Financial Wellbeing: How to Maintain It

Revolut Contributor

 · 05/04/2020  · 05/04/2020

What is financial wellbeing?

Essentially, it’s the feeling of security you experience by having enough money to meet your daily needs and expenses. At its core, it’s about having control over your finances and the freedom to make decisions without worrying about money.

Or, as Aristotle put it 👇

“Money is a guarantee that we may have what we want in the future. Though we need nothing at the moment it insures the possibility of satisfying a new desire when it arises.”

You’ve got to admit, he had a way with words... So, why does financial wellbeing matter, and how do you go about maintaining it? Let’s find out.

Why is Financial Wellbeing Important?

Research by Money and Mental Health shows that around one-quarter of the UK workforce experience financial insecurity. Reasons include debt, insecure working hours, or the inability to meet day-to-day living costs.

Financial wellbeing is important because, as highlighted by this research, many suffering from financial difficulties also report signs of poor mental health, such as sleepless nights, decreased concentration levels, or feelings of anxiety.

This is further backed by FT’s Salary Finance survey from 2019, which found that “worrying about money was the biggest source of stress for British workers.”

As a result of this worry, workers were spending at least three hours a week dealing with money issues, while taking one sick day per year to handle financial problems.

How is financial health and wellbeing measured?

The Center for Financial Services Innovation (CFSI) has defined four components and eight indicators of financial health.

These are:

  • Spend
  • Save
  • Borrow
  • Plan

The idea is that these components reflect your daily financial activities. How you spend, save, borrow and plan today will either contribute to or detract from your ability to pursue opportunities or deal with the unexpected.

Meanwhile, the eight indicators determine whether or not you can be considered truly financially healthy. You can point to a clean bill of (monetary) health when you:

  1. Consistently spend less than you earn
  2. Pay your bills on time (and in full)
  3. Have enough living expenses saved (ideally, six-plus months)
  4. Have sufficient long-term savings or assets (enough to cover retirement)
  5. Have a sustainable debt load
  6. Have a strong credit score
  7. Have the appropriate insurance in place
  8. Demonstrate the ability to plan ahead for expenses

How Can I Maintain My Financial Wellbeing?

Achieving financial health isn’t too different from getting yourself physically fit. It requires time, discipline, and a plan of action.

Try these exercises to maintain and improve your financial wellbeing:

1. Draw up and stick to a budget

By knowing just how much you earn, how much you spend, and how you much you have leftover each month, you can confidently tick a few of the CFSI’s indicators.

And to do this effectively, you need a budget. A budget will highlight if you’re spending more than you’re making, and help you identify opportunities to cut down or eliminate needless costs.

You can create a simple budget with a pen and paper or a spreadsheet — but there’s an easier way. Revolut’s budget planner can help you set up a monthly budget in seconds. Categorise bills, track progress in real-time, and make sure you stick to (and meet) your spending and saving targets.

Read more: How to budget with the Revolut app

2. Set up Direct Debits for your bills

When you pay via Direct Debit, you have peace of mind that your bills are being covered in full each month. And because payments are taken automatically, you don’t need to worry about missing any and ending up in arrears or harming your credit score.

For bonus points, create a dedicated account for bills and (if possible) have them all paid at the start of each month (or just after when you’re usually paid). That way you’ll know exactly how much you have left for the month ahead.

Read more: What is a Direct Debit?

3. Take steps to improve your credit score

From accessing financial products like credit cards and mortgages to being accepted for mobile phone contracts, to renting a property, having a strong credit score opens up a lot of opportunities.

However, building credit takes time. It’s not something you can achieve overnight. Taking the necessary steps now will help you slowly but surely raise your score to the point where you appear stable and reliable to banks and other organisations which offer credit.  

Read more: How to improve your credit score in 3 months

4. Start saving and paying down debt regularly

Once you’re in the habit of budgeting and cost-cutting, the next step is to start putting money aside for savings and debt repayment.

Start by targeting the debt with the highest interest rate, while making the minimum payment on the rest. Once you’ve cleared one, move onto the next.

Meanwhile, save money into an emergency fund to give you confidence that you can deal with an unexpected expense, should one crop up in the future. Pro Tip: Use Revolut Vaults to make a one-off or recurring transfer to help you build your safety net.

Read more: How to manage your money - 5 essential steps

5. Avoid comparing your income with others

There’s a saying, “comparison is the thief of joy” — and it’s perhaps never been more apt than when we talk about money.

Comparing yourself to friends, family, colleagues or peers can negatively impact your mental health, especially when viewed through the prism of social media.

It’s always useful to remember that people share what they want you to see and that they all have different priorities. Worrying about how you stack up in the income stakes will only make you feel worse. In fact, it could force you to lose sight of the good things you have going for you.

And that’s financial wellbeing in a nutshell! We hope this article has helped you understand the concept, why it’s important, and how to maintain it.

6. Take control of your finances

Almost 3 in 4 of us experience financial stress at least once a year – and for more than half that figure, falling short of an expense between pay periods in a cause. If a bill can’t be repaid when it needs to, what are the repercussions going to be?

Similarly, what if you know you have a period where your outgoings are going to be greater than usual? Many of us will naturally dip into our rainy day funds, or fall back on credit to see us through. But what if you could set a debit cycle that matched your expenses with your income without having to do either of those things?

Fortunately, there are solutions to problems like these, and On-Demand Pay by Revolut is one of them. Your wages are tracked across the month so you can see exactly how much you’ve earned in real-time and, for a small fee, you can withdraw up to 50% of it whenever you need to. It means that unexpected expense can be handled, and you can already start to map out the next few weeks of your budget.

To start using On-Demand Pay, you’ll need to let your employer know so they can set it up via Revolut Business. It’s super simple, and free to integrate.

Want to learn more about saving and budgeting? Check out these articles: