What is the *real* state of your finances?

A recent major financial survey reported that millions of people in the UK are walking a financial tightrope. 

The Financial Lives Survey, run by the FCA (Financial Conduct Authority) is seen as an accurate benchmark for the state of the UK’s finances. It takes place every 2 years and the results of the 2024 survey have just been published.

The most recent survey questioned around 18,000 people about how they deal with money. This data is then used to represent trends in the UK adult population as a whole.

One of the key findings was that 24% of adults in the UK have some kind of low financial resilience. This includes:

• Having low savings : 10% had no cash savings at all, and another 21% had less than £1,000;
• Being heavily burdened by financial commitments : 5% had persistent credit card debt;
• Being in financial difficulty : 8% had missed paying bills in at least 3 of the last 6 months.

The result of low financial resilience is stress. 22% of adults felt overwhelmed and stressed dealing with financial matters, and 40% of adults with credit or loans said they suffer anxiety/stress because of their debt. 

So how financially resilient are you? What is the real state of your finances?

In this article we explain how to understand more about your financial situation and increase your financial resilience. The first thing to do is calculate your net worth, and then take steps to increase your financial resilience.

Calculate your net worth

Your net worth is a helpful snapshot of where you are at financially. It is calculated by subtracting your total liabilities – ie everything you owe – from your total assets – ie everything what you own:

Net worth = total assets – total liabilities

Start by making two lists. Assets and liabilities.

Your list of assets should include everything you own : your home, savings, investments and cash in the bank. Make a list of your assets and roughly how much they are worth.

Your list of liabilities should include everything you owe, and how much. For example, mortgage, loans (including student loan), credit cards. 

Now subtract your liabilities from your assets and this gives you a good idea of your net worth. To have healthy finances you need a positive net worth i.e. more assets than liabilities. But many people in the UK have a negative net worth. If you are in this situation there is no need to panic, but it’s also a wake up call to start actively taking steps to improve your financial resilience.

Five steps to improving financial resilience

Whatever your net worth and current financial situation, these five steps will help you start to make significant changes:

• Make a budget and track your spending

Budgeting your money and tracking your spending is a simple yet essential tool to keep your finances on track. Unless you are very clear about how much money is coming in every month, and how you will use it, you will soon lose track. You are likely to end up overdrawing each month without really understanding where your money is going.

A realistic monthly budget needs to include all your income (money coming in) and expenditure (money going out) so that you can see whether you have enough money for everything you need. If your budget doesn’t cover everything, you need to make some tough decisions about making changes either to your spending habits or level of income.

As well as creating a budget, it’s also really important to track your spending. You may have figures in your budget that look accurate, but when you check what you are actually spending you may be shocked at how much more money is going on one or more categories that you thought. So use a notebook, app or spreadsheet to keep track of everything you spend and compare it with the amount you had budgeted for. If you realise that you are constantly overspending in one category you need to either reduce that or adjust the budget to move money from another category to cover it.

• Face up to bad debt

Debt is very isolating. It is something that we can often feel ashamed about, and so don’t like to talk about it. But most adults in the UK are in debt to some extent. UK household debt is forecast to rise to £2429 billion in 2025, with average household debt (including mortgage) £85,274.

So, debt is a normal part of life for most people. But within debt there are two categories : good debt and bad debt. 

In one sense, any kind of debt is never good. But some debts can be described as good debt if they are helping you to buy a major asset or achieve an important life goal. For example, a mortgage, car loan, student loan or business loan could all potentially be seen as good debt.

Bad debt is debt that takes more than it gives. It is often everyday debt that has just mounted up and up, and is now beginning to be difficult to repay. For example if you have a high credit card balance and are only making minimum repayments, you could end up just paying off the interest each month so that the actual balance doesn’t reduce. If you stay on this path it could take years to pay off, and cost way more than the original amount you spent.

For any kind of bad debt, it’s good to explore different ways of tackling it. The best way is to see if there is any way you can increase your income either permanently or temporarily, so that you can channel more money into paying off your debt more quickly. Another option could be to take out a debt consolidation loan to pay off all your existing bad debt then focus all your repayment efforts into just one monthly payment.

• Keep on top of your credit score

In our last article – Can I Get a Personal Loan with Poor Credit History – we explained the concept of credit scores. Every adult in the UK has a three digit credit score, allocated by one of three Credit Reference Agencies – Experian, Equifax or Transunion. Your credit score is a helpful indicator of your financial health, and is also used by lenders as part of their decision-making process on whether or not to lend to you.

If your credit score is lower than you would like it to be, there are things that you can do to boost it, which we explained in our article. It’s important to keep on top of your credit score, as it can impact a wide variety of areas such as loans, mortgages, rentals, phone contracts and even employment. And, even though it doesn’t give the whole picture, it is still a significant factor in your financial resilience.

• Build your savings

As we saw earlier, 10% of UK adults have no cash savings at all, and another 21% have less than £1,000. But your financial resilience will greatly improve if you can start building some savings. 

Many financial experts recommend that you try to build up savings equivalent to six months living expenses. But the recent Financial Lives survey found that 42% of UK adults could not cover their living expenses for more than 3 months if they lost their main source of household income, and 9% could not cover their living expenses even for a week.

And of course, as well as covering you for financial emergencies, savings can also enable you to enjoy the things that you want to do in life without worrying about the cost.

So no matter how little savings you currently have, or if you have none, it’s time to get started. The best way to develop a savings habit is just to do it. Open a savings account today – you can usually do this for as little as £1. Set up a direct debit to put some money in there every month. Even if it’s just a very small amount at first, you will be saving something. You can gradually increase it as you are able, and can supplement it with any extra money that comes your way such as gifts, wins or bonuses. 

Start small. Start today. And before long you will see your savings start to grow.

• Maximise your pension

No matter what your age, it makes sense to maximise your pension. The Financial Lives survey found that 22% of non-retirees said they were unprepared for retirement because they don’t understand their options and 31% had not thought about how they will manage financially in retirement. Meanwhile, 3.8 million of current retirees are worried that they don’t have enough money to last their retirement.

So it’s important to understand what pension you are entitled to, and see if there are ways that you can increase it. As well as your state pension, if your employer has a pension scheme you should automatically be enrolled in it if you are eligible in terms of hours and income. If you are not sure, check with them as soon as possible. A workplace pension is great news as your employer will contribute money – usually at least 3% of your salary – into the pension scheme. You can also usually make extra payments into your workplace pension.

Whether or not you are not in a workplace pension scheme, another option is to take out a private pension. You can pay into this either on a regular or lump sum basis. The advantage of this is that you should be able to access it earlier than either your workplace or state pension, so if you want to retire early or have other plans for later in life it is worth looking into this now.

And if you either pay extra into a workplace or have a private pension, your payments will usually be eligible for tax relief. This is win-win: not only are you increasing the amount of your pension, but you are paying less tax, which offsets some of the cost of your pension contributions.

We hope that the above information helps you to gain a better understanding of the health of your finances, and know where to start making changes where needed. And if at any stage you need financial help – for example a debt consolidation loan – remember that Loans 2 Go offer a range of personal loans which may be able to help.

For more useful financial and lifestyle tips, visit us here again soon at Loans 2 Go.