Planning for the future is a daunting task – particularly when it comes to finances it would appear. And it’s not helping our financial wellbeing, according to a new study.
The Schroders Personal Wealth Money and Mind Report found that for everyday running of finances, individuals are on the case. But when it comes to planning ahead, we are seriously lacking…
The report, in conjunction with Warwick Business School, produced a scoring system for our financial health. For the day-to-day household finances the nation scored 20 out of a maximum of 25. It also declared people are on top of borrowing matters, being awarded 24 out of 25 for debt management.
The scores plummet, however, when it comes to financial planning. For protecting against the unexpected the nation scored just 3 out of 25 and for planning for the future it was only slightly higher at just 5 out of 25. This gave an overall score of just 52 out of 100.
This approach of addressing only short-term money matters is doing nothing for financial wellbeing with almost half (48%) admitting that their financial situation leaves them feeling stressed or overwhelmed. That’s perhaps not surprising after a challenging year for most.
Experts say that the recession, threat of job losses and huge uncertainty all serve as a reminder why it’s important to have a financial buffer and adequate savings – not to mention protection in place should tragedy strike. Here are five ways that can help improve finances and financial wellbeing:
1. Protect against the unexpected
Now is a good time to build a financial buffer if you are one of the lucky ones that has found their monthly spend has plummeted. The UK savings ratio, which measures how much people save as a proportion of their disposable income, hit a record high in the last three months, according to the Office for National Statistics.
According to a study by AA Financial Services, individuals are currently around £600 a month better off. Make sure this is put to good use by building up a decent cash buffer and investing the rest for the future in an ISA where returns are tax-free.
You should also make a will and consider life insurance to ensure that loved ones are looked after if you are no longer around.
2. Save for retirement
Saving for retirement is a core strategy for providing for your future. The key is putting aside as much as you can afford as early as you can. The Pensions and Lifetime Savings Association (PLSA), a retirement income of £10,000 a year will provide a minimum standard of retirement, £20,000 for a moderate standard and £33,000 for a comfortable retirement.
According to calculations by AJ Bell you need to have pension savings of around £255,000 to reach the moderate level and £555,000 to achieve ‘comfortable’.
If you can afford to boost your monthly payments into your pension, first check with your employer to see if they will match any extra contributions you make. You might also consider saving in a private pension, such as a self-invested personal pension (SIPP).
3. Speak to a professional
Financial advice can go a long way to provide peace of mind that you are addressing the needs of you and your family. It seems seeking help from a financial adviser is far too daunting for many – or perhaps deemed an avoidable expense – with just a quarter (24%) of people in the report saying they would speak to one. Yet over a third (37%) admitted that having a sense of control and foresight over finances could help boost their wellbeing.
Having a clear understanding of what your financial priorities are and a putting a plan in place to help achieve goals puts you in control. While advice will cost you money, it’s an important investment in your future to make sure you’ve got everything covered, and if not, find the best way to plug those gaps.
If you are having serious financial difficulties then it might be time for a different style of advice. Debt support is available from charities and organisations offering free advice and an opportunity to talk about any money problems. Citizens Advice have specialist case workers who can help with debt management, there’s also Step Change Debt Charity and National Debtline.
Being in a position of control will help boost your frame of mind that your problems are being addressed.
4. Prepare for the worst at work
UK unemployment is now at 4.5% — it’s highest level in three years. Do some research around your employment contract. Check your notice period and redundancy pay entitlement. You might also start thinking about how you might negotiate a better redundancy package, should that situation arise.
5. Don’t bury your head in the sand
Since feelings about money matters have an impact on your decisions and on your overall financial health, it’s important to keep a handle on finances. For some that means tightening belts on monthly outgoings and for others much bigger changes to spending. Whatever those changes are, it’s important not to ignore them.
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