Financial Wellbeing: Getting Your Mindset Right About Money

Financial wellbeing – how people feel about the control they have over their finances and their relationship with money – is finally being recognised for the major mental health trigger that it is. Far more people in the UK are struggling with regards to their financial mental health, with recent research showing that 40% of the population have less than £100 left at the end of the month, 29% of people have no emergency savings, and 49% have some form of unsecured debt (which averaged over £5,700).

Contrary to what the consensus likely is, while there is undoubtedly a link between low incomes and money worries, this is absolutely not an exclusive relationship, with 55% of ‘average’ earners (£38,131 per year, full-time; £13,549 part-time) and more than one in three top earners saying that they worry about money regularly.

One size rarely fits all when it comes to cash concerns, so it’s widely accepted that the seven key areas of financial wellbeing are:
• Budgeting and planning
• Debt
• Protection
• Savings and investments
• Retirement
• Property and mortgages
• Tax
which have all been used by asset management company, Close Brothers, to quantify the financial wellbeing of UK employees.

The reveal is that in the UK, financial wellbeing among employees specifically is poor to say the least – the overall score was 53.6 out of 100, but not necessarily in the areas you might expect, with the lowest scoring areas being protection at 42.5, budgeting and planning at 48.8 and, everyone’s favourite pain point, tax – which came in at 48.5.

As is evident, money and mental health are inextricably linked. One in four people will experience a mental health problem and experiencing mental health problems can also have a significant impact on earnings and earning potential. A recent report from the Mental Health and Income Commission found that people who live with common mental health problems such as anxiety and depression earn over £8,000 less than those without.

What’s more, since the beginning of the pandemic, two in five people with mental health problems have experienced an income drop, with around one in three of those having to cut back on essentials. Right now, alarm bells are very much ringing for both businesses and employers.

Relax though; there is good news in the form of handy tips and steps that business owners can put in place to help employees (and yourself), and that we can all try and take on board to help our financial wellbeing improve.

It may well be a hot topic, but financial wellbeing is usually referenced in pretty narrow terms – money in the bank or amount of debt – when actually it’s a far broader concept. For a lot of people, the biggest improvement they can make to their financial wellbeing is to reframe the way they think about money; adjust your mindset and you can make big strides towards a better relationship with your money.

Put happiness first
Think about what truly makes you happy – both in terms of joy and purpose – and ensure that you are spending time, energy and money on those things, with your future happiness in mind.

Make considered comparisons
If you’re making social comparisons, which many of us do to the detriment of our mental health, sadly, make them healthy and realistic. Stop pitting your business’s financial situation ‘against’ others who seem to have more cash and must therefore be happier. Social media, even for business, is a dark, dingy alleyway of crap a lot of the time, so don’t take what you ‘see’ as gospel; instead, use your past self as a comparison to measure how far you have come.

Make a long-term plan and write it down
People who write out a financial plan save more regularly and do better financially. Fact.

Hold your nerve when the sh*t hits the fan
If you’ve got a hankering to change up your long-term investments because you don’t feel like they’re performing how you’d have liked (or expected, perhaps in your wildest dreams), remember why you started saving in the first place – don’t panic and do anything you might regret, even if a financial crisis (or god forbid another pandemic) is on the horizon.

And what of business owners themselves? Over the past couple of years, lots of employers have implemented positive changes, most notably a shift to remote working and additional support around mental health for employees. But, to ensure people with mental health problems are not further entrenched by the pandemic, The Mental Health Income Commission has suggested three recommendations that they feel are relatively easy for employers to put into practice and that would significantly improve the experiences of surprisingly large number of UK employees living with mental health worries:

  • Ensuring that employers support the mental health and incomes of staff as they return from furlough by maintaining regular contact and routinely providing signposting to income maximisation and debt advice services when incomes are reduced.
  • Providing mental health training to line managers, giving them the skills and resources to help better support employees. This has the additional benefit of creating a compassionate and kind attitude and ethos from the top down.
  • Expanding on flexible working to include options such as condensed hours or facilitating more breaks by reducing lunch hours, as well as offering flexible roles from the outset.

Whether you’ve been in business for six months or 16 years, there will always be unexpected events that can knock back even the sturdiest of leaders, taking a huge chunk of their profits with them and causing enormous amounts of stress. Fortunately, there are also a few tried and tested ways to protect yourself from the fallout, if not avoid these nasty surprises altogether:

Keep accurate books

The primary way to pre-empt any nasty financial shocks is to keep accurate and up-to-date books. Accurate records mean you can see exactly how your business is performing on a weekly or even daily basis, which will help you spot any negative trends well in advance and take action to sort them out. Pronto.

Regular and accurate bookkeeping can also help reduce stress and reduce the chance of errors at year end. After all, you’re more likely to have lost or forgotten to log receipts if you only check in and update your books once every few months. This’ll result in incorrect records and black holes you’ll have to compensate for later down the line.

If numbers aren’t your strong point, or you’ve got bigger business fish to fry, familiarise yourself with some of the incredible bookkeeping software that’s available, or better still get yourself a fabulously amazing accountant (ahem). 

Read and understand your financial reports
You’d be amazed at the sheer amount of business owners who don’t properly understand the reports their accountants so painstakingly put together for them. The two critical must-reads are your profit & loss statement and your balance sheet. All profit and loss statements (P&Ls) adhere to a basic formula: sales minus costs = profit. The aim of the statement is to summarise the sales and costs that your business has incurred during a specific period (usually a financial quarter or year) thus providing information about the company’s ability to generate profit by increasing sales, reducing costs, or both.

Typically, sales are shown at the top of the P&L, costs are shown below sales and profit – ‘the bottom line’ – is below those at the bottom. Your P&L will be broken down into various sections each with its own subhead and the sales and costs listed under those subheads can be broken down into multiple sources. Besides this very straightforward breaking down, there are many other subdivisions to consider so check out this brief glossary to familiarise yourself further with what’s what.

Top tip: If there’s a profit showing at the end of the period, you’ll probably have to pay some tax. It’s imperative you build your projected taxes into your numbers throughout the year so that you know how much cash you’re handing over to the tax man. It’s pretty common for business owners to be shocked by their tax bills, when they really don’t have to be.

You need to be best buds with your balance sheet
A balance sheet is an up-to-date snapshot of your company’s financial position showing the resources that it both owns and owes, as well as the sources of financing for those resources. Assets typically include bank balances, accounts receivable and any investment accounts, and liabilities refer to anything your business owes such as outstanding credit cards and business loans. Assets + liabilities = equity: so, in an ideal world, the difference in what you have and what you owe should be a positive number and one that grows over time. It’s a great guide to help you identify trends throughout the fiscal year and keep track of your business’s income and expenses in order to stay afloat successfully.

Prepare your tax returns. As early as humanly possible.
Filing your tax return early is a good way of establishing where you stand. Contrary to popular belief, it doesn’t mean paying your taxes early. This essentially means you know how much money is leaving your business well before it goes – so you can better budget. If you leave your tax returns until the last possible minute (like most of us do; every damn year), you run a higher risk of making errors, which can result in you paying too much tax, or not paying enough tax and therefore opening yourself up to a world of fines and interest payments pain. If you file your return early, you’ll have plenty of time to organise your cash flow, save enough money and double check your forms.

Running your own business comes with so many variables that you never know what’s around the corner, but with accurate bookkeeping to help you predict the shape of your business, and strong savings to offer a cushion, you’ll be much better placed to meet these challenges head on and help keep your financial wellbeing in tip-top shape.

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