Given the current cost-of-living crisis, which has seen everything from energy bills to groceries shoot up in price, it's no wonder that as a nation we are not feeling very financially resilient.
According to Hargreaves Lansdown's Savings & Resilience Barometer, compiled in partnership with Oxford Economics, resilience scores have dropped over the past six months, from 63.7 out of 100 to 60.5. Almost nine in ten of the lowest income households suffer poor or very poor financial resilience and those on middle incomes are starting to feel the squeeze, too; just under a third of them have poor or very poor resilience.
"The past six months has taken a toll on our resilience across the board – from savings to debt, with the overall average Barometer score out of 100 dropping from 63.7 to 60.5," says Sarah Coles, senior personal finance analyst, Hargreaves Lansdown.
"The good news is that we may be past the peak. The number of people struggling with rising prices hit almost two in five at the end of 2022, and this is expected to gradually fall back to just under a quarter at the end of this year."
Part-way through the pandemic, research from the Financial Conduct Authority revealed that 14.2 million of us in the UK considered themselves to have low financial resilience, and were experiencing feelings of stress or anxiety as a result.
Research from the financial coaching app, Claro, found that financial insecurity can have a negative effect on self-esteem, levels of optimism and even our ability to relax. It also shows a correlation between a lack of financial confidence and our mental wellbeing.
Fortunately, there are steps you can take to boost your financial confidence, resilience and improve your feelings of wellbeing around money. We asked the experts to share their tips.
1. Get to know your money better
Just under 40% of UK households don't have a budget that helps them keep track of money coming in and going out each month, Claro research shows. It may not be the most exciting of jobs but setting up a budget and — crucially — regularly keeping tabs on it allows you to be more financially agile when it comes to adapting to challenging and changing money situations, whether that's the rising cost of living, or simply dealing with unexpected one-off expenditure.
“Budgeting is an essential first step in taking control of your finances," says Claro financial coach Stacey Lowman. "As prices rise for many of us, it’s a good time to start, or review, a budget, taking account of additional costs and adjusting spending accordingly. If saving is harder in the face of higher living costs, just aim to put aside whatever you can whenever it's realistic to do so, she advises: "Focus on saving what you can, however small the amount may be. Putting the behaviour in place matters more than the amount when it comes to boosting financial confidence."
2. Know your net worth
Make sure you know exactly what you have and what your assets are worth to get a clear picture of your financial health. To work yours out first look at your property (if you own one), savings accounts, current accounts, ISAs, and any shares and bonds you hold. Your pension should also be included. "Many people forget to include items like cars, household furnishings, collectibles, and the cash value amount for life insurance policies so include those too," says Crystal Rau, founder of Beyond Balanced Financial.
Then make a list of what you owe , which includes your mortgage, any credit card debt, student loans, car loans and personal loans. Take the second figure away from the first and you have your net worth.
"Tracking it gives you a good measure of whether you’re headed in the right direction with a growing net worth," says Rau.
3. Boost your retirement pot
If you are employed then you’ll be part of a workplace pension, but it’s highly likely that you’re only paying in the minimum contributions, which is 5% of your income (plus 3% from your employer).
But unless you are putting away a percentage that is half your age, then the chances are you not quite saving enough to stop work comfortably. Remember, this also includes the contributions you get from your employer.
While the cost of living crisis might make the idea of increasing your pension contributions feel like a pipe dream at the moment, when your finances are under less pressure in the future, a relatively small increase in what you pay in can have a marked impact.
"For someone earning around £30,000 a year, just 1% more added to your work pension contributions can mean an extra £23,000 on your eventual retirement pot: £209,000 compared with £186,000 at age 68,” says Becky O’Connor, head of pensions and savings, Interactive Investor.
If you’re self-employed and haven't yet started a pension, then take a look into ticking that off your list, as you will benefit from tax incentives.
4. Look after your mind
Money worries are often cited as a common reason for stress and sleepless nights. If money woes are affecting your quality of life, it’s important to address your worries and get help if needed.
"Everyone has unappealing life admin, but not addressing financial ones can often lead to more stress and keep us all up at night, leading to a vicious circle," says Dr Mark Parera, GP at online health firm Babylon.
To help you look after your mental health, here are Dr Parera’s top tips:
- Diarise. "Thoughts can exhaust you, so get them out onto paper (or computer). That way, you can step back and appreciate the bigger picture. You can then prioritise important tasks like paying bills and sweep away wasteful worries."
- Meditate. "When we are in a bad mental health space, our thoughts can be negative and intrusive. This in itself can make us feel awful about ourselves and our future. However, meditation can be a commitment as short as ten minutes a day where you try to empty your mind and label negative thoughts. That way, we take away their power and we use that extra space in our heads for planning our week and spends." Try apps like Headspace or Calm to get started.
- Talk. "It is medically proven that talking about your mental health improves your mental health. Suffering in silence can fuel those demons, but a problem shared is a problem halved. Getting advice from a friend or a therapist can be a way out of any dark place."
For more tips on how to deal with money worries, go to nhs.uk or talk to the debt charity StepChange.
If you'd like more great money content, SIGN UP HERE for our fortnightly Financially Fabulous newsletter!
