How to improve your financial wellbeing

Financial Wellbeing Assessment

Financial wellbeing is a term that describes your ability to confidently manage your money and plan for the future, regardless of how much money you may have.

Almost half (49%) of Irish people don’t feel confident managing their money while a third (34%) are very worried about their personal finances, according to a Bank of Ireland Financial Wellbeing National Survey*.

In many instances, this lack of confidence or worrying can be easily fixed, which is why Bank of Ireland want to help you to manage your money better.

What can you do to improve your financial wellbeing?

The first step towards managing your money better is to take control of your spending. We all overspend from time to time, but when it becomes a habit, it can be hard to break. Happily, there are some simple steps you can take to get on top of your spending.

Understand your spending triggers. Start avoiding situations that lead you to overspend – such as going onto online retail sites or dropping in to a store when you don’t really need anything.

Track your spending. Take some time to review your bank account and credit card statements to work out exactly where your money is going. What you’ll find can often be really surprising.

Make money visible again. Get receipts for everything you buy, even if it's only a cup of coffee or a newspaper. At the end of the month, simply add up where you are spending your money. This is known as making your money visible, letting you see where your hard-earned cash is going. It might surprise you to see that ‘just a cup of coffee on my way to work’ might be costing you €60 or more each month.

Choose your money goals. If you want to build up a deposit for a home, buy a car or pay for a wedding, you might need to cut back now to save for those future goals. Having a firm goal is a great way of focusing your efforts, and can often make it easier to make those little sacrifices that you’ll need along the way.

Set a budget. Work out the cost of your essentials such as mortgage or rent, bills, food etc. Then set yourself a budget for each week or month, depending on how you get paid.

Learn how to budget your money better

Not having a personal budget or a money plan is a key reason why many people struggle to stop spending money. A budget is made up of two parts - your income on one side of the page, and the amount of money you spend on a weekly, monthly or yearly basis.

So review your payslips, your current account statements, your credit card statements and receipts to understand exactly where your money goes. You can use a simple budgeting sheet to help you. We recommend that you track your money for three months to get a very accurate snapshot of your spending habits.

Manage your borrowing better

If you have outstanding loans or credit card balances, you may want to make it a priority to pay them off. But if you have more than one debt, which one should you repay first?

The most financially savvy way of doing this is to put your debts in order - from the highest interest rate to the lowest interest rate. Once you’ve done that, use any extra cash you have available to pay off more of your debt with the highest interest rate. Continue until all the debts are paid off, continuously moving to the debt with the highest interest rate as your debts are cleared.

Why a ‘rainy day’ fund is so important.

Things often happen when you least expect them - the car breaks down, the boiler fails, you spend longer than you expected to find a job. All of this can seriously affect your finances, so you need a rainy day fund to help cover these financial shocks.

As to how much you need to put away, the experts recommend that you build up a sufficient fund to cover three to six months’ essential expenses. By ‘essential’, we are referring to mortgage or rent, food, utility bills, transport, medical bills etc.

Check back on your budget planner from time to time and see how much you spend on essentials each month. If all your bills add up to €2,000 a month, then ideally you’ll need a rainy day fund of €6,000 to €12,000.

That might seem like a lot if you have no savings, but the key is to start saving what you can now - and build it up gradually. And make saving automatic by setting up a direct debit or standing order to transfer money to a separate account as soon as you get paid.

Why you should be saving for your retirement now

It’s important to plan for your long-term life goals while still managing your short-term, everyday expenses. And top of the list when it comes to long-term saving is your retirement needs.

The good news is that people are living longer. However, this means that because they are retired for longer, they need more money to enjoy their retirement.

A private pension can be very important if you want a similar lifestyle to the one you have during your working life. If you rely solely on the State pension, your income could drop by over 70% when you retire.

For most adults in full-time employment, the contributory State pension is currently €12,636 a year, but the average full-time salary in Ireland is much higher - €46,402. That’s a potential drop in income of €33,766 a year on the day you retire.

Putting the right private pension in place depends on a number of factors including:

  • Your age.
  • Your expected retirement date.
  • The lifestyle you want when you retire.
  • What you can realistically afford to save.

Always be prepared for the worst

Nobody likes to think that the worst could happen to us, but unfortunately it can. Have you thought about how you or your family would pay the household bills each month if you got seriously ill or died prematurely?

Fortunately, you can take out insurance which can help you and your family survive the financial shock of events like this.

As long as certain criteria are met, income protection insurance pays you a monthly income to replace some of your income if you fall sick for a set period of time, or until you return to work.

With a family protection plan, you can:

  • Clear any loans or debts at the time of death.
  • Pay a monthly income in the event of illness or death.
  • Pay a monthly income to your family if a stay-at-home parent dies.
  • Pay a lump sum amount if you suffer a serious illness.
  • Pay a lump sum amount on death to cover funeral expenses.

Quite simply, insurance like this means enjoying the peace of mind of knowing that your loved ones will be protected if the worst happens.

Take just two minutes to check your financial wellbeing

If you’d like to get a quick snapshot of your financial wellbeing, we’ve put together this simple health check. Answering just eight questions will let you see where you stand at present. Take our financial healthcheck here.

Need some help with your financial priorities?

If you’d like some help in deciding on your financial priorities, check out this helpful article on how to set priorities here.