How a financial plan could leave you up to £194,000 better off

More than twice as many people say their financial situation is worse now than it was a year ago, research suggests, as the cost of living continues to bite. But wealth was thousands of pounds higher in households with a financial plan – regardless of income level.

Average UK household wealth fell by almost a fifth (17.5%) to £104,329 over the past 12 months, down from £126,482 in the previous period, a survey by wealth manager St James’s Place found.

Causes for the drop included the cost of food and essentials (57%) but also lack of a salary increase (19%) and increased tax bills (8%).

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The findings – based on estimated average household wealth, which includes savings, investments and physical possessions but excludes property – are from St. James’s Place’s fifth Financial Health Report, conducted annually among 6,000 individuals across the UK.

Just over a third (34%) said their finances have worsened over the past 12 months compared to only 17% who said it had improved.

Everyday financial confidence is also slipping. Just 37% now describe themselves as financially comfortable, down from 42% last year.

Alexandra Loydon, group advice director at St. James’s Place, said: “Many households are feeling worse off, with living costs and heightened global uncertainty weighing on confidence and, understandably, affecting how people feel about their finances and the future.”

Financial plans linked to wealth

However one factor stood out as having a big impact on household wealth – those who had a financial plan were thousands of pounds better off, across every income level.

On average, households with a financial plan say they have £157,416 in wealth, compared with £70,610 for those without.

Among households earning under £20,000 a year, those with a financial plan are around £24,500 better off on average than those without. At the other end of the scale, the gap rises to nearly £200,000 for those earning over £80,000.

The benefits extend beyond wealth. Seven in 10 people (72%) say having a financial plan makes them feel more confident about their financial position.

Meanwhile half (51%) describe themselves as financially comfortable, compared with just 29% of those without a plan. Three quarters (76%) also say they feel financially resilient and able to cope with unexpected changes, compared to 52% of those without a plan.

Yet fewer than four in 10 people (38%) have a financial plan in place, unchanged since the research began tracking the nation’s financial health in 2022.

Wealth and financial plans by region

When it comes to wealth and having a financial plan in place, London stands apart, with average household wealth of £171,455 and the highest proportion of people with a financial plan in place (46%).

By contrast, planning levels are lower in regions such as Wales (30%), Northern Ireland (33%), and Yorkshire and the Humber (35%) where average household wealth is also significantly lower at £86,847, £100,534, and £73,488 respectively.

Elsewhere, 40% of people in the North West have a financial plan, with average household wealth of £82,968, while in Scotland 37% of people are planning and average wealth stands at £96,918.

Loydon said: “Those who take a more structured approach to managing their money are better placed to build wealth, feel more confident and stay resilient, regardless of their income or circumstances.

“At a time when so much feels outside of our control, it becomes even more important to focus on the things we can influence. Having a clear plan for your money, and taking small, consistent steps to manage it, can make a meaningful difference – helping people feel more in control and better prepared for whatever comes next.”

Simple steps to help build a financial plan

1. Identify your financial goals

Start by being clear about what you want your money to do for you. From short-term goals, such as building an emergency fund or paying for a holiday, to longer-term goals, like buying a home or saving for retirement. Clear priorities can help shape better decisions and make planning more manageable.

2. Understand your current position

Take stock of your income, outgoings, savings, debts and assets. Understanding where your money is going can help identify areas to adjust and create opportunities to save or invest more consistently.

3. Build an emergency cash buffer

Building easy-access emergency savings for the short-term to cover unexpected costs or changes in income can provide greater financial confidence in uncertain times. Investing over the long term is also key when it comes to building financial resilience. Even small, regular contributions can build up over time.

4. Think about investing for the long term

Longer-term goals require a longer-term approach. Investing can help build wealth over time, especially when it is started early and maintained consistently. Ideally when you invest you should be prepared to tie your money up for at least five years.

5. Review your plan regularly

Financial circumstances change. Reviewing your financial plan as your situation evolves can help ensure it remains on track with your goals and priorities.

6. Consider seeking professional advice

Professional advice can help you gain a clear vision and structure for your saving and investing, particularly if your finances are more complex. People who seek advice are often better placed to work through tricky financial situations and build stronger wealth foundations.