There are two parts to good ‘mental wealth’: financial resilience, and financial wellbeing. When we talk about personal resilience, it’s about whether we have enough shock in our systems to prepare us for unexpected ‘bumps in the road’, and the same is true for our finances.
Financial resilience is being able to deal with setbacks: ‘Do I have enough emergency savings to pay for unexpected costs without spiralling into debt or it seriously impacting my day-to-day life and mental health?’. For example, if the washing machine breaks ‘am I ready to deal with that payment?’
Financial wellbeing is about making decisions and taking action now, to create wealth for yourself later over a longer time period. Wealth is grown in decades, not days, so preparing for the future has to happen sooner instead of being put off.
1. Kick unhealthy habits
Before embarking on a new health regime, it’s important to tackle the bad first, like smoking and eating junk food.
With finances it is the same, and the most urgent issue is getting out of high interest debt if you’re in it, such as store cards or credit cards. Not tackling these debts first defeats the point of any good budgeting and saving for the future.
If you are able to pay more than the bare minimum monthly payments, make sure you know what interest you are paying and see if you can lower it by taking out a loan that charges you less interest.
It might feel scary, but it can often have better rates which allows you to put the money saved towards paying off your balance, resulting in a quicker end in sight.
2. Don’t be afraid to talk about money
When people ask you ‘how are you?’ the chances are you don’t mind sharing that you’ve had the flu, or have recovered from a recent injury. But you’re probably less likely to discuss your mental health, or money worries. Like with mental health challenges, bottling up financial concerns feeds anxiety.
Everyone has had a money issue at some point in their life, so there will be people in your network with advice and learnings that could be useful to you.
Surprising as it might seem, your HR department or employer is somewhere you can turn to for example. More and more companies offer financial wellbeing support, because they know anxiety about money impacts mental health, and therefore how people perform at work. If they don’t have one, ask them why not. It could prompt them to initiate one.
You can even request that your employer work with a company like Neyber, which works with employers to offers fixed-rate loans to its employees, for anything from consolidating debt to bigger ticket items like buying a house, which are paid back by a salary deduction.
If they don’t have one, ask them why not. It could prompt them to initiate one. If you’re worried, anxious or confused about your personal finances, saying it out loud and hearing other people’s stories can help be the first step towards making a change.
3. Ask for help and advice
Or is there someone in your personal network you can turn to for advice? A friend’s parent if you can’t turn to yours, or someone you are friendly with and talk to regularly, but on a professional basis, such as a business owner in your local area. It always surprises people how often others want to help, but they’ll probably be flattered and if they don’t have relevant advice, they may know someone who does.
If you’re worried, anxious or confused about your personal finances, saying it out loud and hearing other people’s stories can help be the first step towards making a change. There are even Facebook groups dedicated to topics like debt where you can turn more anonymously to hear other people’s experiences and ask what’s worked for them.
Since the pandemic, numerous consumer-friendly personal finance blogs, apps, Instagram accounts and podcasts have been launched, dedicated to talking all things money – including debt – meaning you can look outside of your personal network for advice or to hear other people’s experiences and what worked for them. @GetWokeNotBroke, @MoneyMedic and @AllOurBestIntentions are great Instagram accounts and the ‘This Is Money’, ‘Money Clinic’, and ‘MoneyBox’ podcasts all help with this.
4. Use the tools available to your advantage
Once you have mastered the basics and built your financial reserves and resilience, and you know you can deal with life’s curveballs, it’s time to invest for your future.
Like exercising and eating well, the payoff isn’t always immediate, but the choices you make now will set you up for financial health in your later years.
There are some key ‘must dos’ that everyone should know. For example, if you are saving regularly you can save up to £20,000 tax free every year in an ISA. Make sure you are topping up this savings account to its limit if you get the chance, rather than saving elsewhere where you could be paying tax on any interest earned.
5. Raise your awareness and know what help is out there
Today, our financial future is our responsibility. The current state pension is just under £180 a week, so if you want a retirement that is a bit more comfortable than that, it now rests on you to plan and create it.
One of the reasons personal finance can feel daunting is due to just how much information is out there. There’s so much, so how do you know what the right thing to do is? It can be stressful worrying about making the right decision, but from my experience making no decision at all is always worse.
Not everyone wants to research online, or read books on it. Try and integrate financial learning into what you do like.
6. Set long-term financial goals
No matter where you are on your both mental health and mental wealth journeys, setting yourself specific financial goals and building a long-term financial plan that you’re regularly checking-in with, will help you to live the life you want and enable you to manage both your mind and your money.
If you’re not sure where to start then I’d suggest thinking ahead to your retirement. ‘How much money do I need to retire?’ is perhaps the most important question you should be asking yourself about your finances, yet 1 in 3 Brits don’t know how big a pension pot they’ll need, and 1 in 5 don’t even know how much they have.
I’m asked this question a lot and I always advise getting clear on how and when you want to retire so you can work backwards to calculate how much to save.
For example, if you knew you were going to live to 100 years old, would you save more money? Most people underestimate how long they will live by around 20%. That’s huge! If you live for another 30 years, that’s six years without any cash. In fact, the average man runs out of money 10 years before he dies, and woman 12.5 years. If you’re a couple, the chances of one of you living to 90 are about 50%, so if you’re still married when you retire there’s a high chance, you’ll need to plan for that.
A good rule of thumb is to have a pot worth ten times your annual salary by the time you retire, which sounds like a lot, but is achievable by starting early and breaking it down into simple steps – like setting a savings goal for every decade you’re in employment, Like this:
In your 20s, you should aim to have saved the equivalent of your annual income by age 30, which is achievable by going through your bank statements and direct debits and cutting ‘non-essentials’. Do you truly need everything, such as Netflix/Spotify subscriptions and memberships? One thing Covid-19 has shown up for many people, is where they can make cutbacks in their life – for example eating out less, or home workouts vs gym memberships
By the end of your 30s, you should aim to have a pot that’s equal to three times your annual salary, which is achievable by checking in with, and making the most of, your workplace pension. When you start at a new company or when your employer sets up a new pension scheme, you will usually receive information to agree the percentage of your salary that will be paid into your workplace pension. Your employer will then deduct your pension contributions directly from your wages before paying you.
It’s important to check your pension to make sure you’re saving enough for retirement and you’re happy with how your pension is being invested. It’s also worth checking whether your employer will match £1 for £1 any personal contributions you make, a benefit you can consider as a pay rise to your future self.
In your 40s, your savings goal should be equal to six times your annual salary by the time you turn 50. One way to help you hit your long-term goal of a pension pot ten times your annual salary is by swapping what you’d spend on a latte every morning and saving and investing that money in your pension.
Contributing £100/month to your pension (roughly your daily coffee habit), including NI equates to an annual personal pension contribution of £1,320 – £13,200 over a decade – or £20,000 if invested with the long-term in mind. If you are a high-rate taxpayer the benefit is even greater.
Keep up this good habit for the rest of your career (20-25 years) and, through the magic of compound interest and tax relief, that £20,000 could grow to over £100,000.
In your 50s, you should aim to have saved the equivalent of eight times your annual salary by the time you turn 60. With retirement nearing, now is the time to make more specific plans. How much will you need to retire? Have you got enough money to live off? Do you need to save more and work a bit longer to get there? Factor-in how much State Pension you could get, and when you could get it, by using the government’s online service.
7. Make your money a force for good
Did you know that acting out of a higher purpose can help reduce stress and improve emotional wellbeing? You may not have considered this, but one way that you can benefit your future self, the planet and the rest of the people who live on it is by using your money as a force for good – and you can do this by engaging in where your pension is invested.
Money makes the world go round, and when you invest in your pension, you are investing alongside side millions of other people. This amounts to billions of pounds. Your pension is being invested in companies around the world and how these businesses behave has a huge impact on the wellbeing of our planet.
Did you know that investing your pension in a sustainable and responsible way is 27 times more impactful for the environment than flying less, eating less red meat or cycling to work? So, for a comfortable retirement in a world worth living in, go and ask your HR department how your pension provider invests your money, and if they’re not already, ask that they invest it responsibly.
Rob Gardner is director of investment at SJP Wealth Management.
Interested in working with a careers coach? Connect with a professional using lifecoach-directory.org.uk