Mercer Financial Wellbeing Toolkit 

The 20s are proving to be a challenging decade for all of us in ways that none of us could have predicted. Having dealt with the many challenges of the COVID pandemic, we are now facing a cost of living crisis, the size of which has not been seen in most of our working lives. With spiralling inflation, rising taxes, increasing interest rates, volatile investment markets and fears of a recession, we are all feeling the growing strain on household income, with many having to re-evaluate their future plans.

Whatever your personal circumstances, this aims to help you understand what financial wellbeing means, assess your current situation, find resources to support you and explore what actions you could take to improve your situation – all of which can help to reduce stress and build future financial security.

Employee benefits form an important part of your employment package and can help support all aspects of your financial wellbeing from managing the day to day to longer term planning and saving for your future.  Being aware of your employer’s offering will enable you to fill the gaps and ensure you are prepared for all eventualities.  Whether it is a core employee benefit or an additional perk it is important that you are aware of what is available to allow you to make the most of what your employer offers and plan accordingly.

Employee benefits form an important part of your employment package and can help support all aspects of your financial wellbeing from managing the day to day to longer term planning and saving for your future.  Being aware of your employer’s offering will enable you to fill the gaps and ensure you are prepared for all eventualities.  Whether it is a core employee benefit or an additional perk it is important that you are aware of what is available to allow you to make the most of what your employer offers and plan accordingly.

Being prepared for the unexpected, or having the capacity to absorb a financial shock, is one of the more obvious elements of financial wellbeing – control of your day-to-day spending is all well and good, but that necessarily relates to known spend, costs and income. What doesn’t feature in your budget? What about the unknown and unexpected – a boiler breakdown, a broken roof, an unforeseen expense of any kind – or a sudden reduction in income?

Unanticipated one-off spends, income drops, or dramatic increases in regular costs (like energy bills right now) can wreak havoc on our immediate financial wellbeing and undermine all the good work we’re putting in to help our other elements of financial wellbeing.

Like the Freedom and Future element though, depending on your circumstances this one can actually seem like quite a struggle to get started on. After all, the very concept is that you deploy money, that you might have a strong need for in your pocket right now, somewhere else – in the expectation of something that might ultimately never actually happen!

That may naturally feel a step too far for people struggling to balance the day-to-day, but the key concept here is understanding and striking the right balance between having a bit less cash now and the impact of having a lot less cash and potentially more substantial debts in the near future should something really bad happen.

Mitigating against an unknown future is complex, so in taking you through this element we’ll talk about two main concepts that are crucial to success: building an emergency fund; and protecting what you have.

If you consider the Day to Day element to be about "right now", and the Unexpected element to be "protecting right now from sudden disruption", the Freedom element is about the short to medium term. In many ways it marks the point in your financial wellbeing journey when you can lift your eyes from what’s right in front of you and start to consider the path further ahead and onto the horizon.

It’s about reaching a point where the constraints on your financial actions imposed by the need to survive and protect what you have are loosened. Having the freedom to make choices in life is about moving beyond coping and into opportunity. That might be the opportunity to use surplus money to create savings pots or investments for short, medium and even very long-term goals (goals beyond protecting what you currently have), the opportunity to improve your current life, or the opportunity to simply have a bit of fun with your discretionary funds.

Making short term, medium term savings goals: 

• Different savings types (access)
• Secondary buffer
• Proactive money
• Opportunity spending
• Next step up housing ladder

Of the four Financial Wellbeing elements, being “on track for the future” can seem one of the tougher ticks to achieve – the future is uncertain, so how can we really know what’s coming and whether we’re in a good position to face that?

Well, there are things we may know we want in our future, whether that’s in the short, medium or long-term, and that these things have associated costs: do we intend to buy or move house; are children planned; and the most obvious one being that at some point we will all probably want to stop working for a living and retire. Note that doesn’t mean you have to retire and stop working all together, just that it becomes your choice to continue working and at what.

And that’s a useful way to view this wellbeing element: are we doing what we need to be doing now, to have a good chance of adequately covering the financial needs of those future requirements.

Depending on your personal circumstances, this area can naturally feel of lesser importance than being in control of your day-to-day spending or having capacity to absorb unexpected financial shocks. However the reason we talk about elements is that they all work together to support your overall financial wellbeing.

In order to achieve some of our longer-term goals, we really do need to start taking action sooner rather than later, and if we don’t our outcomes are likely to be much, much poorer – with all the detrimental personal effects associated with financial stress, uncertainty, and struggle but with less time and ability to positively impact our financial situation at that point. Consider not addressing this element as banking up inevitable future problems with your other elements.

A perfect example of this is preparing for our retirement. The way pensions, pension saving, and pension investment works in the UK makes it advantageous to start as early as possible, even if that is only making the minimum contributions you can afford. The later you start saving the more you’ll need to find later on to make up shortfalls.