yourself ‘I can save’ not ‘I’m bad with money’ etc. Avoid comparing yourself to others- don’t measure your financial success that of others’. Everyone’s journey is unique.
My top 10 tips on managing your finances in turbulent times
- Understand why money is important to you – What is your goal? Where do you want to get to? What is your why? Have a really good think about this. If your 5-year plan is to buy a house, each time you go to buy that ‘new dress’ or splash out on a takeaway for the 3rd time in the week try to remember why you are trying to save- to buy that house, to go on that holiday, to retire early. Understanding your personal answer will help you make better decisions. Look back at your spending- are you spending money in a way that’s important to you? If not, what changes can you make to refocus your spending toward your goal? You may find that you are working too hard to spend money on things that aren’t important to you or your goals.
- Set yourself short and long term goals – Having goals provides direction, motivation and holds you accountable. Set aside some time to set yourself some financial goals. Review these each year. Make a plan on how you can achieve these goals. What’s worked well? What hasn’t? Have the goal posts moved?
- Create a budget – Get financially organised. Fill in a budget planner with your income and outgoings- you can then see what essential outgoings you have (recognise needs vs wants), what you are spending and what you can save. Transfer your ‘spending amount’ to a separate account.
- Pay off debts – Focus on managing high-interest debt. Pay off credit cards and loans with the highest interest rates first to reduce financial stress.
- Save – Not only help achieve goals but saving also provides a safety net for unexpected costs. Before you spend, put a little away in a separate account. You then have the remainder of your money for non-essential spending.
- Review your current household bills – Can money be saved on energy, TV subscriptions, home insurance. Make sure to review these annually as companies often increase prices each year.
- Review your current products – Mortgage rates, credit card rates, loans. Are you getting the best deal? If you can, consolidate your debts and your pensions.
- Be aware of bad spending habits – Are you guilty of retail therapy? If you’re feeling a bit down/bored do you find yourself on ASOS/amazon buying something? If the answer is yes, be mindful of this! Be aware of the habit and each time you find yourself doing it stop yourself and instead do something else that makes you happy. It can help to have a list of things that you enjoy and can do instead, for example doing exercise (inside or outside!), have a long bath, call a friend, etc.
- Ensure you are protected – You may have the best plan in place, budgeting and savings pot. However what if something goes wrong? Do you want that nice pot of money to be spent on paying your bills for 6 months because you are unable to work due to illness? Ensure you are protected so that the money you are working hard to save does go towards that new house, that holiday/ whatever your goal may be.
- Educate yourself – Are you taking advantage of the tax relief available to you through a pension? Are you utilising your ISA allowances? Educate yourself to be financially savvy so that you are making the most of your money.
- Invest in your earnings potential – If you can earn more then you have more freedom with your finances, you can save more, spend more or work less hours in the future. So invest time in improving yourself, do that training, learn that new skill, create that business you’ve been thinking about.
- Regularly review your finances – At least once a year, review your current position. Think about where you want to be and plan how you are going to get there. Check in to ensure you are on track with your goals- are you sticking to your budget/savings plan? If not, what’s getting in the way? Celebrate financial milestones! Recognise your achievements and treat yourself. This will help you stay motivated and keep on track. Much like anything, financial achievements should be celebrated.