How do you rate your financial security?
When you think about your financial situation, what defines it as ‘healthy’? For 77% of Brits, financial success is having the financial freedom to do what they want without worrying, according to research from Schroders Personal Wealth. Yet, despite this, 48% of adults admit they feel stressed or overwhelmed about their financial situation at times. Taking the time to understand your financial situation and the steps you can take to improve could boost your financial health and overall wellbeing.
The research found that debt is likely to be the biggest cause of stress, with respondents saying becoming debt-free was the top way to achieve financial peace of mind. This was followed by being able to save regularly and taking steps to protect their family in case something should happen to them.
The research broke financial health into four areas. It found that while Brits are good at managing day-to-day finances, looking beyond this is something many are struggling with. In fact, overall, participants, on average, scored just 52 out of 100. Luckily, there are steps you can take in each area to improve your financial health.
1. Getting the basics right: 20/25
Getting the financial basics right is important for building a solid foundation. While the results suggest this is an area many are confident with, there’s still room for improvement.
The basics start with budgeting and how you manage your money. Essentially, you need to ensure you have more money coming in than you do going out. But it also includes how you manage disposable income, do you spend or save it, for example? We’re not saying you shouldn’t indulge in treats or increase your spending, but you should balance spending now with your future.
Even if you’re comfortable with your finances, budgeting is a useful exercise for reviewing your spending and ensuring you’re on track for long-term goals.
2. Manage borrowing: 24/25
While being debt-free was seen as the top way to improve financial health, there are times when taking on debt is unavoidable. Most of us would not be able to purchase a home without using a mortgage, for example. The good news is that most Brits are comfortable managing their borrowing.
The key thing to remember with borrowing is to ensure you can keep up with debt repayments. Missing payments could harm your credit report and access to borrowing in the future, as well as meaning you face additional interest and charges.
To get the most out of your borrowing, regularly review agreements and the amount of interest you’re paying. Switching to new lenders can help you access lower interest rates and allow you to pay off debt quicker. This includes searching for a new mortgage deal when one ends or transferring credit card balances.
3. Protect against the unexpected: 3/25
No one wants to think about something going wrong and it can mean we bury our heads in the sand. The survey suggests that’s the case when planning for the unexpected. However, by taking steps now you can improve your financial health and confidence. Two important steps to take are:
- Creating an emergency fund that can be used if your income temporarily stops, for instance, if you were too ill to work. This should be a cash account that’s readily accessible. As a general rule, you should have three to six months of expenses in your emergency fund.
- Taking out protection products that suit your priorities, such as Income Protection, Critical Illness or Life Insurance. We often take out insurance policies for many things in our life but forget about ourselves. Protection policies fill this gap and will pay out under certain circumstances that can protect you and your loved ones. It’s important to understand what policies cover before taking them out and to review any existing policies, you may have.
4. Plan for the future: 5/25
With financial decisions and pressure now, it’s not surprising that many aren’t focused on the future. Yet, the steps you take now can mean you’re in a far better position in the long term. Whether that’s your retirement lifestyle, supporting children through university or leaving a legacy behind for loved ones.
Thinking about your life goals now can help you make long-term aspirations far more achievable. Retirement planning is a good example of this. The sooner you start saving into a pension or taking other steps to build a retirement fund, the longer investments have to grow and deliver returns.
Review your financial health with a financial planner
It can be difficult to understand how the decisions you make now will affect your plans and lifestyle in the long term. This is one of the areas that working with a financial planner can help you with.