Can you actually afford to buy?

There is so much pressure to buy a home to enter the property market these days that renters could be forgiven for experiencing a sense of failure if they are not planning to buy.

We have recently covered how renters can avoid that sense of financial failure.

But with even the Prime Minister apparently talking up buying as a solution to renting, the pressure to buy is powerful.

When asked why there wasn’t more support for renters in the 2022 Federal budget, Scott Morrison suggested buying should be people’s objective.

‘The best way to support people renting a house is to help them buy a house,’ Mr Morrison told The Today show.

The government’s 2022 Federal budget materially supported this objective by expanding the home loan guarantee scheme, which now allows people to borrow up to 95 per cent of the value of their property without having to take out mortgage insurance.

But with so much noise apparently nudging people to buy, how can you be sure you – with your finances, personal and job situation – can actually afford to buy a home?

Is buying always best?

Hamish Ferguson says it is not always correct that buying is better for everyone.

“It is good for some people but depending on the person it is not always best.”

People have many different reasons for renting – often because they are only in a town temporarily.

Owning a home is a huge commitment, often a lifelong one and it doesn’t guarantee financial success when you sign a contract.

In fact, any big contract that involves large sums of money requiring a long-term commitment to make repayments is inherently a financial risk.

You need to be well prepared to enter such a contract and have contingency plans in case your personal situation changes.

The reality is if someone is not really ready to buy, that renting – within your means and with a savings goal – is by far a better option than scrambling to buy a home and that could instantly put you into mortgage stress.

Mortgage stress is most commonly defined as a household spending more than 30 per cent of your pre-tax income on home loan repayments.

It’s also important to remember the upsides of renting when balancing up a choice:

The benefits of renting include:

    • More freedom to travel the country and the world;
    • Less of a financial commitment, especially upfront;
    • No maintenance costs or repair bills;
    • No property taxes;
    • Greater ability to reduce living costs if your situation changes; and
    • You are likely to have more disposable income.

Peer pressure in buying property ?

There’s often a perception that the decision about buying property only comes down to the lender – and that if you can buy, you should.

It’s true that the bank greenlights your loan and your mortgage, but there’s more to it than that.

Peer pressure can make people buy property they actually are not suited to.

This is a real thing. Aussies feel peer pressured into anything from splitting bills to buying property.

Eight per cent of Australians feel they have bought property because they felt pressured.

The peer pressure could be about the location, the commitment to buy or the style of home.

For instance, you might fall for an older property because you long to renovate, but just because you can get the loan doesn’t mean you should.

“An older property needs to be considered much more carefully as it is likely that you will need to contribute a higher amount to maintenance over the life of the property than a new property,” Mr Ferguson said.

Pre-approval from a lender is good, making sure that you have disclosed an accurate estimate of your cost of living, realistic estimation of the rent that the property will generate.

‘But you also should have had a good think about major expenses that might come up over the next few years and ensure that you can afford the property taking this into consideration.”

Red flags that mean you may not be able to afford to buy

Whether you can afford to buy should be influenced by a range of factors including:

    • Your health and that of loved ones;
    • Whether your employment is stable;
    • The likelihood of increasing or losing income;
    • Having a family, schooling;
    • The stability of your other financial commitments, i.e. business ownership;
    • Changing market conditions; and
    • Additional costs above the purchase price.

The RBA has recently (April 2022) increased interest rates by 0.25% to 0.35%. The last time interest rates were increased was in 2007 by 0.25% to 6.75%, that is 15 years ago.

That year Steve Jobs released to the world a new product called the iPhone. A generation of new borrowers have not experienced a rate rise, only rate cuts.

The April 2022 rate increase is just the beginning, some experts are predicting a further six interest rate rises in the next two years and for consumers to take into account a doubling of interest rates.

It’s important to have enough flexibility to cope if your personal conditions change – or if market conditions keep changing.

‘I recommend that you can still afford the property at 6 per cent interest rates,” Mr Ferguson said.

On the average Australian home loan, which is currently $595,000, an extra three per cent would cost over $1,000 extra for each monthly repayment.

It would add up to nearly $400,000 extra over the course of a 30 year home loan.

Mr Ferguson says a buyer needs to take into consideration other costs such as insurance, rates and maintenance over time.

“This can depend on the area and type of property, however I would suggest that a $1.5 million property that is more than 20 years old will probably cost between $15,000 to $20,000 per annum to maintain.

“Possibly allowing 1 to 1.5% of the property value might be a reasonable level.”

What is the minimum amount of time a property investor should stick with a property?

“There are different schools of thought on this however my suggestion for clients is that a 10-year time frame as a minimum should be considered,” Mr Ferguson says.

“Generally the more regional the property being purchased, the longer the period that the property should be expected to be held.”

Keeping up with the Joneses

In a recent article on how renters can avoid fear of financial failure we referred to the pressure people feel to stray into unhealthy spending patterns out of the type of peer pressure known as ‘keeping up with the Joneses’.

“You can avoid the mindset traps by not thinking that you have to ‘keep up with the Joneses’ and realise that often the picture people show is not the real or true picture,” said Hamish Ferguson, a director of Vision Property and Finance.

First, a quick refresher on what the saying means.

Keeping up with the Joneses is a common saying referring to the comparison to one’s neighbours as a benchmark for the accumulation of material goods or status.

To fail to “keep up with the Joneses” is perceived as demonstrating financial and/or cultural inferiority.

It comes from an American cartoon strip of the same name which started over a century ago.

Most of us like to think we are independently-minded enough to avoid falling into traps like this.

But as with the belief that most of us see ourselves as “above average” drivers, we tend to overstate our abilities.

As a result, we can easily avoid helpful behaviours like budgeting and slip into mindless spending and financial stress.

New research by Finder shows it’s that’s not the case that most of us avoid the ‘keeping up with the Joneses’ trap.

A national survey of 1,000 people found 47% of Aussies have felt pressured to spend money by their social circle.

The research found 1 in 5 (22 per cent) accumulated debt or spent more than they could afford because of the pressure to spend – equivalent to 4.3 million Australians.

Aussies feel peer pressured into anything from splitting bills to buying property.

More than a quarter of Aussies (28 per cent) have felt forced into splitting a restaurant bill evenly, when they had ordered less food than others.

The gender split on this ‘keeping up with the Joneses’ behaviour may not automatically confirm stereotypes.

The research showed men ($1,560) have overspent substantially more than women ($912) to keep up with friends and family.

Finder’s Katie Browne attributes some of how we handle peer pressure around money to the fact that it remains a taboo subject.

“Unfortunately money can cause rifts between friends and families at times,” she said.

“Everyone has different incomes, money values, and financial priorities and finding the spending sweet spot with friends can be a tricky situation to navigate.”

The research showed 1 in 7 (14 per cent) people have been coerced into going on an expensive holiday with loved ones.

A further 9 per cent have felt they had to fund a bucks or hens night, while 7 per cent have felt pressured into paying for someone else’s baby shower.

Some Australians even admit to buying expensive items like a nice car (8 per cent), a home (8 per cent) or designer items (8 per cent) to keep up with their friends and family.

Browne said feeling guilted into spending more just to keep up with friends is an easy way to blow your budget.

“While no-one wants to be a party pooper, consider suggesting a more affordable alternative when you are invited to a fancy dinner or on a pricey holiday. You can always be honest with your loved ones and say while you value spending time with them, you don’t want to spend too much money doing it.

“Money management apps – like the Finder app – can help you see your income and expenses all in one place and figure out how much you can afford to spend.

“At the end of the day, it’s your money and you get to decide how you spend it. If your friends are good friends they’ll want to see and spend time with you – and the location really shouldn’t matter.”

Millennials are the most vulnerable to financial peer pressure, with 69% having spent money because of social influence, and 36% admitting they’ve gone beyond their financial limits to do so.

Kate Browne, personal finance expert Finder, said money is still a taboo topic for many.

“Unfortunately money can cause rifts between friends and families at times.

“Everyone has different incomes, money values, and financial priorities and finding the spending sweet spot with friends can be a tricky situation to navigate.”

The research shows 1 in 7 (14%) people have been coerced into going on an expensive holiday with loved ones.

A further 9% have felt they had to fund a bucks or hens night, while 7% have felt pressured into paying for someone else’s baby shower.

Some Australians even admit to buying expensive items like a nice car (8%), a home (8%) or designer items (8%) to keep up with their friends and family.

Browne said feeling guilted into spending more just to keep up with friends is an easy way to blow your budget.

“While no-one wants to be a party pooper, consider suggesting a more affordable alternative when you are invited to a fancy dinner or on a pricey holiday. You can always be honest with your loved ones and say while you value spending time with them, you don’t want to spend too much money doing it.

“Money management apps – like the Finder app – can help you see your income and expenses all in one place and figure out how much you can afford to spend.

“At the end of the day, it’s your money and you get to decide how you spend it. If your friends are good friends they’ll want to see and spend time with you – and the location really shouldn’t matter.”

Millennials are the most vulnerable to financial peer pressure, with 69% having spent money because of social influence, and 36% admitting they’ve gone beyond their financial limits to do so.

Have you ever felt pressured to do any of the following with friends/family?
Split a bill evenly at a restaurant when you ordered less

28%

Go on an expensive holiday

14%

Buy concert/festival/sporting event tickets

10%

Pay for someone’s bucks/hens night

9%

Buy a house/apartment

8%

Buy a nice car

8%

Buy designer items

8%

Pay for someone’s baby shower

7%

Other

1%

None of the above

53%

Disorganised finances part 2 of 2: Practical tips to organise our personal finances

In part 1 of this series on disorganised finances we looked at the importance of paying attention to your personal finances and how mindfulness is the ideal tool to help you make this shift.

Once you are paying attention you become aware of the reality of the situation you are in you will probably find several issues that need addressing. These could include:

These are all complex and multi-faceted challenges that need separate strategies and time to address properly.

They are all issues that Financial Mindfulness looks at regularly both here and in the content within the app.

In part 2 of this series on disorganised finances we take a step back to try and address some fundamentals you’ll need to improve your situation.

We run through some of the golden rules for returning disorganised finances to an organised state and then look at the ‘fatal flaws’ for our hopes of staying organised in the future.

These guidelines have been provided as suggestions by some Financial Mindfulness’s highly experienced experts.

Time to face reality

You’ve presumably read this far because you know there’s a problem with your finances so you’ve already made progress.

Well done on that step and your willingness to face up to problems.

The first issue to face up to is debt: a pattern of being in debt often creates financial stress.

We need to get real around debt – as quickly as possible.

Not all debt is bad of course – if it is debt incurred to build a positive long-term goal or as a solid investment, it might be useful.

The problem occurs when we begin to accumulate multiple debts and ignore the red flags around those.

So we need to identify and detail all debts, seek help – urgently if need be – and build a plan to reduce those debts.

Maintaining a mindful approach to money will help us stay in reality about money – and this needs to be our new default: being in reality about money every day, every week.

At Financial Mindfulness we define being mindful about finances as being aware and paying attention to your finances, and that may mean seeking help.

Get your mindset and motivation right

To become organised, you need to see being organised as an important thing to do, says Hamish Ferguson, a director of Vision Property and Finance.

This means connecting on a daily basis to your purpose around money. You’ll need that motivation to sustain changes in your habits and behaviours

It’s also crucial know your underlying mindset.

One of the most persistent and pernicious reasons our financial goals fall away, we lose motivation, or we never seem to get ahead is our mindset.

“We always have more options than we often realise but if we have a negative mindset, or scarcity mindset, we’re not likely to recognise or see the opportunities that might be right in front of us,” says money behavioural coach Lea Clothier.

Our core beliefs about money can be very deep-seated. Uncovering them and developing a more positive outlook on money may take extra support, for example from a financial therapist.

Mr Ferguson, suggests says one way to help unlock our real mindset is to write a list of the benefits of not being disorganised and share it with someone you are prepared to be accountable to.

Keep revisiting this on your journey towards becoming better organised.

Set some positive financial goals

Mr Ferguson, part of the Financial Mindfulness team, suggests setting some achievable goals around your finances is important.

“These should be goals that would help you feel good about your circumstances,” he says.

Examples might be building savings of 2 months’ worth of expenses, or paying off a credit card and allocating the money towards savings or a buffer.

What happens if we’ve set a goal and we break promises to ourselves and a goal suddenly looks unachievable?

What is the first thing to do when we ‘fall off’ our goals and they suddenly appear unrealistic?

With goals related to money, it’s essential to do a little self-examination to stop any negative patterns taking hold that might lead to financial stress. These patterns might include compulsive spending as a coping strategy.

Firstly, it’s important try not to abandon a goal just because it didn’t work out perfectly, or even if it seemed to fail entirely.

The reason for having that goal may still be sound.

It sounds obvious, but don’t give up! Regret over failure is far harder to deal with than the failure itself.

Really, falling off a goal creates a valuable opportunity to learn and grow – new skills and the resilience to cope with future setbacks.

You can read more about revisiting your goals if they don’t seem to be working here.

Don’t try to change your world on day one

Ms Clothier, who is part of the Financial Mindfulness team says it’s important to ‘start small’.

Choose one area that you can become better organised.

Perhaps it’s organising your filing system, or becoming more organised with bill paying, or cleaning out your wallet.

“Finish that one task, then move on to the next,” she says.

“It will be less overwhelming and you’ll create momentum as you complete each task.”

Ask for help. If you’re not sure, ask others what they do? How they organise their finances or what apps they might use etc.

Once you’ve sorted them, keep on top of your finances on a weekly basis.

“Putting in a few minutes each week is much easier than taking a few hours each month, which can become daunting,” Ms Clothier says.

It will be easier to keep track of and stay organised if you do a little bit, often.

Clean up your admin to reduce shame around money

 Boring yes, but important? Absolutely crucial.

A basic as it sounds, getting organised starts will filing.

Set up a filing system – in your computer or online – to arrange all financial documentation be it electronic or paper.

Start with getting those bills organised into categories, e.g. Utility bills (electricity, gas, etc) in a separate folder.

Create folders in categories that mean you are more likely to pay attention to them – and not be able to ignore them.

A tidy system with money actually reduces our shame around money, which is incredibly valuable.

That in turn reduces the belief that we might not ‘deserve’ to have positive experiences with money.

Budget early and budget often – just do it!

 Instinctively, we know that budgeting allows us to manage money wisely, avoid financial stress, and be in control.

The simple answer to ‘why budget’ that it’s a habit that is always helpful to our financial situation.

Setting up the simplest of budgets is a big step forward to managing weekly, monthly and yearly expenses.

It’s important to note that budgeting is not easy. It is a commitment to a new way of thinking about money, and it adds a whole new layer to how we interact with money.

Budgeting is a high-level mindful money practice – it’s paying attention to what we earn, what we spend, what we need and our attempts to change for the better.

Succeeding means not giving up in the pursuit of this new life skill.

The proper motivation is needed to undertake this skill of being constantly curious about your money.

To make budgeting work you need to return to it every day to begin with, then at least every week – for a long time.

Budgets only work if they are realistic and if they are ‘live’ systems – so they need to be integrated into your daily life, reviewed and revised if they are not working.

Eventually you can review and revise your budget monthly.

Basic budgeting steps include:

    • Properly determining your household income;
    • Begin tracking your living expenses;
    • Balancing the budget;
    • Go back and review your expenses;
    • Review your income potential; and
    • Balancing the budget – yes again.

To learn more about how to budget, read on here.

An overlooked but essential element of budgeting is simply making time for it. Sounds obvious but it’s a budget killer.

“You must allocate a regular time to review what you have spent money on and what expenses might be coming up that are large or lumpy,” Mr Ferguson says.

We also have produced detailed material about maintaining a budget which you can find here.

The steps to maintaining a budget include:

    • Schedule your budgeting practice;
    • Make budgeting a game that you ‘win’ at;
    • Review the value of your money and simplify your budgeting;
    • Get smarter about your use of credit;
    • Get real about planning;
    • Experiment with ‘not spending’;
    • Nominate a budget buddy and get accountable; and
    • Become proactive – and stay positive.

Take the ‘risk’ out of your regular bills

Paying bills – including card and loan repayments, energy bills, groceries and other recurring obligations – are among our followers’ main contributors to financial stress.

For people who cannot ‘get on top of’ regular bills they are things to worry about, instead of what they should be: transactions that buy us safety, enjoyment or investments in our future.

When we are not clear or organised with bills they can become risks.

Not all bills are created equal. There are basic but significant differences many of us don’t consider when managing our money.

We need to learn the difference between regular and variable bills.

Some bills recur at the time for the same fixed amount (with perhaps usually small incremental increases). These include mortgage, rent, rates, insurances, car registration, school fees and health insurance.

Other bills are variable, meaning the payable amount and date due can changes significantly.

These include servicing a car, paying for trades to fix something in your home.

Even though you know they are coming, you won’t know exactly when they will occur or how much they will be. A vital first step in managing bills is to identify the difference: which bills are for your needs and which are for your wants.

Think carefully about this: is the bill for something you want or need?

Once you had done this background work, it’s time to set up a crucial action plan.

To get control of household bills it’s important to have a full master list of bills – including regular and variable. Note the likely amounts payable and likely due date.

Consider taking some time to think about those items that are essential, but not regular. Think about the frequency that you would like to plan for those items and what amounts you might need to put aside

At the beginning of each month, create a checklist (separate from your master list) of the bills you are expecting to pay and the approximate amount.

It is wise to do this not just for the current month but the following month as well.

This list can be handwritten or electronic. Allow space on your checklist to mark if the bill was received and when the bill was paid.

Ideally this is what you would do when bills arrive – either in your mailbox, inbox or by SMS notification.

    • Don’t ignore your bills.
    • When they arrive open them.
    • Read and ensure you understand them. Is the bill correct according to your records?
    • Check the amount and time to pay.
    • If it’s urgent, pay it as a matter or urgency.
    • Keep all your bills together so it’s easier to keep track of them and pay them.

Set aside some time each month to pay your bills in line with how often you get paid. An hour is usually enough.

Bills need to be paid on time – this is an absolutely critical point towards helping you get organised.

“As you have organised all bills into separate folders, create reminder’s to pay before the due date,” says Andrew Fleming, Financial Mindfulness founder.

Applying mindfulness to disorganised finances

There’s a tough but essential reality to face with your personal finances if you ever want to improve your situation.

If you don’t pay attention to your finances, they don’t usually improve.

This may seem obvious, but it’s important to acknowledge it, and then act on it.

Paying no attention to your finances, allowing them to become disorganised, will mean some form of financial stress, stress and eventually distress becomes inevitable.

Even if you don’t see this cost immediately – ignoring finances creates chaos, often placing pressure on relationships.

What mindfulness can do for your money

Mindfulness is not just about meditation, in fact some mindfulness experts argue a meditation practice is optional as its just one way to be mindful.

Mindfulness is all about is paying attention, and applying that to your financial situation by definition means paying attention to your finances.

There are no guarantees for anyone, but it’s likely that being mindful about your finances will improve them.

The first step though is beginning to pay attention and that includes noticing resistance you have to facing the true state of your finances, and acknowledging these uncomfortable feelings.

It may feel overwhelming to know where or how to being to re-organise or take back control of your financial situation.

Mindfulness as a practice helps you to bring your attention to what is happening in the present moment.

It enables you to approach the task at hand, in a calm and centred manner.

What is financial mindfulness?

At Financial Mindfulness we define being mindful about finances as being aware and paying attention to your finances, and that may mean seeking help.

If you also practice mindfulness meditation, it can help reduce the anxiety, stress or avoidance you feel towards your finances.

A meditation practice can bring you to a state of acceptance, and allow you to take control of your situation in the present moment, one task at a time.

These meditations can help you to shift any blocks or resistance you may feel towards your financial situation, and will also help you to get into a calmer frame of mind, to be able to plan what action you need to take in order to get back in control.

When you are calm, and relaxed, you become more able to approach the task at hand.

From a calm place you can make better decisions and see the path forward, of small steps to take.

Some realisations may become clear quickly, for instance, you may overcome resistance to one particular area of your finances that is disorganised, like you business expenses or your taxation.

How mindfulness helps you get into action with disorganised finances

To achieve positive change, it is essential to develop new habits to improve your finances.

Ignoring your situation or just hoping things will improve, won’t help you move forward, or take back control. Just like procrastinating won’t improve the situation either.

To get your finances organised, these are a few of the basic ongoing tasks you will need to practice on a weekly basis:

    • Opening mail and email about your finances;
    • Understanding your income;
    • Examining your spending and identifying where savings can be made;
    • Knowing the difference between your income and expenditure – and being able to know it in advance;
    • Creating a planner of when bills and repayments fall due;
    • Creating a budget, following it and maintaining it; and
    • Creating an investment plan.

You can begin to think about the small but significant practical steps that you can take towards transforming your finances from being disorganised to being organised and in control.

How mindfulness helps you get your mindset right

You can to use mindfulness firstly to help you visualise what it would feel like to be organised with your finances and the sense of ease that that could bring to your lives from a financial and emotional level.

In any behaviour change, you need to be connected to the underlying motivation in order to be inspired to take action to change a situation.

Mindfulness is a tool that can help you connect to your motivation, and keep you focused on the path to creating change or shifting behaviour. If you feel stressed or slip back into old habits, you can use mindfulness to bring your attention back to your present moment, and take action again in a more positive and healthy way.

Mindfulness reminds you that you need to pay attention to the present moment. For example, when you receive a bill in the mail, applying mindfulness would tell you to open that bill, make a note of it, or pay it, and then file it.

Mindfulness is also the tool that helps you track and pay attention to your spending habits, sticking to your spending plan and remaining on track with your goals and decisions.

It’s a tool that you can use to keep you focused on your actions and what you are doing in the present moment, to ensure that you stay on track.

Using a mindful approach to create new habits

Couple of pars here and dot points on what these habits are

Living with a mindful approach to money means paying attention to money at intervals required to stay organised – whether that means daily, hourly or monthly.

Some of these new healthy habits will include things such as:

    • Generally improving your financial literacy;
    • Remaining aware of when bills and repayments fall due;
    • Remaining aware of all your account balances;
    • Monitoring income and expenditure your income and expenditure;
    • Monitoring your spending behaviour for products and services that you are; not using – so that you can sell these items and cut these costs; and
    • Managing your investments on a regular basis.

You should also experience a reduction in bill shock and encountering ‘unexpected expenses’.

How mindfulness helps to keep your finances organised

Your relationship with money is a practice.

You don’t arrive at an organised state and remain there. It is the daily habits and actions you take that support you to be organised with your money.

A mindfulness approach to your finances requires you to pay attention to your daily habits with money in each moment.

So, you are always mindful of what you are doing and spending.

What renters can practically do to improve their finances

In the first part of this series, we examined the mindset problem that can plague renters: fear of financial failure that comes with not owning your own home.

It’s well accepted that renting rather than owning your home is regarded as a sign of financial struggle, even if it’s not true.

That perception can act as a deterrent to creating financial freedom let alone becoming financially independent.

You can read our suggestions for overcoming that mindset in the first part of this series here.

That is an important first step towards overcoming the perceived hurdle of renting in achieving financial freedom.

A foundation of financial freedom

Being able to save more than we spend is a common-sense foundation in finding financial freedom and it should never be ignored.

A renter’s belief that their rent payments make savings impossible is extremely damaging to this fundamental step.

The reality is that a renter should – so long as they are paying an appropriate level of rent – have the ability to increase savings beyond that of a homeowner.

A homeowner has to pay rates, insurance and factor in repairs and maintenance.

Also, a mortgage will often be higher than rent from a repayment point of view.

“The renter should be trying to get into the mindset that this cashflow difference or saving for them should be put away for savings,” says Hamish Ferguson, a director of Vision Property and Finance.

A basic example is that an $800,000 established home that is more than 10 years old could have up to $8,000 per annum needing to be allowed for in expenses and possibly another $4,000 per year in the difference between rent and mortgage repayments.

That is $1,000 per month that the average renter could put towards savings or some sort of investment, he argues.

Paying the right amount of rent

So long as a renter’s rent payments are set at an accurate level of their income they should have more freedom to grow personal wealth in a way that they may not actually recognise or realize.

What if your rent actually doesn’t allow you to save?

The widely-accepted guideline is the 30 per cent rule, which recommends that you don’t more than 30 per cent of your gross income on renting a home.

It’s not an exact guideline and in an expensive capital city, it can be hard to stick to. But you shouldn’t be way over that. If you’re spending 40 per cent or more of your gross income on rent, you may be renting beyond your means.

That means if you earn $1,500 a week before tax, you’d be unwise to pay much more than $450 rent per week. Doing this is called placing yourself in ‘rental stress’.

This brings up another huge advantage of renting over home ownership: the ability to move somewhere cheaper quickly.

If a renter falls on hard times or realises they are paying too much rent, they can move to a lower cost property. It is much more challenging for a home owner to do this.

Renters sometimes have more freedom to negotiate in a contract than they realise too.

“Depending on the market it is possible to negotiate if rents are falling,” Mr Ferguson says.

“As home ownership in Australia is slowly declining and the government is conscious of reducing the benefits for property investors, this is not that common.”

What is more common, he says, is if the renter is thinking of moving due to cost increases they can:

    1. sign longer-term leases to try and reduce the effect of rental increases
    2. if they look after the property well, the owner is less likely to want to lose the tenant. This increases their bargaining power
    3. Sometimes for small increases or if they are a good tenant they can encourage the landlord to improve the property. This might mean getting an air conditioner, putting in a new oven or dishwasher or other small improvements.

Those small wins earned from being a reliable tenant can be translated into financial benefits.

Another thing renters can do to save money is legally sub-let a room.

They are allowed to do this however they do need to seek permission from the landlord. Most leases will specify how many people will be occupying the property.

What else can a renter do to improve their financial position? 

There has always been active debate around home ownership and whether the renter can achieve the same position as a homeowner.

If the same level of discipline is held between a homeowner and renter, the same level of wealth can be achieved if the income levels are the same.

Often but not always, it is harder for the renter as it is hard to create the right level of discipline around their finances so that the right level of money is put away for long term investing.

Here are some other ideas to help renters save money and improve their financial position:

    • Improve your financial literacy;
    • Face your debts and start reducing them;
    • Have good regular habits with regular bills, i.e. set aside money for bills (i.e. car registration, pet bills) and ‘unexpected’ expenses;
    • Do a budget and maintain it;
    • Introduce some realistic financial goals;
    • Introduce a mindful approach to managing your money;
    • Address and/or eliminate damaging financial behaviours such as compulsive spending and gambling;
    • Reduce discretionary spending i.e. eating out;
    • Cut energy costs i.e. ditch the second fridge, heat/cool one room at a time, dry clothes outside instead of using a dryer;
    • Live close to work to save money on transport;
    • Sell unwanted items;
    • Pay your rent on time – having a good relationship with your landlord is worth money; and
    • Have a plan for investing

How renters can avoid fear of financial failure

Whether or not it’s always true, renting your home rather than owning it is seen as a marker of financial struggle in Australia.

Likewise, home ownership is widely regarded as an indicator of financial independence – or at least a step towards it.

If someone owns their home, either alone or as part of a couple or group investment, there is a perception of personal wealth versus the relative lower net worth of a renter.

Of course, it’s not always true. People have many different reasons for renting – often because they are only in a town temporarily.

But for those living permanently in a town, renting – especially in some parts of a city – is associated with a lower socio-economic position and financial stress.

“Unlike some of our European counterparts, Aussies have always had this desire to own their own piece of turf. I think there is a stigma if you don’t own your own home,” says Hamish Ferguson, Newcastle Director of Vision Property and Finance.

This is arguably especially even truer in Australia’s big cities than its regional areas – where property values and price growth are usually much lower than in big towns and cities, often based on demand.

It’s a painful reality for renters that the median Sydney house price increased by $1,100 a day in 2021 – dramatically more than most could hope to save.

Overall Sydney median house prices grew an astonishing 33 per cent in the previous 12 months to $1.6 million.

In Canberra, median house price growth was even higher at 36.6 per cent (to $1.18 million), in Adelaide, it was 27.5 per cent (to $731.547) and it was 25.7 per cent in Brisbane (up to $792,065). In Melbourne, prices grew 18.6 per cent (to $1.1 million).

This of course has a positive impact on home owners’ financial positions.

Their investments look safe and savvy and in a powerful practical reality, they can borrow against their increased equity to purchase more property or capitalise on what they already have.

So long as property prices do not tumble many homeowners’ financial futures look reasonably assured.

But what impact does price growth have on renters, apart from making owning homes look more and more out of reach in capital cities?

Can renters get caught up in negative belief systems and perceptions of a two-tiered system extending to financial instability.

Can and do they begin to ‘give up’ on financial independence because of this?

For many, the answer would be a resounding ‘yes’.

How to avoid the mindset traps around home ownership

The polar opposite perception of financial independence is financial struggle, which is provocative and emotive.

There’s little wonder that positive and negative mindsets come with these positions – whether they are totally true, partly true or just perceived.

“Often people place the stigma of not owning a home on themselves,” notes Mr Ferguson.

He says the first mindset trap to avoid is that if I owned a home “it would solve all my problems”.

This belief is simplistic.

Owning a home is a huge commitment, often a lifelong one and it doesn’t guarantee financial success when you sign a contract.

In fact, any big contract that involves large sums of money requiring a long-term commitment to make repayments is inherently a financial risk.

You need to be well prepared to enter such a contract and have contingency plans in case your personal situation changes.

So, what can renters do about the negative mindset they might fall into?

Is it possible to avoid self-defeating patterns that might ingrain financial difficulties just because you’re a renter?

The reality is if someone is not really ready to buy that renting – within your means and with a savings goal – is by far a better option than scrambling to buy a home and that could instantly put you into mortgage stress.

Mortgage stress is most commonly defined as a household spending more than 30 per cent of your pre-tax income on home loan repayments.

“You can avoid the mindset traps by not thinking that you have to ‘keep up with the Joneses’ and realise that often the picture people show is not the real or true picture,” Mr Ferguson says.

Mindsets that tell us either home ownership is straightforward, or that it is out of reach, are unhelpful. Both are types of ‘black and white thinking’ that can lock us out of seeing other possibilities.

Getting into financial reality to overcome black and white thinking

We need to be in reality about our financial position and what’s involved with all the steps towards buying a home – and alternative investment options.

An absolutely vital first step is to learn how to monitor and measure your own wealth, ongoing financial position, and get advice around this.

Do you have a clear idea not just of your current income versus expenditure, but of how this might change in the next 5-10 years?

Factors influencing this include:

    • Your health and that of loved ones;
    • Whether your employment is stable;
    • The likelihood of increasing or losing income;
    • Having a family, schooling; and
    • The stability of your other financial commitments, i.e. business ownership.

“A good example is if someone comes to me wanting to purchase a property but I tell them they are up to two years away from doing this,” Mr Ferguson says.

“The hard decision is to either work towards this for two years or ask what else can be done.

“Often people give up as the goal is too far away and it is too hard to break a big goal up into smaller goals.”

The real benefits of renting

Can renting be a good thing, can it have positive outcomes financially?

Absolutely yes it can – provided renters maintain discipline around their personal finances.

“Home ownership is often only good because it forces people to pay down the loan and create equity,” Mr Ferguson says.

“If you don’t choose property then it is important to psychologically apply the same level of discipline to putting money away.”

This is hard to do in today’s society where immediate gratification and appearing successful on the outside seem too important and prevalent.

The benefits of renting include:

    • More freedom to travel the country and the world;
    • Less of a financial commitment, especially upfront;
    • No maintenance costs or repair bills;
    • No property taxes;
    • Greater ability to reduce living costs if your situation changes; and
    • You are likely to have more disposable income.

It’s worth noting that there are downsides to home ownership too. Remember the point about ‘keeping up with the Joneses’. That clichés has survived so long because it’s true.

These include:

    • Huge upfront costs and high-pressure transactions;
    • High costs of maintenance, many of which are ‘hidden’;
    • Mortgage stress is a constant pressure;
    • Chaos caused by defaulting on mortgage; and
    • Relationship breakup can mean you lose a house anyway.

How renters can still work towards financial independence without owning a home

​Once you let go of the mindset that you’ll be a failure if you don’t own your property, you make room for other investment options and choices.

An exchange-traded fund (ETF), managed funds including shares are seen as a successful alternative by many experts.

Vanguard Index Report said shares averaged 9.31% in gross returns each year in a 10-year period to June 2021 in Australia. This makes it the second-highest-returning Australian asset behind residential property.

Around $2,000 is enough to get started with a share portfolio, but you shouldn’t expect returns for around five years.

There is no need to borrow to get going and in a crisis,  you can remove your investment in a matter of days.

They can start a managed fund or shares portfolio or they can purchase their first property in a lower priced area and rent it out as two examples.

A renter can also focus their savings on some sort of small business or side hustle to create a better income stream

It all starts with budgeting and recognising your own negative mindset so you can become more open to other investment options.

How a ‘no-spend challenge’ can help your financial goals

What if there was a simple way to change our damaging spending patterns?

Just not spending any money at all isn’t realistic – most of us have repayments, bills and other regular financial commitments that we can’t just shut off.

But we can use a no-spend challenge as a strategy to change our mindset about discretionary spending.

In some ways a no-spend challenge is a blunt re-set tool, simply saving by not spending in certain areas – for example, not spending on eating out, or not spending on cabs.

But it’s more than that.

It’s about bringing attention and awareness to our spending habits and being more intentional with how we spend.

“Much of our spending is done out of habit, driven by emotions or without much awareness,” says Lea Clothier.

“A no-spend challenge is one way to break these cycles.”

Because we make a commitment not to spend in a certain area, we are likely to really notice our resistance to the spending ban when temptation arises.

This creates an exercise in mindful spending. We are forced to pay attention to, and practice moment by moment choices to refrain from spending in a certain area of our budget.

It is a challenge because it can be exactly that – challenging to not spend money.

We are so conditioned in the consumerist model that to not spend can feel uncomfortable for some.

For others, without a concept of how much is enough, constant spending can be one attempt to satiate this impulse to acquire, be and have more.

If you can accept a no-spend challenge, commit to it and surrender to it, you may get a huge sense of relief being freed from obsessive or automatic spending habits.

That is almost certain to reduce problem behaviours with money like compulsive spending and the impacts of financial stress.

What does a no-spend challenge actually look like?

There are endless ways to employ a no-spend challenge.

You may wish to choose one area or multiple areas where you’d like to have more control over your spending.

Some common and useful examples of types of spending we can address with a ‘no spend challenge’ might be:

    • Entertainment – including online games
    • Gambling
    • Eating out
    • Shopping on clothes/shoes
    • Shopping on cosmetics
    • Buying homewares
    • Signing up for personal development/training exercises

By challenging ourselves, we bring an element of ‘gamification’ to help change our habits and behaviours.

Rising to a challenge in this way can feel more rewarding than sticking to a budget.

A no-spend challenge also teaches us to make do with what we have, appreciate and be grateful for the abundance already in our lives, it can also teach us to be more resourceful with the things we do have.

It can also create awareness of the emotions and impulses that typically drive our spending habits. In a similar concept to “Dry July” it is a decision to abstain from something – in this case spending.

When the impulse arises, we can turn our attention towards what emotion or feeling is driving the desire to spend.

Is it a feeling of not having enough and wanting more? Maybe deep down we somehow feel like the product or service we feel so strongly about buying will ‘complete’ us?

Maybe we think it will make us happy or perhaps it’s just about relieving boredom or loneliness?

There are so many reasons that drive our spending apart from just the need for it.

The value of changing our whole approach to spending

‘When we become present to the desire behind the action and impulse, we have more ability to respond to it rather than react,’ Ms Clothier says.

A no-spend challenge offers us a mindful way to bring this awareness to our spending and helps us to retrain automatic spending habits. Ideally, these become savings habits.

It can be hard to change spending habits or even start budgeting if it’s not a habit that you’ve yet mastered.

Choosing one area of spending to focus on makes it easier to manage.

We can develop the skills, build confidence in our ability to make a difference in our spending/savings habits by addressing one area at a time.

Some of the benefits are that we give ourselves time to develop new habits, we make a declaration of our commitment to not spend, and if doing it as part of a group, we can benefit from the support and accountability of others.

Our ability to manage our spending and save money is the foundation of managing our money well and building wealth for the future.

When we are intentional about our spending, it enables us to allocate the money in accordance with our goals and priorities, rather than just mindlessly seeing it disappear.

How to track progress with a no-spend challenge

Tap into the reason why you want to do a challenge.

Is it to get in control of your spending? Reduce it in a particular area? Save money for something else? Find your motivation as this motivation is what will help you when you feel challenged or thinking of giving up.

There are no-spend challenges you can join online, or you can choose to do one individually.

If doing it on your own, I would suggest finding a buddy to do it with as it creates accountability and can be more rewarding to share and achieve together.

A good way to track it is to use a goal achievement chart or calendar.

It’s also good to actually put the money that you choose not to spend in another account (savings or separate bank account) so that you actually save it, otherwise it may be absorbed in other areas of your spending! And if you break a day in the challenge, you can always reset and start again rather than give up completely.

Make it realistic, and if you need to make it more achievable, do that instead of giving up completely.

Even choosing to not spend as little as $5 / day is $150 extra in your pocket at the end of the month!

How to start a no-spend challenge

You need to decide:

    • What is the category of spending you will try to cut out;
    • How long you’ll abstain from this category of spending;
    • What to do when (and not ‘if’) you feel an irresistible urge to buy it anyway;
    • Who you’ll be accountable to as you pursue a no-spend challenge;
    • How to process the uncomfortable feelings that will come up (i.e. in a journal, a spreadsheet, a phone call with your accountability partner or maybe with a money coach);
    • How you will track your no-spend challenge progress; and
    • How you will review the no-spend challenge exercise.

Revisiting your 2022 goals, yes already

Most of us recognise the importance of setting goals, but what happens when we break promises to ourselves and a goal suddenly looks unachievable?

So, a goal didn’t work (or won’t work). What now?

What is the first thing to do when we fall ‘off’ our goals and they suddenly appear unrealistic?

With goals related to money, it’s essential to do a little self-examination to stop any negative patterns taking hold that might lead to financial stress. Patterns such as compulsive spending as a coping strategy.

Firstly, it’s important try not to abandon a goal just because it didn’t work out perfectly, or even if it seemed to fail entirely.

The reason for having that goal is may still be sound.

It sounds obvious, but don’t give up! Regret over failure is far harder to deal with than the failure itself.

Really, falling off a goal creates a valuable opportunity to learn and grow – new skills and the resilience to cope with future setbacks.

This is incredibly important.

How to get something out of a failure: get curious

Giving up on goals could set you back months or even years on achieving important milestones in your life.

‘The first thing to do is to get really curious about what didn’t work and why,’ says money behavioural coach Lea Clothier.

Use this information to help you reset your strategy. i.e. if the goal was too big – can you break it down into mini goals or milestones?

If you didn’t have enough motivation, can you explore why you wanted to do it in the first place? Was it really something you wanted?

Was it really a priority when placed in the context of your whole life?

Did you have enough support? Trying to achieve ambitious goals without sufficient support can be a recipe for failure.

Think about what other support you need to make the goal happen – is there a person or people who can help?

Do you need to make yourself accountable to someone else, or publicly?

Use your failings as learnings to help you create a new strategy!

Taking stock of what didn’t work

It’s worth taking a step back right back for a few hours, or even days – back from the emotions that may accompany unmet goals and a sense of failure – to look at why our goals don’t work.

Detachment is a useful tool in this situation.

While you’re bound to have some feelings about your failure – that’s healthy and normal – it may not be productive to sink into deep emotions for days, that can lead to unhelpful negative thinking.

You do need to return to your motivation for setting this goal. Do you still have that motivation? If not, why not? Is it still factually relevant to have this goal?

‘This is probably the major point to make about returning to our goals.’ Ms Clothier says. ‘They have to be a big enough priority to maintain daily commitment motivation and willpower.’

If your objective is not really that important then it becomes easy to give in or give up.

Analyse your goals again

Did you use the suggested and successful tools to analyse your goals? Did you use a SWOT analysis? Is your goal SMART?

A SMART analysis involved asking if a goal is:

    • Specific;
    • Measurable;
    • Achievable;
    • Relevant; and
    • Time-bound.

SWOT means asking:

    • What are the strengths of our plan?
    • What are the weaknesses?
    • What are the opportunities?
    • What places it under threat?

Even if you did use these tools, run your goal through them again now.

See where the weak points are. Is your motivation strong enough to sustain the tasks you need to perform? Acknowledge them, note them and look for solutions.

Many people give up on goals, rather than realise that with just a few changes they could actually achieve the goals they set.

Very often that change is just breaking a major goal into achievable smaller goals or getting an accountability partner to help you stay on track.

Were we just too ambitious?

The reality of progress in all fields of life and also business is that it seldom happens without bumps in the road, a step back before we take two steps forward again.

Sometimes even a sideways step is better than a backwards step.

That’s because we learn from mistakes, stebacks and barriers.

‘One of the most useful things I’ve heard about the science of goal setting is for us to build in room for us to slip or plateau in our progress,’ says Ms Clothier.

Allowing for the reality of imperfect progress – or even failures along the way – makes goals realistic and means that we may not be as tempted to give up.

If we have a strategy for how to deal with these slip-ups or a slowing in momentum, we are more likely to get back on track and not just give up entirely.

Visual goal-setting tools

Visual representations of our progress help enormously – because they help us maintain perspective and see our overall progress even when we had a bad day or bad week.

They can show how much further ahead you are compared to the same time last year, even if you didn’t keep up with your milestone targets.

There are some complex visual goal achievement charts out there, but like anything, often simplest is best. Complex charts can end up complicating progress and being hard to follow.

Examples include:

    • Action plan template – essential as an over-arching planner to keep referring to for monitoring overall progress against targets and dates;
    • Kanban boards – these allow you to see work in progress as it’s happening by stages in a process. They use columns to represent important stages such as: ‘to do’, ‘in progress’, ‘in review’, ‘needs attention’ and ‘completed’. A Kanban board enables you to optimise your workflow and promote focus, task visibility and productivity;
    • Daily planner that allow space for you to tick off small tasks – such as a phone call to discuss a course/qualification, or to make an appointment with an advisor – these mini tasks are the daily nuts and bolts of achieving goals;
    • Old fashioned weekly planners stuck somewhere you will see it every day – such as the fridge. They allow you to highlight the little wins and milestones; and
    • Thermometer-style charts – these are good for goals that require dozens of or even hundreds of repetitions of the same action and over time they show clear progress towards one big goal. They work well with things like fundraising.

There are many great goal achievement charts that can capture your journey towards achieving your goals. Just go online and look at the many examples to find one that suits your goal.

These tools can help us to stay focused and connects us to our bigger goal or purpose. It also helps when we’re feeling a bit flat or negative as visually we can focus on our progress and this can help us keep on track.

Financial Mindfulness also has a goal setting feature in our app

The hidden secret of successful goals

Did you know that typically we are more inspired to make successful changes when we create emotional and not financial goals?

Why? Because more often than not it’s not actually the goal we are chasing, it’s the feeling.

When we set goals, it’s important to understand why we want to achieve them. We can do this by asking ourselves, how will it make me feel when I achieve this goal?

We might be chasing feelings of hope, happiness, pride, joy, love, happiness or security.

At the core of all our goals is a desire to feel good. When we can identify what feeling good means to us, and set goals that lead us to feeling this way more often we’ll work harder to hit those goals!

By getting clear on how we want to feel in our lives, and then setting our goals based on these feelings. We can aim to do more things in our life on a daily basis that will create more of the feelings we’re chasing.

How to monitor progress so we don’t fall off our goals

Have a plan to start off with. Break down the steps you need to take to achieve the goals. Tick them off as you progress towards them. Check in with others to get feedback and support.

The visual accountability charts mentioned above will help.

Monitoring progress or daily and weekly actions is how goals are met. There’s no easy way to do this.

If we automatically achieved everything we wanted or that was good for us we wouldn’t need to set goals.

We have to set goals because the wants and needs within them are difficult to obtain and achieve. So, no, unfortunately the process of following through on goals to meet tough objectives will not be easy.

Six simple steps to help us achieve our money goals:

    1. Make sure it’s your own goal: While we may share common goals, we need to make them more personal than this. This is where it pays to work out the feelings we will have when we achieve these goals;
    2. Automate: By automating aspects of our finances, we increase the chances of success. For example, if our goal is to save more – set up a direct debit to a new savings account as soon as we get paid, or transfer the savings to an account where you can’t easily access it. If it’s to pay off more debt, try setting up a direct debit payment of regular but small amounts;
    3. Set mini-goals: Breaking down goals to smaller steps makes it seem more achievable and less daunting;
    4. Track progress: Tracking our progress toward a goal can be motivational as we see ourselves getting closer to our goal. It also keeps us focused on how far we’ve come rather than just how far we have to go;
    5. Create accountability: Particularly with money goals it’s important to have somebody encourage us and hold us accountable. We could also make our intentions public i.e. to our friends or social network, which can create additional accountability; and
    6. Allow room for slip-ups: We need to allow for these minor slip-ups and setbacks, and not use them as an excuse for giving up.

And remember, it doesn’t matter how slowly we move towards our goals, as long as we’re progressing.

Achieving our goals is as much about the journey, as it is the destination.

Being mindful and focusing on the moment can bring us more joy, and we can concentrate on how far we’ve come, instead of how far we have to go.

The warning signs of compulsive shopping – and what can be done about it

The humdrum feelings we get from returning to work after a holiday, that ‘back to reality feeling can hide complex behaviours that lead to financial stress.

Studies tend to show that people who shop compulsively have a low tolerance for feelings like boredom and a ‘bad mood’. They may not even be able to recognise their feelings easily.

In this kind of uncomfortable disconnected state, we can easily drift unconsciously into habits with money that will torpedo our financial goals.

We all instinctively know that compulsive, mindless buying can be a problem.

In fact, compulsive shopping is a mental disorder, but one that does respond to help – from an appropriately trained and experienced psychologist or behavioural money coach.

We see it in those around us and even in ourselves at times – especially when stress drives the perceived need to ‘escape’ mentally.

How do we know if our own habits – or those of a loved one – might be a problem?

Here are some red flags to watch out for:

• Regularly spending large amounts of time spent online shopping or scanning for bargains of something ‘perfect’ – like an hour a day;
• Buying outfits that get worn once, rarely twice;
• A continual desire to look and feel ‘better’, searching for purchases that will do that;
• Getting only a fleeting sense of satisfaction from a purchase;
• Always turning to shopping when you/they feel sad, bored; and
• Frequently making purchases you dislike, discard or don’t use after buying.

Whatever is behind a person’s compulsive shopping, buying, spending, even shopaholism – whatever we call it – it can and does result in unnecessary financial stress and even distress if the behaviour goes on uninterrupted.

Financial stress is a condition that can respond positively to a mindfulness program, especially when coupled with other interventions, such as improved goal-setting, financial literacy and behavioural tools.

These combined can help sufferers produce a preferred state of financial mindfulness.

But not many people realise compulsive shopping has also been described in clinical settings since the early 20th century – more than 100 years.

Despite this, until now there has been no officially recognised diagnosis for the disorder.

That seems surprising how commonplace it appears to be, and how it is widely accepted as growing and as a contributor to issues like personal debt and overconsumption at personal and even macro levels.

Now science has moved a step closer to being able to help people with this behaviour – which is finally being recognised as a condition to be treated.

Flinders University reports that for the first time, world experts in psychology have built a framework to diagnose Compulsive Buying-Shopping Disorder.

This means there could be new pathways for help for people struggling to manage their spending behaviour and mental wellbeing.

The framework, published in the internationally-recognized Journal of Behavioral Addictions, confirms that compulsive over-spending can be regarded as a disorder.

The news gives researchers and clinicians tools to design targeted interventions for this potentially devastating condition.

The new guidelines, published in the Journal of Behavioral Addictions, confirm that excessive buying and shopping can be so serious as to constitute a disorder, giving researchers and clinicians new powers to develop more targeted interventions for this debilitating condition.
Evidence-based criteria for Compulsive Buying-Shopping Disorder (CBSD) are will be developed by an international team, including Professor Mike Kyrios from Flinders University’s Órama Institute for Mental Health and Wellbeing and Professor Astrid Müller from the Hannover Medical School in Germany.

A study of 138 researchers and clinicians from 35 countries has begun the work.

The research was a collaboration with researchers from the Hannover Medical School at the University of Duisburg-Essen and University of Dresden in Germany funded by the German Academic Exchange Service and Universities Australia.

Professor Kyrios described the new work as a “game-changer” for research into the issue, which could underpin the development of much-needed treatments and improved diagnostic processes to follow.

“In over 20 years, since I started investigating excessive buying, there has been an absence of commonly agreed diagnostic criteria which has hampered the perceived seriousness of the problem, as well as research efforts and consequently the development of evidence-based treatments,” Professor Kyrios said.

Evidence-based treatments should now be possible with agreement on diagnostic criteria.

New diagnostic criteria include is recognition of “excessive purchasing of items without utilising them for their intended purposes”.

In the context of the criteria, excessiveness is described as “diminished control over buying/shopping”.

Another feature of the disorder is that “buying/shopping is used to regulate internal states, e.g., generating positive emotions or relieving negative mood”.

“Clients who show excessive buying behaviour commonly have difficulties in regulating their emotions, so buying or shopping is then used to feel better. Paradoxically, if someone with Compulsive Buying-Shopping Disorder goes on a shopping trip, this will briefly improve their negative feelings, but will soon lead to strong feelings of shame, guilt, and embarrassment.”

The Delphi research method was used to reach consensus from the researchers and clinicians involved on a complex psychological disorder.
“The Delphi technique is an ideal method to integrate diverse perspectives from international and interdisciplinary experts in the field of Compulsive Buying-Shopping Disorder,” says co-investigator Dr Dan Fassnacht, Senior Lecturer in Psychology at Flinders University.

“This helped us to developed diagnostic criteria featuring large agreement among experts in the field, and is an important milestone to better understand and treat this behaviour.”

Dr. Kathina Ali, Research Fellow at Flinders University and co-investigator of the study adds: “Previously, it was difficult to compare studies without agreed criteria.”

“Now for the first time, we can start examining Compulsive Buying-Shopping Disorder more precisely which should help us improve our treatments for this disabling condition.”

Facing debt hangovers

The first few weeks of the New Year is one of the best times of the year in Australia.

The weather is great, the pace of life has slowed down and most of us get to holiday and spend more time with our families.

Coming into February we are easing back into work and into reality.

One of the realities we invariably have to face is repaying debts accumulated in the preceding weeks.

Many of us started accumulating extra debts from mid-November (with Black Friday and Cyber Monday sales) through Christmas, right up to mid-January – including the expenses of sending kids back to school.

This is debt run up on our credit cards, store cards, Afterpay (or equivalent Buy Now Pay Later products) account or even sometimes from short-term loans. The piper always needs to be paid, as the old saying goes.

“The reality of holidays is over, kids go back to school. Credit card and BNPL statements have started to roll in and you could be counting the cost,” says Andrew Fleming, founder of Financial Mindfulness.

A pattern of being in debt often creates financial stress.

Is debt always bad?

“While a limited amount of debt isn’t necessarily bad,” says Lea Clothier, a behavioural money coach in her Creating a mindful Relationship with money course,” an excessive amount can often delay us from reaching our goals.”

Not all debt is created equal and by that, we mean that some debts are better than others.

“Debt used to purchase an asset that produces an income or will increase in value is better than the debt we have for things that won’t increase in value,” she says.

The latter is referred to as consumer debt and we often use it to buy household items, clothing, holidays and other expenses.

A great investment that we can actually make is paying off the interest on our debt. Repaying the debt will free up our cash flow and provide us with a return that is likely to be higher than other investments.

The problem occurs when we begin to accumulate multiple debts and ignore the red flags around those.

“Think of debt like putting on weight,” she says.

“If we gain a few extra kilos we can decide to eat less and exercise more and we can generally lose the weight without too much problem.

“But if we wait until we’ve gained 20 kilos, it’s going to take a lot more effort and a longer time to lose the weight. Comparably, if we get into trouble with our debt and spending habits, we can often get back into financial shape just by deciding to spend less and not use our card as much, or at all.

“But if we wait until we’re struggling with debt and owe a large amount, then it’s going to take us longer to repay, cost us more and we may have fewer solutions available to us to fix the situation we’re in.

It is important to note that if a debt problem is ignored, or swept under the rug, financial stress can become acute or chronic – or both.

Once we get into reality and face our debt hangover – and hopefully avert a debt crisis – we can begin to work out how to prevent debt hangovers from recurring.

We do this by planning and setting some clear goals around debts.

How do you know if debt might be a problem in your life?

If we are not actually confronted by a sheriff or debt collector, it’s easy to think we are avoiding the debt problems because they don’t feel urgent – until the crisis hits.

Meanwhile, things could be happening in the background that will have very serious consequences for you – such as a bankruptcy process beginning or a bad credit rating being earned.

Many of us aren’t aware that each time we apply for a new loan, finance at a department store or even sign up for a contract for a mobile phone, rental property, electricity or gas then it’s likely that it will be recorded on our credit report, Ms Clothier says.”

“When we borrow money, a lender looks at information about our credit experiences to decide whether to lend us money. Our bill-paying history and the number and types of accounts we have, whether we are late paying bills or making payments, how much we have in total debt are all considered.”

Here are the signs that you need to face reality with your debts:

    • If you are avoiding looking at your debts (i.e. not opening bills/reminder emails);
    • If you don’t know how much you owe;
    • If you are struggling to make ends meet;
    • If you are using debt to pay off debt (i.e. using cards to pay off other debt);
    • You regularly incur late fees;
    • If you are hiding debt levels from your partner or loved ones;
    • If the thought of debt is keeping you up at night;
    • If the thought of debt is you causing stress during waking hours and affecting your concentration;
    • If you feel like you are stuck on a treadmill of repayments and can never get ahead;
    • You regularly take on more debt with a nagging feeling you aren’t on top of the debt you already have; and
    • You are a reputation amongst family and friends of owing people money.

As you read over those red flags, it should begin to occur how much effort is expended in avoiding debt problems.

You deserve some peace from always feeling under attack from debt and repayments.

The first steps to facing the reality of your debt

It’s important not to shirk the hard work laid out here, so be prepared to get into action.

Firstly, write down everything that you owe. Get clear on the amount owing, the repayments, the interest rate, the frequency, and the number of payments left.

Use a planner to do this, marking down the amounts and dates so you can clearly see how one affects another. Make sure you understand the totals.

“Allocate your income, after living costs to debt repayments. The difference is the hole you need to attack,” says Mr Fleming. Review your budget and see how you can prioritise paying off debt, then review your spending habits too.

Do you have a budget? If not, learning how to budget is an essential step.

You should make a note right here and do some background work on budgeting and how to maintain a budget as soon as possible.

Consider what has caused the debt. Was it some kind of regular but non-essential spending?

Can you make changes to your shopping and spending habits? If the thought of this is very difficult, it might be time to work with a coach or support person to upskill yourself in your financial education and skills.

Are there things that you can cut back on, or redirect money towards the debt temporarily to help you get back on track?

Can you sell any unwanted or unused items to free up cashflow?

Can you consolidate your higher-interest debt to a lower interest alternative?

If you have a home loan you might be able to roll personal or credit card debt into it or do a balance transfer.

But be sure to cut up the credit or store cards so you’re not tempted to reuse them.

Changing your thinking around debt

Let go of any shame. We tend to carry guilt and shame with debt. But these emotions don’t help us in getting out of the situation.

No really, releasing shame is vital here. If you don’t know how to do this, it’s based on forgiving yourself and taking positive actions to build confidence.

It’s important to understand the ‘action’ part of the way out of debt problems. You took some unhelpful actions to get into debt, now you must take useful and helpful corrective actions.

Having honest conversations is one such incredibly important action.

If you’re struggling to pay – it’s really important that you speak with your creditors.

The paying bills module of the Financial Mindfulness app has some really good tips on how to manage this!

The worst thing we can do is ignore debt. Burying our heads in the sand isn’t going to make the problem go away.

There are many options if we discuss it with others to come up with a solution.

“Remember a problem shared is a problem halved,” Ms Clothier says.

Speak with your creditors, they want to support you and can help you come to an arrangement about making repayments that you can afford.

Two approaches to confronting debt

Getting your strategy right – or at least having a strategy – is usually essential to effectively confronting a problem.

Here are two ways that we can approach paying off multiple debts.

“We continue to make minimum repayments on all debts but with any surplus income we have we can focus on either a head vs. heart approach,” Ms Clothier says.

The logical approach – the ‘head’ approach – directs us to pay off the debt that has the highest interest rate first, she says.

This is the logical way to do it as this debt is costing more to repay.

The ‘heart’ approach, Ms Clothier says, prioritises the idea of making small wins first.

This says that paying off the debt with the smallest amount owing first will be the quickest for us to achieve an important accomplishment.

Paying out the smallest debt first will help us get started and once repaid it helps to free up more cash flow towards paying our other larger debts.

‘It doesn’t matter what option you chose as both options work,’ she says.

There is no one solution to dealing with debt – you will come across many different strategies and suggestions.

But the one solid gold rule with debt is this: stop ignoring it and start facing it.