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How to boost your financial happiness

A financial wellbeing index shows there are practical steps you can take to increase your financial happiness.


by Michelle McGagh on Mar 11, 2016 at 09:09

How to boost your financial happiness

Putting a financial plan in place, buying a home and saving as much as you can consistently are the key to financial happiness.

A new Financial Wellness index created by investment company Momentum and the University of Bristol Personal Finance Research Centre plots how satisfied people in the UK are with their financial situation.

Financial wellness isn’t just about having enough money in the bank to pay the bills, it is defined as ‘a continuous process of financial planning, management and behaviour adjustment with the aim of affording your expenses and reaching your goals over your lifetime’.

In other words, financial wellness is about making financial plans and making sure they’re on track.

Within this broad definition, there are some specific things that you can do to ensure you are happy with your finances and the direction of your future finances.

Ferdi Van Heerden, chief executive of Momentum UK, said the index shows those who take practical and consistent steps to get their finances in order rate higher on the wellness scale.

‘Those who…start with more of a plan will be more financially well,’ he said.

By ‘plan’, Van Heerden means setting both long and short-term financial goals but in order to do this he said individuals need to ensure they have a grip on their ‘month-to-month cashflow management’.

This enables people to see what money they have to play with each month, and crucially how much they have to put aside each month. However, he said that those goals need to be achievable and individuals should not expect their saving to pay off right away.

‘You need to make a financial planning, for the short and long term, and that needs good management,’ he said, adding that people should ensure they have the financial means to achieve ‘high aspirations’.

‘[Learn] to live within your means and set goals, you need to bide your time, especially when you are younger and you will only see the benefit [of your diligent saving] 10 to 15 years down the line.’

Although Van Heerden wants to take financial wellness away from product purchasing and move toward a financial wellbeing ‘philosophy’, he said there is a financial product that pushes up a financial wellbeing score: a mortgage.

Owning a home improves your financial wellbeing score, and there is a clear divide between younger and older generations when it comes to this aspect of financial wellbeing.

‘People who are older and are closer to retirement who have been able to acquire a home will consider themselves to be more financially well,’ said Van Heerden.

‘Young people consistently find themselves less financially well.’

He said it does not matter if a home is owned out-right or with a mortgage, ‘those who own homes…have a higher financial wellness score’.

As a nation, the UK doesn’t fare too badly on the financial wellness index, with an average score of 67 out of 100. The index is made up of 10 categories each with a potential score of 10.  

Brits apparently do well when it comes to ‘steering clear of financial difficulty and debt’, ‘avoiding deprivation and hardship’ and ‘financial confidence and satisfaction’, scoring 9 and 7.5 and 7 respectively. However, there is a problem when it comes to ‘savings, assets and security’, which register the lowest score of 3.9.

Van Heerden said this shows a disconnect between the financial stability Brits believe they have and the reality.

Worryingly, he said the that half of UK adults – 26 million people – do not have any savings or investments and struggle to put money away for a rainy day. Two out of five people do not have any long-term assets like pensions or property.

Van Heerden said talking about finance is still ‘taboo’ and a head in the sand mentality could lead to a ‘savings struggle’ that could play out in later years.

He said he hoped the advent of auto-enrolment would go some way to tackling the savings crisis in the UK and that more people were ‘taking a step in the right direction’ but that people need to take control of their financial planning.

2 comments so far. Why not have your say?

The Old Man

Mar 13, 2016 at 15:28

Very sound advice, but I would add that personal wealth building needs to start as early in life as possible and be maintained with real determination. Over the last 50 years shares and property have been the prime holdings to build and using a mortgage to gear the process is vital. Lets hope the next 50 years prove to be the same for the young of today.

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John Roycroft

Mar 14, 2016 at 06:26

He said it does not matter if a home is owned out-right or with a mortgage, ‘those who own homes…have a higher financial wellness score’.

Even if they are in negative equity?

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