The 7 Pillars of Financial Wellbeing - #1 Awareness
The 7 Pillars of Financial Wellbeing
Understanding where you are now, where you want to be and creating a plan to get there
If you were asked how much money is in your bank account right now, how accurate could you be? Within £100? Within £10?
If that was challenging, you are not alone. When I ask that question to a group, the majority has no idea.
Yet most of us know how much we earn and will soon notice if an expected sum on payday is different by even a small amount.
So what’s going on? It would follow that the gap in our understanding is in how much we spend.
I remember travelling one time and allocated myself a budget in the local currency in cash. Everything I spent came from my wallet and I could easily check how much was left. Setting aside money for a drink at the airport and a taxi to get there, I was pretty confident and certain how much I could spend throughout the week.
And it feels good to be certain.
Contrast that with how most people manage their money day to day. It arrives electronically and leaves electronically and if we only glance at a balance once or twice a month, we really have no idea how much is available.
Rather than certainty, we are in the realms of assumption and denial.
Know Your Numbers
A great starting point in financial planning and regaining control of your money is to know your numbers.
Make a list of your regular outgoings, housing costs, food, transport, subscriptions etc. Next add on other spending, which is less predictable such as nights out, or clothes maybe.
If you total the list, you now have a pretty good indication of how much you spend each month and where it goes.
If you enjoy being even more granular you can use tracking apps or a spreadsheet to dig deeper or automate the process.
To some this may seem like a bit of a pain, but the process can be liberating in several ways.
If you were thinking about changing jobs or starting a business, now you know how much you need to earn as a minimum.
By comparing with your current income, you can see how much of a surplus or deficit you have each month. If a deficit you can take action to reduce or re-evaluate your spending. A surplus can be directed towards saving, investment or paying off debt.
A good practice is to pay yourself first by taking some of your surplus at the start of every month, rather than waiting to see what’s left at the end.
A third benefit is becoming more conscious where you are spending your money. If petrol is costing you X hundred pounds a month, how much could you save by taking public transport? If home heating bills are spiralling, maybe it’s time to nudge down the thermostat? Small savings add up and its better for your wellbeing to be in control rather than in denial.
Setting Goals and Plans for The Future
One of the most popular categories for New Year’s resolutions is around money. Many people set well intentioned ones such as to get out of debt or increasing their income.
One of the keys to effective goal setting is to understand your why. Having a compelling reason for doing something will help you find the way to achieve it.
Some things are more under your control than others. For example, getting out of debt is achievable by identifying spare money and targeting debts in a systematic way. Stop spending money on credit cards and look to switch to lower rates of interest will also accelerate your success.
Doubling your income is more of a challenge especially if you earn a salary. Mostly because there are more factors beyond your control. However, if you ask powerful questions you can expect to receive powerful answers.
For instance, asking ‘why am I always broke’ is not a powerful question. But asking ‘what would need to happen for me to double my income’ could be.
That might lead to some ideas such as asking your boss what you would need to do to qualify for a promotion or raise. Taking additional training or qualifications. Working extra hours or starting a side project. Perhaps even switching careers all together.
A definition of financial wellbeing involves feeling comfortable and empowered around money both now and for the future. Therefore, a better understanding of where you are now and where you want to be is a great first step in improving yours.
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If you found this post useful you may enjoy the Fearless Finance Podcast.
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