This guest blog was written by Chris Budd, who wrote the original Financial Wellbeing Book, and also the Four Cornerstones of Financial Wellbeing. He founded the Institute for Financial Wellbeing and has written more than 100 episodes of the Financial Wellbeing Podcast.

Financial wellbeing is a broad term that encompasses all aspects of the relationship between money and happiness.

Some of these aspects are things that we can do to improve that relationship and thereby enable better financial decisions. In particular, there are many things that we can do to change how we deal with money daily. We might call this “financial resilience”.

How can we improve our financial resilience?

There are five parts to improving our financial wellbeing:

• Creating a clear path to identifiable objectives
• Having financial options
• The ability to cope with a financial shock
• Gaining control over daily finances
• Having clarity and security for those we leave behind.

The first of these describes having a financial plan. In particular, the importance of taking time to think about those objectives from a wellbeing standpoint.

This is a longer-term view. But to achieve that plan, we also need to think about our relationship with money over the short term to ensure that we have control over our daily finances.

Engaging with your finances

There is one overarching principle to having a better relationship with money: engagement.

Too often, we ignore money, hoping that things will “sort themselves out”. This is the enemy of wellbeing. Engaging with money means understanding its importance in our lives (hint: it’s a lot less important than we often think!).

By engaging with our money, we start to understand what it enables us to do – and what we don’t need it for. For example, why not take some time to look at your bank statement and do some quick sums on how you are spending your money? Just this small act can be revelatory!

It’s also a good idea to make sure that your dependents also know some details of your financial affairs. Get control of the finances, and this act alone will increase your resilience.

A few practical steps

Once you have begun to engage, there are a few specific actions you might take. Some are obvious, such as getting your will up to date (tip: if appointing a third party as executor, be wary of using an institution such as a bank. Clarify future fees beforehand, or you might leave an unpleasant problem behind).

It’s always best to use a solicitor to draw up a will, and it’s a good idea to make sure your financial adviser has a copy.

Gaining a better understanding of what brings joy into our lives helps us reduce the time that we spend comparing ourselves with others. We rarely compare down and feel good – it’s far more common to compare up and feel bad. Taking time to understand what brings joy to our lives reduces the negative impact of those comparisons.

Just getting things in order can be of great help. Make sure all your loved ones have been introduced to your financial adviser. Even just compiling a list of policies, savings and pension plans can help reduce worries and thereby increase resilience.

Experiences over stuff

If we spend our money on buying stuff, the wellbeing we get tends to be relatively short-lived. Once we have worn, read, listened to, looked at, and eaten the thing that we have bought, the wellbeing we get from it diminishes rapidly.

In contrast, if we spend money on an experience, the wellbeing we get comes in the form of memories, which are much longer-lasting.

Consequently, we can increase our financial wellbeing by spending money on experiences – and if those experiences are with our loved ones, or perhaps even a trip to see someone you haven’t seen for a long time, then the wellbeing increase is even greater.

Buying tickets for future events as presents is a great way to increase wellbeing. There is the wellbeing of giving the present, the anticipation of the event, and then the memories from it.

Increasing financial resilience

Financial resilience comes from having control. By engaging with our finances, we can develop a better relationship with money. In this way, we can develop a better understanding of how money can improve our wellbeing, and reduce how it inhibits our wellbeing.

By engaging with our finances, we can improve our financial resilience and thereby ensure that money acts as our servant, rather than our master.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.