What's Financial Wellbeing and Why It's Important

Financial wellbeing, also known as financial literacy, wellness, confidence, or resilience, is essentially about having a positive relationship with money. It’s important to understand that financial wellbeing is NOT how much money you earn or how much you have in the bank. 

The Money and Pensions Service defines financial wellbeing as feeling secure and in control of your finances, both now and in the future. It means that you can pay your bills today, can deal with unexpected expenses, and are on track for a healthy financial future. 

According to the UK government's financial wellbeing guidance, individuals with good financial well-being are less stressed about money, which has a positive impact on their mental and physical health as well as their relationships. Financial wellbeing significantly impacts our mental health, relationships, and overall satisfaction with life. Stress about money can lead to anxiety and depression, strain relationships, and hinder personal growth. On the other hand, if you're in a good place financially, you can make choices that bring you joy and fulfilment. 

Many believe that financial wellbeing is only about being wealthy. However, it's more about how you manage your finances, regardless of your income level. It's possible to earn a high salary but still live paycheck to paycheck, just as it's possible to earn a modest income but have excellent financial wellbeing.

You can have ALL the money, but if you don’t have financial wellness, no amount of money will ever be enough. And if you have established financial wellness, it’s yours forever, regardless of your bank balance, your employment status or your debts. That’s because financial wellness, as we define it, is not about how much money you have. Instead, it’s about understanding your values, your goals and your priorities.

The Main Parts of Financial Wellbeing

The four main parts of financial wellbeing are safety, control, choices, and planning ahead.

• Being safe means having enough money to cover expenses and being prepared for unexpected situations.

• Being in control involves knowing where your money is going and making informed decisions.

• Having choices means being able to enjoy life without guilt or financial stress.

• Planning ahead means saving for future goals like retirement or education. 

Four simple steps to improving your Financial Wellbeing

1. Start with tracking your income and expenses to understand where your money is going. Use this insight to cut unnecessary expenses and prioritize savings and debt repayment. 

2. Aim to have an emergency fund for at least three to six months' worth of living expenses to cover unexpected costs without going into debt.

3. Set financial goals that are meaningful to you and create a plan to achieve them. These could be anything from short-term travel goals, such as travelling in South America for 2 months next year, to saving for retirement in 10 years. 

4. Educate yourself and seek professional advice if needed. The more you know about personal finance, the better equipped you'll be to make informed decisions. Consider seeking advice from financial professionals who can provide personalized guidance based on your unique situation. 

Financial Wellbeing for businesses

For individuals, financial wellbeing starts with tracking their incomings and outgoings, saving for emergencies, planning for the future, and learning about money management. For businesses, achieving financial wellbeing involves several key factors such as:

 1. Understanding Cash Flow: It is essential to know how money moves in and out of your business. This knowledge can help you make informed decisions and keep your business stable. 

2. Managing Debt Wisely: Borrowing money can be necessary for businesses, but it's important to do it smartly. Good debt can help your business grow, but too much can be risky. 

3. Investing in Growth: Planning for the future means investing in things that will help your business grow, such as new technology or marketing. 

4. Building Reserves: Just like individuals should save for a rainy day, businesses need a safety net too. Building reserves means you can handle tough times without panicking.

At Hygge Finance, we are dedicated to helping you enhance your financial wellbeing. We understand that everyone's financial journey is unique, and we are here to provide you with the tools and guidance you need to succeed. Let’s connect and craft a personalized plan that reflects your unique financial journey.