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The financial wellbeing equation

March 26, 2025

Category: News

This guest blog was written by Chris Budd who wrote the original Financial Wellbeing Book, and also the Four Cornerstones of Financial Wellbeing. He founded the Institute for Financial Wellbeing, and has written more than 100 episodes of the Financial Wellbeing Podcast.

Financial wellbeing is a subject that looks at all aspects of the relationship between money and happiness. This is a very broad subject, covering research and thinking from disciplines such as psychology, neuroscience, philosophy, theology, and academia.

It is such a broad subject that it can, at times, feel a little overwhelming. So, I’d like to try and summarise all this knowledge into a simple equation that shows you how you can ensure that money is a tool to increase your wellbeing.

An overview of financial planning

The simplest way to achieve financial wellbeing can be summed up as follows:

Financial planning is really very simple. You first work out what you want from life, then spend your money on that.

The trouble is, working out what you want from life is actually not that simple at all!

Society and social media place a great deal of pressure on what and who we think we should be, and on what role money plays in creating those images. We tend to view success in the size of someone’s net worth, rather than their self-worth.

As a result, we need to delve deeper into what makes us happy and consider the many barriers that prevent money from adding to our wellbeing.

What makes us happy

Research shows that there are two main sources of long-term wellbeing.

The first is the quality of our social relationships.

So, your first rule should be to point your money in that direction. Indeed, not only your money but also your time. Financial planning can be key here – it shows you how much money you need to spend your time doing what you want to do. And it shows you what you need to do to get there.

The second source of wellbeing is having something purposeful in our lives.

This could come through your work (such as a nurse or teacher), or community activities, like helping with children’s sporting activities. Perhaps it comes from being creative. Understanding how this relates to you is a process that I call “know thyself”.

Having a purpose will often involve a connection with other people. Financial planning can provide understanding for someone’s “How much is enough?” figure – and when they have reached it. What will happen then? Many people, upon discovering that they have options for how to spend their time, choose to help others. They might become a mentor or perhaps work for a charity.

Financial wellbeing interacts with the other types of wellbeing (social, physical, community, and career). For that reason, purpose comes when these are both optimised and balanced with each other. We gain social interaction by helping others, aligning “what we do” with “what we believe”.

The importance of acceptance

There is a great deal of research that shows that striving for change is an agent of unhappiness – indeed, this principle is a basic tenet of mindfulness. If we can be more mindful of our circumstances, and enjoy who and what we are and what surrounds us, then wellbeing will result.

Of course, if what we find does not make us happy, then this may lead to change. This could lead to a period of unhappiness while we seek change, but only until we find that new point of happiness. During that period of change, unhappiness can be reduced if what we are seeking is aligned with our purpose and our values.

The barriers to wellbeing

If acceptance, alignment of purpose, and helping others, are major contributors to wellbeing, then surely anything that hinders these ideals will reduce wellbeing.

Lots of research and studies have provided insight into how money can sometimes be a barrier to wellbeing. These include:

  • Materialism (the value of wanting to accrue ‘stuff’ is in direct contradiction with wellbeing)
  • Comparing yourself with others
  • Advertising that tells you that you are not good enough unless you buy a specific product
  • Using money as a measure of success
  • Not having control over your finances (uncertainty is a big enemy of wellbeing).

One other major barrier to wellbeing occurs when we see money as the measure of success. This often results in spending our money on things that are purchased with the specific aim of showing others that we can afford them – designer clothing, expensive cars, or a bigger house than we need.

This makes the approval of others the main source of our self-worth. As Theodore Roosevelt said, “comparison is the thief of joy”. It creates a never-ending and often exhausting search for wellbeing.

The equation

So, let’s put all this together. If someone understands what makes them happy and works towards a purpose, and has a healthy approach to money, then wellbeing from wealth will result:

(Know thyself + purpose + financial plan)

minus

(seeing money as the objective + comparing yourself with others)

equals

Financial wellbeing

It’s a little simplistic, but I’d suggest someone following that equation would find themselves in a position of significant wellbeing!

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Approved by The Openwork Partnership on 17/03/2025.

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