Planning for your financial future leads to a happier life

01 July 2021
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A rash of recent studies show that feeling in control of your finances gives you greater satisfaction in life overall.

We’ll spare you the adage that money can’t buy happiness ̶ it is, after all, not entirely accurate.

While it’s true that material things and ‘retail therapy’ provide only a temporary high, a feeling of control over your finances has been proven to lead to a happier life. In fact, a 2019 study conducted by US-based insurance group Northwestern Mutual discovered that a whopping 92% of people rank a feeling of control over their financial situation as the key to a happy life.[1] Ahead of the final event in our Invested in the Future Series, a discussion on the Future of Happiness with author and positive psychology expert Miriam Akhtar, we look at the ways in which self-esteem and mental well-being is influenced by a sense of financial security.
 

Shelling out for help can pay dividends

While it’s reasonable to assume that tightening your purse strings is the first step you should take towards financial security, this is one case in which it pays to spend. Our research overwhelmingly showed a correlation between confidence in your financial future and working with a professional advisor. A study conducted by London- and Dubai-based Hoxton Capital Group in the autumn of 2020 made this undeniably clear: nearly all ̶ 86% ̶ of respondents who reported feeling stressed about financial planning also reported not having ever met with a financial advisor. [2]

Conversely, a survey we conducted here at Sanlam in February of this year found that 59% of people who see a financial advisor even just once a year felt more confident about their financial futures. Northwestern Mutual’s survey similarly found that 66% of people working with an advisor enjoyed a feeling of confidence and control, compared with only 31% of those who’d passed on professional help.

“People often think financial advisors are a resource only for the wealthy, or those with a particularly complicated financial situation”, says Elliott Silk, Head of Commercial for Sanlam. “In truth, everyone can benefit from putting a plan in place to help prepare for those universal financial milestones: retirement, saving for a child’s education, purchasing a home.”

When searching for an advisor to partner with, look for a fiduciary: this means he or she is legally bound to work in the client’s best interest. You may want to work with a fee-only advisor (as opposed to ‘fee-based’), whose earnings are not tied to commissions. Both these attributes ensure your advisor is simply working for you, rather than considering what might earn them money.
 

The benefits go beyond the bank account

Northwestern Mutual’s analysis looked beyond the cold, hard cash and found that the positive effects of feeling financially in control had a marked bearing on other aspects of the respondents’ lives. Mental well-being is closely tied to a feeling of financial security. Seventy-one percent of people who’d formulated a financial plan (in conjunction with an advisor) described themselves as happy with their lives, compared with only half of people who go it alone or don’t have a plan at all. Additionally, 85% of those surveyed believed themselves to be “headed in the right direction personally”.

Asset manager JP Morgan recently took a look at this as well, placing a particular emphasis on investing, considered by experts to be a critical component of financial planning given today’s environment of persistently low interest rates. Their Saver to Investor Survey, which questioned 6,000 people across 10 European countries (including the UK) in January 2021, found that 50% of men who invest considered their self-esteem to be above average. [3] The figure was lower for women, at 37%, but significantly higher than the 25% who don’t include investments in their financial plans.

Additionally, those who have a financial plan inclusive of investments have a more positive view of their near future: over half of men (and 41% of women) believe they will be better off in three years’ time, compared with 33% of non-investors, regardless of gender. Sanlam’s research found that 13% of people who regularly meet with an advisor felt excited about their financial future, compared with a distinctly meager 2% who hadn’t been motivated to make a plan.

On the other hand, feeling unmoored by your finances can have tangible negative consequences. An American study on Financial Security & Emotions, conducted in 2020, found that 31% of US adults experience feelings of depression caused by financial anxiety at least once a month. [4] Two in 10 admit that money worries are the cause of discord between themselves and a romantic partner on a monthly basis; the same proportion confessed to money woes negatively impacting their job performance.
 

Getting your ducks in a row breeds a feeling of balance

Beyond a general sense of life satisfaction, putting a plan in place has proven to help people feel more capable of making money decisions on their own. While it’s advisable to work with a professional to set up an initial plan (and review it annually), you can take those educational tools away to become better at managing money in general. Northwestern Mutual found that people who work with a financial advisor are more likely to know how to balance spending now and saving for the future. Conversely, almost half (48%) of people who have not made a plan with the help of a professional admit they don’t know how much they can afford to spend now if they hope to have a cushion for the future as well.

And perhaps most relevant for today’s fiscal climate, 73% of people with a plan have taken steps to ensure their financial situation has been built to weather economic ups and downs. This is more than twice the percentage of people who feel confident going it alone. Of that set, only 30% feel their finances could withstand an economic crisis like the one wrought by Covid-19.

The 21st century has seen its fair share of economic mayhem. As a consequence, the benefits of building a financial plan that can protect you and your loved ones from unexpected crises has been well researched. The results are overwhelmingly clear: people are happier, have higher self-esteem and are more goal-oriented when they feel they have a handle on their financial well-being. All you have to do is get started.
If you’re interested in learning more, register for our complimentary Future of Happiness webinar or get in touch with a Sanlam advisor.

 


[1] https://news.northwesternmutual.com/2019-07-22-92-Of-Americans-Say-Nothing-Makes-Them-Happier-Or-More-Confident-Than-When-Their-Finances-Are-In-Order
[2] https://bdaily.co.uk/articles/2020/10/12/does-money-buy-happiness-no-but-structured-financial-plans-may-result-in-a-stress-free-life-hoxton-capital-management-finds
[3] https://am.jpmorgan.com/gb/en/asset-management/per/investment-themes/saver-to-investor/savings-investments-survey/

[4] https://news.northwesternmutual.com/planning-and-progress-2020

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