In last month’s article I spoke about the benefits of budgeting and how it can have a huge impact on our mental and physical health not just an effective way of managing our money.

There is a great deal of research which suggests that money itself does not make us happy, but it is how we use it that matters. For example, a Harvard study on happiness highlighted that the largest contributor to our wellbeing is the quality of our social relationships. Therefore, financial wellbeing is about how we use our money to support the other areas of our wellbeing and what is important to us.

There are five elements to wellbeing (source: Wellbeing by Rath & Harter) These elements are the currency of a life that matters. They do not include every nuance of what’s important in life, but they do represent five broad categories that are essential to most people.

·         Social – the quality (not quantity) of our social relationships

·         Career – how we occupy our time or simply liking what we do every day

·         Financial – our relationship with our money

·         Physical – having good health and enough energy to get things done on a daily basis

·         Community – our sense of engagement we have with the area where we live

A key point is that wellbeing comes from having these five areas in balance. Too much focus on accumulating money at the expense of spending time with one’s family, for example, will reduce wellbeing, not increase it. The role of financial wellbeing, therefore is to deploy money in the best way to achieve this balance.

A good financial planner will concentrate on all of the following areas – they will explore what motivates a client and help them understand themselves better so that they can make financial decisions more aligned to their own wellbeing.

A clear path to identifiable objectives – creating a path to financial planning looking for achievable intrinsic motivations e.g., what motivates you to feel happy and what you want from life.

Control over daily finances – budgeting and managing debt – knowing what we need for our basic lifestyle and any income above this can be spent on our wellbeing.

Ability to cope with a financial shock – knowing that we are able to cope if something goes wrong – this includes some of the basics of financial planning such as life assurance, income protection but it also includes big shifts in investment markets.

Financial options – Wealth does bring options, however if you do not make choices from those options that are aligned with your own wellbeing, then the wealth will not make you happier.

Clarity and security for those we leave behind – this might be helping a client with their wills, it might be having an ongoing relationship with a client’s children.

Financial Planning has so much more impact when it is purposeful and financial wellbeing gives financial planning so much more purpose than simply increasing financial wealth.

At FFP we believe in helping our clients become happier not just wealthier!

June 2023