5 fascinating ways your finances are linked to your wellbeing, in celebration of the International Day of Happiness

We often think of money as something that plays an entirely practical role in our lives. We work, earn money, and pay for the things we want – it sounds straightforward, but in fact, a person’s emotional connection to money may affect their actions in a significant way.

What’s more, some research indicates that not only does our money affect our emotions, but it actually has an impact on our overall wellbeing. And, looking at it the other way around, our wellbeing can also affect our relationship with money too.

In 2023, Aegon produced a comprehensive Financial Wellbeing Index, a deep dive into the link between wealth and wellbeing. They found that having plenty of wealth does not automatically equal a stress-free life – in fact, more than 1 in 3 of the UK’s top earners worry about money.

So, seeing as 20 March 2024 marked the International Day of Happiness, there seems no better time to look at five fascinating takeaways from the latest research into wellbeing and wealth.

1. Your “financial building blocks” may need to include your happiness too

When you think about the core elements that make up your financial plan, practical elements may spring to mind first.

Your financial “building blocks” may include your:

• Cash savings
• Investment portfolio
• Protection, such as life insurance
• Annual income
• Pension(s).

Yet according to the Financial Wellbeing Index, incorporating emotional building blocks into your financial plan could help you achieve your goals more easily. These include:

• Focusing on your happiness
• A strong vision of your future self (more on this later in the article)
• Writing down your goals
• Taking a long-term perspective.

The research reports that balancing these wellbeing elements into the foundations of your financial plan could improve your financial resilience. It could also enable you to “balance the scale” of your wellbeing and your wealth.

2. Learning more about your financial mindset could improve your wellbeing

Your money mindset stems from several things: your upbringing, your life experiences, and your goals, to name three core components.

You may already know what makes you “tick” when it comes to your money, but delving deeper into your financial mindset could improve both your overall wellbeing and your financial behaviours.

The Financial Wellbeing Index gives several examples of “mindset types” based on a survey of 100,000 individuals.

Some of the mindset types the study identified are:

• The wealth accumulator – Someone who is very good at earning and maintaining their money, but might not have thought about the most enjoyable ways to spend it.
• The spender – A person who knows how to live life to the fullest, but might be impeded by their “here and now” mindset.
• The strategist – These individuals are likely to have a comfortable financial safety net, much like the “wealth accumulator”, but could struggle to create happiness-based goals that aren’t entirely centred around financial security.
• The all-rounder – These people have a healthy balance of wealth accumulation, strategic planning, and spending. They know that future security is important, but are aware that life is for living and are happy to spend money on important experiences.

The research found that while the all-rounder category is perhaps the most desirable, only 19% of those surveyed fit into it.

As such, identifying your wealth mindset, and looking at how this could affect your wellbeing, might help you to make more well-rounded financial decisions in the future.

3. Knowing what brings you joy and purpose could help you handle your finances more effectively

When you look around at advertising, game shows, or even the National Lottery, it’s easy to assume that money equals happiness. Look a little deeper, and you may realise that even extreme wealth wouldn’t necessarily make you the happiest person alive.

According to Aegon’s research, connecting to both joy and purpose can actually make you a more effective saver, investor, and all-round guardian of your hard-earned wealth.

The study defined “joy” as having happy experiences like travel and spending time with those you love; and “purpose” as your day-to-day drive, like raising your family or pursuing a career that matters to you.

It may go without saying that these two factors are vital for long-term mental wellbeing. Yet sadly, only 1 in 4 people are very aware of what makes their life enjoyable, and only 1 in 5 know what gives them purpose.

So, looking at these factors and applying your own life circumstances could help you to:

• Go after enjoyable life experiences now, rather than waiting until you retire
• Use your hard-earned wealth to fulfil your purpose in life.

A Kellands financial planner can help you to create a financial plan that balances these elements in a way that suits you and your family.

4. A precise connection to your “future self” could improve your financial behaviours

When creating goals for the future, you might make the mistake of setting vague targets that are difficult to achieve due to lack of specificity.

Indeed, the Financial Wellbeing Index found that only 25% of people have a specific vision for their future, while most people set vague goals and hope they will fall into place.

Not only this, but the research revealed that those who had a specific vision for their future were:

• More likely to have a rainy day fund
• Less likely to have debt
• More likely to pay off a mortgage.

The study found that having a vision of your future self could be even more powerful than earning a large amount each year – having high earnings won’t necessarily mean you save enough for a comfortable future life.

If you are aware that your goals are rather vague, perhaps revisit them and write down more precise versions to work from.

For instance, you could have the goal of retiring “one day”, perhaps saying that you’ll take this step “when the time is right”. Shifting this into a more focused target could mean saying, “I’d like to retire at 60, and will take the necessary steps now in order to achieve this.”

5. Good crisis management skills could help you manage your money over the long term

There will always be life events that occur outside of our control.

Whether these are personal events, such as the death of a loved one, or large-scale changes like the Covid-19 pandemic, the Financial Wellbeing Index research indicates that being resilient to crises could help you manage your money better over the long term.

However, 14% of people struggle to cope with difficult circumstances outside of their control. The research found that young people find crisis management the most tricky, while older generations seem more resilient.

For example, you cannot control the rate of inflation, which reached a peak of 11.1% in October 2022 according to the Office for National Statistics (ONS); however, you can manage your budget carefully and speak to a financial planner about mitigating the effects of inflation on your wealth.

Over the long term, effective crisis management skills could:

• Prevent you from panic-selling investments that dip in value
• Motivate you to build up a solid emergency fund, in case the unexpected happens
• Prompt you to take out the relevant financial protection, such as life insurance, to help your family cope in a difficult situation.

Overall, while your wellbeing may be affected by life events that you can’t control, learning resilience over the course of your life could help you to make effective financial decisions, even in a crisis.

Independent financial planning could help you use your wealth to improve your wellbeing

Seeing as the International Day of Happiness has just passed, now could be the ideal time to contact your Kellands financial planner for a chat about your goals.

We understand that “putting your money where your mouth is” and curating a financial plan based on joy, purpose, and your overall wellbeing could be a difficult task to begin with. Stubborn financial habits, and the busyness of day-to-day life, could stop you from focusing on the relationship between your wellbeing and your wealth.

Fortunately, an independent financial planner can help you to achieve your goals and put your wellbeing first.

To learn more about working with us, or to speak to your Kellands financial planner, email us at hale@kelland.co.uk, or call 0161 929 8838.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

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