With Financial Awareness Day in mind, research from Scottish Widows' latest Retirement Report reveals a quarter (5.7 million) of working age adults don't believe they'll ever be financially independent.
This lack of financial independence is especially prevalent among younger people, renters, and individuals with disabilities. And for many, key markers of independence like being debt free or having emergency savings, feel unattainable.
The research reveals that a significant portion of the population is facing serious financial challenges:
A third (35%) can't save for retirement
Well over a third (37%) wouldn't be able to cover an unexpected emergency
Another third (33%) have no disposable income at the end of the month
Over a tenth (15%) haven't started saving for retirement and don't plan to
Pete Glancy, Head of Pensions Policy at Scottish Widows commented: “As Financial Awareness Day approaches, our research serves as a powerful reminder to consider our own financial health and take steps toward building a more secure future. Feeling financially independent is the first step on the road to feeling financially empowered, which is essential when building your retirement income during your working life. Savers face a myriad of competing financial challenges – from managing their daily household budget to unplanned emergencies. With 15.3 million people currently at-risk of poverty in retirement, there is a clear need to help people understand how much they will need to cover their living costs in retirement, how much their projected pension is, and how to take action if needed.”
Pete Glancy, Head of Pensions Policy at Scottish Widows, shares his top tips to help achieve financial independence
1. Understand your spending habits to gain more financial control
Look at your bank statements to get a clearer idea of your monthly outgoings. Many banks provide spending insights, breaking current account spending down by categories to help you spot patterns, and see where you might be able to save in the future. Identify expenses that don't support your savings goals and consider what you can cut back to save more money.
2. Commit to clear savings goal(s)
Whether short or long-term, decide how much you want to save and by when – be specific and realistic about your goal. Try using a savings calculator or tracker to help you understand what you are able to save, and to see how close you are getting to your goal.
3. Seek out where you can make more savings
Regularly check your recurring expenses to save more money. Most banks provide subscription management tools that help you take control of these plans. Set reminders to review these regularly and cancel any services you no longer need or use. At the same time, it’s a good idea to check and compare prices for essential bills by using comparison websites or negotiating with your existing provider. Some companies have new discounts available for switching – but be mindful of cancellation and exit fees. The extra money saved can be directly invested, and bring you closer to your financial goals.
4. Ensure you start up an emergency fund
Life is unpredictable, having an emergency fund is vital for financial security. According to Scottish Widows' latest Retirement Report, 45% of people lack enough savings for emergencies, highlighting affordability issues and affecting their sense of financial independence. As a rule of thumb, it's important to set aside an emergency fund with enough money to cover your essential outgoings in case of an unexpected expense or redundancy. A fund of £1,000 should be able to help in the event that essential household goods break down. A larger fund of around three months of your salary is required to keep you going in the event of losing your job. You can start small, by setting aside a fixed amount each month. Make it a consistent habit and overtime, you’ll have a dedicated saving fund that will give you peace of mind if unexpected costs arise.
5. Manage your debt
Debt can seriously impact your path to financial freedom and delay or disrupt your plans. It’s important to have a clear understanding of all your debts, including interest rates and repayment terms, before you commit to a clear repayment plan. If you feel overwhelmed, seek professional advice. Reducing your debt burden will free up more of your income to put towards your future financial goals.
6. Plan for your future finances
Those who do not feel financially independent are less likely to be saving for retirement. Indeed, Scottish Widows’ research shows over a tenth (15%) have not started preparing for retirement and do not plan to, and a further 19% have not started but want to.
Encouraging early engagement with pensions and investments could help close this gap, boosting both feelings of financial independence and retirement outcomes. Start by thinking about what financial freedom looks like for you. Whether that’s early retirement or simply having a financial safety net – define your targets so you have a clear goal you can work towards.
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