7 steps to financial wellness
Financial wellness is not just an aim in itself but without it there is likely to be a knock-on effect on mental and potentially physical wellness too, so including it is vital to ensure overall wellbeing.
There are many ways to define financial wellness but I feel the following definition encompasses the most important points and gives a clear scope, perspective and direction:
Financial wellbeing occurs when:
- You have control over day-to-day/ month-to-month finances.
- You can absorb financial shock.
- You are on track to achieve your own financial goals.
- You have the financial freedom to make the choices you want to enjoy life.
From this definition, we can see that the scope of financial wellness extends beyond just subsistence; it includes financial resilience and it ties financial wellbeing with being able to live and enjoy the lifestyle you chose.
For many, the first thought about financial wellness is to consider those struggling to manage their money day to day, those with debt problems and those starting out in their career. However, a financial wellbeing strategy is not just about debt and is definitely not just for the young.
The other important insight this definition provides is timescale. Financial wellness is not just about immediacy, it also has to work for the short, medium and long term.
Seven key steps:
The workplace is a great channel for delivering communication, education and guidance and employment benefits are the single largest source for many to finance their lifestyle and future financial security. So an inclusive financial wellness programme with targeted support, further guidance and access to advice will deliver improved financial wellbeing.
Financial wellness can be achieved in seven steps:
1) Planning & budgeting
The first step to financial wellness is to take control. A budget will show the size of the issue or challenge and using a budget together with a clearly set out financial plan will help an individual to take control and overcome the issue or reach their goal.
2) Managing debt
The second step is to review debt, identifying which debts are priority and ensuring the employee's budget can meet these. Non priority debts then need to be arranged into the most effective and cheapest form for repayment and their budget needs to factor in and reflect both.
3) Savings
Longer term financial stability can only come from building up savings; savings that can be used to pay for the
unexpected, to help employees to enjoy life and reach their longer term goals. The workplace can provide access to three savings options which are likely to be at rates or on terms that individuals alone couldn’t easily find on the open market: share benefits; workplace pension; and corporate ISA/LISA.
4) Investments
When employees have some money they will need to find it a ‘home’ so it can grow and at least keep pace with inflation. Finding the right home for their money given the thousands of investments in the marketplace is difficult and so understanding the different types of investment, risk and return and how to select what’s right for each of them individually is essential.
5) Planning for retirement
We will all retire at some point and so we will need to rely on our pensions and other savings and investments to fund our lifestyle in retirement. With the growing importance of defined contribution pensions, there are now many more decisions to be taken whilst saving into a pension, as well as when taking a pension to ensure all employees make the most of this valuable benefit and secure the best possible lifestyle they can afford in retirement.
6) Protection
Personal protection delivers peace of mind in the event of difficult times. For those with young families or other financial dependants considering life assurance, loss of income or mortgage protection can provide that cover. And under the umbrella of protection ensuring employees arrange a lasting power of attorney and make a will can provide protection in the event of loss of capacity or death.
7) Tax efficiency
No-one likes to pay more tax than they need to. Some product providers bank on this sentiment when selling some tax efficient products such as ISAs. There are a number of personal tax allowances available each year to UK residents and a further number of tax reliefs that may also be suitable. In its simplest form, tax planning should ensure individuals are aware of and use all allowances and reliefs available to them to reduce their liability to tax.
Together these seven steps can provide an inclusive financial wellness programme. To introduce this programme and to demonstrate its effectiveness, you will need to be able to measure wellness, initially and on an ongoing basis, you will need engaging communications and delivery and easy to access implementation solutions.
The most important aspect of a financial wellness programme is that it must cause positive change - awareness and information on its own won’t do this and even inspiring and engaging information won’t work effectively if there is no mechanism to implement change.
Meet us at the REBA Wellness Conference to see how your company can start taking these steps to introduce financial wellness to your organisation.
This article was provided by Close Brothers.
In partnership with Close Brothers
Close Brothers has been providing financial education services to employees of some of the UK's best known organisations for over 50 years.
