Key points for financial health article

There are a lot of people who are dealing with financial woes, and financial anxiety is a real concern for many. According to a recent survey, nearly half of UK adults are currently anxious about their financial situation. With the rising costs of everything from cupboard staples to energy, it’s easy to see why.

A Money and Mental Health Org survey revealed that one in three people (32%) said worries about ‘being able to afford to pay my bills’ made them anxious in the last two weeks, 20% cited ‘debt’, and 15% mentioned job insecurity or unemployment as major sources of anxiety.

Another survey from Plum app has also found that common measures to counteract growing household costs included reducing holidays (31%), switching to cheaper brands in shops (27%), and cutting back on driving (24%). With the cost of living crisis and rising household expenses, it’s becoming increasingly difficult for people to maintain their financial health, especially when it comes to long-term planning.

A major cause of the cost of living crisis has been rising energy bills. This has prompted the government to freeze the energy price cap at £2,500 per year for the average household from October until April 2023. Despite this intervention, many are still struggling to cope with the overall financial strain. With financial pressures facing many households, people are having to navigate rising costs and find ways to make their money last longer.

Long Term Impacts of Financial Anxiety

A lot of the ways in which people are cutting back are short term solutions, with a small amount of money being saved here and there. But, some individuals have had to go to more extreme measures, including cutting back on their pension contributions. According to research, 12% of people are having to reduce their pension contributions to keep up with the rising cost of living. Though this does provide immediate financial relief, which a lot of people are looking for, it could have long term consequences. Reducing pension contributions can impact future financial security, potentially leading to greater financial challenges in retirement. 

It’s by no means a solution to the problem, which is why it’s so important to understand what goes into long term financial health. Spending a little bit less here and there isn’t going to cut it, nor is reducing pension contributions and having less money upon retirement. But, there are things that you can be doing to improve your financial health going forward. 

The Benefits of Long Term Financial Health

There are a lot of advantages that come with long term financial health, and it’s not something to be laughed at. With long term financial health comes peace of mind and financial security, knowing that you are able to weather whatever financial storm comes your way.

Financial Security - Long term financial health means having savings and a solid financial plan, which ensures that you're prepared for unexpected expenses or emergencies, without having to resort to high interest debt. Well managed finances and savings provide a sense of stability, reducing stress and uncertainty about the future.

Ability to Achieve Goals - It’s a lot easier to achieve your goals with long term financial health, as it allows for saving towards significant milestones, such as purchasing a home or having a baby. Plus, consistent saving and investment make a comfortable retirement without financial worries a lot easier to achieve.

Improved Quality of Life - You’re likely to find yourself a lot less stressed with long term financial health. Financial stability reduces stress and anxiety related to money, contributing to better mental health. Financial health gives you the freedom to make choices about your lifestyle, career, and personal goals without being constrained by financial limitations.

Better Credit - Long term financial health tends to mean that you have a higher credit score, making it easier to get approved for loans and credit at favourable rates. You’ll also benefit from lower interest rates. A good financial position can help you to qualify you for lower interest rates on loans and credit cards, which will save you money over time.

Generational Wealth - Long term financial health allows you to build and pass on wealth to future generations, leaving a financial legacy behind. This can help your family achieve their financial goals, such as providing for your children’s further education.

Peace of Mind - Knowing you have a plan for your financial future brings peace of mind, allowing you to enjoy life more fully. When you have long term financial health to fall back on, you don’t need to worry as much about what life will throw at you. Solid finances help you to handle economic downturns and market volatility, without having to worry too much about significant negative impacts.

Better Relationships - Financial stress is a common cause of tension in relationships, especially if you have limited means and you can’t agree on how they should be spent, saved or invested. Long term financial health can lead to more harmonious and stable family dynamics.

How to Achieve Long Term Financial Health

A lot of people dream of having long term financial health, but it’s not something that will simply fall into your lap, nor is it something that happens overnight. Long term financial health involves more than saving money or having a good income, it’s more than investing here and there, hoping for the best. To achieve long term financial health, you need to approach things holistically. This means finding a balance between spending, saving, investing and planning for the future. There are a few ways to approach long term financial health, some of which we have listed below.

Create a Detailed Budget - The first thing that you need to do when trying to achieve long term financial health is to create a detailed budget. A structured budget will help you to keep track of your income and outgoings, ensuring that you always leave within your means. It should list all of your sources of income, and then categories them into those that are fixed and those that can vary. For example, mortgage repayments and energy bills are fixed, whereas entertainment and groceries are variable.

Live Below Your Means - Everyone knows how important it is to live within your means, but the key to long term financial health is living below your means. This means being mindful of your spending and prioritising your financial goals. Determine what your needs and wants are, and make conscious decisions about how much you are spending and what you’re spending it on. By spending less than you earn, you can save and invest more.

Save for the Future - There’s no denying that saving money is boring, far more boring than spending your finances on having fun. But, saving for the future is a key part of long term financial health. This means putting money into a savings account, but also investing. By diversifying your investments across different assets - such as stocks, bonds and property - you can reduce the risk of investing and enhance growth potential. 

Be Strategic When Paying Off Debt - Debt can be a huge setback when it comes to long term financial health, which is why it’s important to prioritise paying off high interest debt as quickly as possible. It’s a good idea to pay off debts with the highest interest rates first, or to pay off the smallest debts first for motivation. 

Plan for Big Life Events - There are a lot of major life events that require financial planning, and it’s important to plan ahead for these. This includes buying a house, starting a family and saving for your childrens’ future education. It’s helpful to save for these events early, enabling you to minimise the strain on your finances when the time comes. You could create specific savings goals for each major event, and incorporate this saving into your budget. 

Build an Emergency Fund - There’s no knowing when an unexpected expense will arise, and not having an emergency fund can hugely impact your finances. An emergency fund acts as a financial safety net, giving you the ability to handle unforeseen events such as a broken boiler, car repairs or a job loss. It’s a good idea to save at least three to six months’ worth of living expenses if you can, and have these in an easy to access account. 

Review and Edit Your Financial Plan Regularly - Planning for long term financial health isn’t something that you do once, it’s something that you need to continually change and edit along the way. Your goals, earnings and circumstances are all subject to change, as are economic conditions, and your financial plan should reflect any changes. 

As you can see, the importance of long term financial health cannot be ignored. Though it’s by no means something that you can achieve in a day or two, hard work really does pay off. By putting in the time and effort to improve your financial health - including prioritising things such as saving, investing and living below your means - you can put yourself in a good position for whatever the future brings financially. 

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