Understanding financial wellbeing: the three questions you need to ask
At Tribeca, we’ve been talking about financial wellbeing since we started over ten years ago. In fact we made it a priority to become experts in this area because we could see how important it was for everyone’s overall wellbeing; to have a healthy relationship with money.
The spotlight on financial wellbeing has only intensified since the impacts of the pandemic.
But we know for many, financial wellbeing is a term that can be difficult to grasp or relate to their own situation. So to help we’ve put together our take on financial wellbeing, giving you a quick rundown on what it actually means, how you can improve it, and why it is so important and drives Tribeca’s approach to financial advice.
What is financial wellbeing?
Let’s start with what the research says. Financial wellbeing is defined as a state of being wherein you:
- Have control over your finances
- Have the capacity to absorb a financial shock
- Have the freedom to make choices to enjoy life
- Are on track to meet your goals
When these four factors are in alignment, you then arrive at two very strong emotional responses:
- A sense of security
- A feeling of freedom
Financial wellbeing is what we all crave, to know we have everything in place to feel secure about our present and future, and we are in control of our own choices and destiny. But we also know that life events often impact our level of financial wellbeing and test our resilience; along with our own financial behaviours, financial knowledge and personal traits.
For example, there’s the person through circumstance or design who is just living from one pay to another with very little security or choices due to no extra money or heavy debt. Or there’s the other extreme where someone is on a high income accumulating money but still feels unsure about the future as they don’t have a firm plan or structure in place.
This is the spectrum of financial wellbeing. It’s why understanding how you relate to money (are you a saver or a spender, do you compare yourself to others, how do you make financial decisions) is incredibly healthy for your overall state-of-mind, as it allows you to adapt your thinking and approach to suit your personality, habits, needs and goals.
And achieve a level of financial wellbeing to live your life to the full.
Want to see how financial wellbeing sits at the heart of Tribeca’s financial advice? Watch Tribeca’s founder, Ryan Watson, talk about financial wellbeing.
How can you improve your financial wellbeing?
This is the million dollar question. There’s many approaches to improving financial wellbeing. You can always try to do it yourself, but this takes a fair degree of self discipline and accountability. The other alternative is to seek the support of a financial adviser you can trust and can guide you along the way.
We’ve spent a lot of time working out a simple method to measure financial wellbeing so it’s easy to see what elements are healthy and the gaps that need improvement. We call it our Financial Wellbeing Matrix.
As you can see, we see Security as relating to your feelings towards control over your finances (now), and capacity to absorb a financial shock (in the future).
For Freedom of Choice, that’s looking at your financial freedom to make choices (today), and whether you feel you’re on track to meet your goals (for tomorrow).
It’s a great exercise enabling you to rate how you feel in each quadrant so you can identify your comfort levels and areas that need strengthening. Think of it as your financial wellbeing score. We use these scores out of ten to benchmark against so in the future you can see how you’re progressing and what steps you can take to consistently improve these ratings, and therefore your financial wellbeing.
The type of financial wellbeing questions you would rate yourself on would be:
- Do you know your true financial position such as your assets and liabilities?
- Do you feel you’re in control of your money, or is it in control of you?
- What is your risk profile relating to financial issues such as investments and debt?
- How do you cope with managing cashflow and sticking to a budget?
- Do you have a nest egg or a plan for growing your overall wealth?
- Do you have spare funds for unexpected costs?
- What’s your back up plan if you experience financial difficulty?
- Do you have the right insurances in place?
- Can you spend money on what you want, rather than what you need?
- Where do you want to get to with your financial future?
- Are their specific financial outcomes and goals you want to achieve?
- Do you have a financial plan for achieving retirement when you want to?
As you can see, discussing financial wellbeing is really about having open and honest conversations about money. We know this isn’t always easy to do, especially if you’re experiencing financial difficulty. But it can be a really positive step to take to start improving your financial wellbeing and financial resilience not just for today, but importantly, for tomorrow.
Our financial wellbeing matrix is just one of the many tools we use to help you live your Good Life. Click here for more information.
Why is financial wellbeing important?
It’s a fact that many people worry about money and their financial obligations more than their own health. This was reflected in studies conducted by the Australian Psychological Society which revealed that personal finances (49%) was the main source of stress for Australians. Health was third in the list.
The link between finances and wellbeing is undeniable. An unhelpful financial situation can have a negative impact on our mental health. Conversely, mental health struggles can result in neglecting our financial responsibilities altogether. Being aware and open to the fact that both are connected is incredibly important.
Our advice embraces financial wellbeing for this very reason. The more you work on building a healthy relationship with your money, and the ability to understand how you can mindfully spend and save, the better your overall state-of-mind will be.
By feeling financially secure, it allows you to enjoy the genuine freedom of making choices you want to make – not have to make.
This can’t be understated.
At Tribeca, our purpose is to help our clients live their Good Life.
As life events occur and personal circumstances change, so will the level of your financial wellbeing. It’s going to have its ups and downs. What we can help control is giving you the support, hands-on assistance and tools to respond to this change – and most importantly – the confidence and peace of mind that comes from knowing that we’re on this journey with you.
If you would like to talk to us about how we can guide and support you with your financial wellbeing, we’re always ready to chat. For expert financial professional advice tailored to your specific circumstances, please talk to your financial adviser or arrange an appointment with one of our Tribeca Tribe here.