At Zumo, we’re believers in financial inclusion - financial wellness for all, no matter who or where we are. Financial wellbeing is something we all need - and everyone should have the chance to build a better financial future.
Here to help us explore the topic further and provide you with some actionable takeaways, we’re delighted to welcome Selina Flavius, personal finance expert and founder of financial coaching company Black Girl Finance, to share her insights on what it takes to build resilience and thrive in today’s economic landscape. Take it away Selina!
The two components of financial wellbeing
When I think about financial wellbeing, I often think about it in two parts. The first aim is to build financial resilience and the second goal is to financially thrive.
We can’t get to the financially thriving stage until we create financial habits that build financial resilience.
Financial resilience has been defined by the resilience taskforce as "the ability to cope financially when faced with a sudden fall in income or unavoidable rise in expenditure".
Building an emergency fund
During the COVID-19 pandemic, a percentage of employees were quickly able to shift to working from home, their jobs and income not impacted. However, others were not so fortunate. Their financial resilience took a big knock due to being placed on furlough or being made redundant in the worst-case scenario. For those who experienced the latter, having an emergency fund saved made up of 3-to-6 months worth of expenses would have helped cushion the financial knock by allowing time to look for another job whilst still paying bills.
Therefore, my first financial tip for building financial resilience is to work out a way to save an emergency fund. Review your income and outgoings, work out the difference, and put this difference aside to build your emergency fund. Alternatively, think of ways to earn extra income or build your fund using a workplace bonus or tax rebate. Maybe you could sell your unwanted items on marketplaces like vinted or eBay or participate in online surveys such as https://www.theviewers.co.uk/. Get creative if you can.
Next, think about the debts that you have. How are you coping with them? Are they manageable, or are you finding them a struggle? Often, we can end up in unmanageable debt quite suddenly if there is a drop in income due to ill health or, as above, redundancy. Additionally, with inflation rising past the 2% target set by the Bank of England, and the expected increase in gas and electricity bills next month, the cost of living is increasing. So right now might be a suitable time to tackle expensive or high-interest debts such as credit cards or overdrafts, to provide more disposable income for yourself. If your debts have become unmanageable, seek advice from debt charities such as step change or the national debt advice line. If your debts are manageable, but you want to repay your debts faster, start paying over the minimum repayment amount and research helpful debt repayment strategies such as the debt snowball or debt avalanche.
Building up an emergency fund and tackling debt can build financial resilience and create the financial foundation from which you can begin to thrive.
Investing in your pension
To financially thrive means being able to afford what you want right now and to be able to retire with the lifestyle you want in the future.
My first tip to create a financially thriving future is to stay in your employee pension scheme. In the UK, you are auto-enrolled into your company pension scheme as long as you earn over £10,000 per year and are over twenty-two years of age. Do not be tempted to opt out. If you are self-employed, open a private pension. The benefits of being part of your workplace pension scheme are that you pay in, your employer pays in, and you also get tax relief. You also get tax relief with private pensions. Plus, you are putting money away for retirement. Your pensions are invested, which means you benefit from the power of compound interest, which is when your interest earns you interest. Pensions equal good.
Research and negotiate your salary throughout your career; unfortunately, gender and ethnicity pay gaps do exist. We wish they did not, but they do. Not just at the start of your career, but as you gain more knowledge, experience, and intentionally upskill, whenever you change jobs ensure you research and negotiate your salary as a part of the interview process. Use LinkedIn, Glassdoor, PayScale, and recruitment agencies to be armed with the knowledge you need to arrange your salary.
The above tip is super important because of the impact on our ability to create solid financial resilience today and thrive in the future. Firstly, the amount of your pension contributions is impacted by your salary. Every month a percentage of your salary is contributed towards your pension pot. The result is that, if you earn less than your peers, although the percentage paid in is equal, i.e. 8%, the amount paid in will be less than a higher-paid colleague. The result is you end up paying less into the pot, which means less income available at retirement. Additionally, the amount of disposable income you have left to spend today will be less. Negotiating salary is vital.
Learning to invest
My final tip for financially thriving is to learn to invest. This last tip is crucial because historically, the banks rewarded diligent savers with high-interest rates on their savings accounts. Today, the opposite is true: interest rates on savings accounts are at an all-time low. This, combined with the increasing cost of living, means we need to do something different. Investing provides a way to beat the impact of low-interest rates and the rising cost of living. Whether your preference is bonds, stocks, property, or cryptocurrency, learning about and starting to invest will allow you to put your money to work for you.
Summing up: my 5 top tips for increasing financial wellbeing:
1. Create an emergency fund
2. Consider paying down debt and seek help if struggling with debt
3. Pensions are good
4. Negotiate salary
Selina Flavius is an author, speaker, and finance coach. Her book ‘Black Girl Finance - Let’s Talk Money’ is out now. This article should not be taken as financial advice but is for educational purposes only.