Money mindset: Shaking up how you think about finances could boost wellbeing

Money has a huge impact on our wellbeing. Whether we have “enough” is often the focus when facing money challenges, but a new report suggests that our mindset and relationship with money could have a far bigger influence on wellbeing.

Past research has linked financial concerns with poor wellbeing. The latest research from Aegon notes this as well. It found those with money worries experienced:

• Feeling anxious (45%)
• Sleepless nights (26%)
• Lack of motivation to finish daily tasks (16%)
• Relationship troubles (16%).

Where this report differs is that it looks beyond things like income, emergency fund or long-term savings to assess people’s mindset. The findings indicate that how you think about money, particularly over the long term, can improve wellbeing. Just 16% of the population are fortunate to combine healthy finances with a positive mindset, but it’s estimated five in six people could take steps to improve financial wellbeing by changing the way they think.

Money worries are common across all incomes

There is a link between low income and money worries. However, even those that are financially secure experience concerns. More than half (55%) of average earners and more than one in three top earners said they worried about money. Focusing on financial wellbeing rather than figures could help.

The report states: “Financial wellbeing is about spending time, money and effort on what makes us happier now and in the future. People on all incomes worry about money. Focusing on what makes us happy in the long term, rather than just striving for ‘more’, can help ease those worries.”

The mindset factors included putting a long-term financial plan in place and considering what makes you happy. While there may be little you can do to boost your wealth now, you can start changing habits and how you view money. That’s not to say it’s a quick fix – changing your mindset takes time – but every step helps you improve.

The report identified five key mindset building blocks. Could you improve any of these areas?

1. Knowledge of what makes us happy

Just four in ten people think about what gives their life joy and purpose. Spending some time thinking about what you really enjoy means you can focus your attention on these areas.

From a financial perspective, understanding what’s important to you can mean your financial decisions reflect this. You may consider moving to a city to secure a higher paying role. But if being close to family and enjoying the countryside brings happiness, is it worth it? For some, the move will still make sense and provide other opportunities to find joy and purpose, for others weighing up the pros and cons may mean they decide to pass up the job offer.

2. A solid picture of our future self

Thinking about the future can help make sure we reach goals and improve wellbeing throughout life. However, just one in three people have a specific picture of what they want to achieve. Vague ideas are a good starting point, but they can be hard to measure and mean you end up missing targets.

“I want a financially secure retirement” is an example of a vague idea. What does “financially secure” mean to you? Why is it important? What would being “financially secure” allow you to do in retirement? Setting clear, measurable goals can help you stay on track.

3. Savvy social comparisons

It’s easier than ever to compare what we have to others. Whether through social media, the TV or talking to friends, finding out someone has more than you can mean you end up striving for more, even if you were happy before the comparison.

The report suggests that the more we compare ourselves to other people who are better off, the lower our financial wellbeing. Social comparisons are highest when we’re younger. Six in ten 16- to 24-year-olds say they compare themselves to others “relatively frequently”.

Comparisons are inevitable but being savvy about it is important. Focusing on what you’ve achieved or the things you enjoy in your life can help put comparisons into perspective.

4. A long-term plan

A huge number of people are not putting a long-term plan in place. Even those that are thinking about long-term goals are often not translating this into an actionable plan.

Across all ages, just 13% of people have a plan to achieve their long-term financial goals. As we get older, we’re more likely to have a plan but it’s still a relatively small percentage. Among 55- to 64-year-olds, 35% have thought about what their goals are. Yet only 16% have put a plan in place to reach them.

Without a clear plan, goals can fall to the wayside and opportunities can pass us by.

5. Strong nerves in a crisis (resilience)

Do you have confidence in your long-term plan? It can require strong nerves to focus on your goals and ignore short-term changes. This is particularly true when investing. Some 14% of investors sold out last time the stock market fell despite investing for the long term.

The above mindset building blocks, such as having a long-term plan and understanding why you’re taking these steps, can help you stick to your plans and improve your resilience.

How can financial planning help?

While financial planning does involve ensuring you have “enough”, at its core it’s about understanding how you can use your assets to help you live the life you want. This includes thinking about what makes you happy and setting out a long-term plan. An effective financial plan could improve both your wealth and mindset, so give us a call to discuss your finances and how to improve your wellbeing.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.