Six tips to help improve your financial wellbeing

Improving financial wellbeing is essential for achieving long-term stability and peace of mind. Financial stress can significantly impact mental health, making it crucial to adopt strategies that aim to enhance financial health.

As it’s Mental Health Awareness week, here are six tips to help you improve your financial wellbeing based on findings from our Money and Mind Report.

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1. Create a budget and stick to it

Our Money and Mind Report found that 35% are most concerned about being able to afford food or basic household bills when it comes to their finances. This is a significant increase of 10% since our 2023 report. This rise is particularly concerning given the current economic environment, characterised by rising inflation and stagnant wages, which has put additional strain on household budgets and exacerbated financial anxieties.

This is why a budget is a fundamental tool for managing your finances. Start by tracking your income and expenses to understand where your money is going. Categorise your spending and identify areas where you can cut back. Setting realistic spending limits and adhering to them can help you save more and avoid unnecessary debt.

2. Build an emergency fund

An emergency fund acts as a financial safety net for unexpected expenses, such as car repairs or household emergencies. Aim to save at least three to six months' worth of living expenses. Start small if necessary, and gradually increase your savings over time. Having an emergency fund can reduce financial stress and provide peace of mind.

It’s reassuring that the importance of having an emergency fund is recognised. Our Money and Mind Report sheds light on specific financial goals that individuals are striving to achieve, and building an emergency savings fund is a critical goal and sits at the top of the list for 39% of respondents.

3. Pay off high-interest debt

A close second on the financial goals priority list is to become debt free which was the case for 35% of respondents. This reflects a strong desire to eliminate financial burdens and gain greater control over their finances.

This is because it’s widely understood that high-interest debt, such as credit card debt, can quickly become a financial burden. Focus on paying off these debts as soon as possible. Consider using the debt snowball method (paying off the smallest debts first) or the debt avalanche method (paying off the highest interest debts first). Reducing your debt can free up more money for savings and investments.

4. Invest in your future

Investing is a key component of long-term financial wellbeing. Contribute to a retirement pot, such as a workplace pension or a personal pension plan, and take advantage of employer matching programs if available. Diversify your investments to spread risk and consider seeking advice from a professional adviser to create a personalised financial plan.

Our report indicates that a significant portion of respondents are inclined towards making a financial plan. Specifically, 37% of respondents are somewhat likely and 18% are very likely to create a financial plan. This shows a positive trend towards proactive financial management. However, it is important to note that 23% of respondents remain neutral, neither likely nor unlikely to make a financial plan.

Despite the inclination towards financial planning, several barriers prevent individuals from taking this important step. The perception that financial planning is costly is a significant deterrent, with 31% of respondents citing this as a barrier.

5. Educate yourself about personal finance

As a reflection of the current economic climate and increased market volatility, we discovered that 41% think about their finances more frequently than in our 2023 Money and Mind Report.

Rather than worrying, take time to gain awareness. Knowledge is power when it comes to managing your finances. Take the time to educate yourself about personal finance topics, such as budgeting, investing, and retirement planning. The more you know, the better equipped you'll be to make informed financial decisions.

6. Engage with a financial adviser

While the above steps can be done on your own, engaging with a financial adviser could help you make the most of your finances. A qualified adviser can create a plan tailored to your goals and priorities, offer advice on financial products and investments, and answer any questions you have.

Our report found that 55% are likely to make a financial plan, a 6% increase from 2023, but only 8% currently have one in place. This may be because some people believe that financial advice is only for the wealthy or that it is too expensive, which may further discourage people from seeking professional help.

It’s important to remember that seeking professional advice could save you money in the long run. By helping you make informed decisions and potentially avoid costly mistakes, a financial adviser can provide significant value. At Schroders Personal Wealth we aim to empower our clients with the knowledge and tools they need to take control of their financial future.