Managing financial stress – Decision making, literacy, learning new skills
In the first part of our financial stress webinar covering managing financial stress, we take a detailed look with expert help from Lea Clothier, a Master-certified behavioural money coach involved in the development of the Financial Mindfulness program.
There are so many triggers to create financial stress in our lives today that reducing and managing financial stress has become an ongoing, sometimes daily task.
Thankfully financial stress as a specific type of stress is finally being acknowledged and a number of different methods are available to deal with it.
There are a variety of well-practiced stress reduction techniques which we can use to help address financial stress.
These include exercise, maintaining positive routines, and getting curious about the things that do reduce your general stress – for instance, short walks and/or short meditation sessions.
The Financial Mindfulness app is a proven, evidence-based tool for reducing personal financial stress that packages together some simple but extremely relevant tools: mindfulness, goal-setting, and financial literacy.
Its development has enabled us to tread new ground in the measurement of financial stress.
Why you need to get organised – on many levels
Reducing financial stress on day-by-day and week-to-week levels can be complex, with accounts, different income streams, expenses, taxation, investments, and other factors to manage.
So, developing personal systems that work for you is essential.
But getting organised with finances also means aligning what we think and how we feel with our actions.
“I constantly see with the clients I work with that someone might know that they need to start a budget,” says Ms. Clothier.
“They take action or the behaviour of implementing a budget. Yet on a thinking level, they have some challenging and limiting beliefs about budgeting. And then, on an emotional level, they feel disempowered, or they feel restricted, so whilst we’re taking positive action of budgeting, we’re not aligning that with positive thoughts and emotions.”
“And then we wonder why we don’t get the results that we’re seeking.”
The answer to this is to explore your relationship with money and your beliefs about it – including beliefs that might be holding you back.
Our relationships tend to be a good place where our money beliefs and values come to light.
For some people, it may be useful or necessary to do more personal work on these issues with a financial counsellor, a financial wellness consultant, and/or more specialised therapist.
Moving forward, there are many ways and means to manage financial stress, as we said.
This blog will cover a handful of tips, tools, and techniques that Ms. Clothier has found most useful in her work.
Accepting past decisions
Money is an emotional topic. Just look at the importance of it in almost everybody’s lives, that importance can create strong emotions.
“Like it or not, we are where we are today because of past experiences, decisions, and actions or past inactions or indecision,” Ms. Clothier says.
We have to accept the past and move forward.
Yes, there may be greed, shame, guilt to feel and let go of.
It can be painful to confront difficult emotions, but that’s normal too. Trying to not look at these emotions doesn’t work as a long-term strategy, even if it’s appealing.
At a practical level, our decisions are often made on habit.
When the habits are mindful and not reacting – especially to emotions – our trajectory with finances is usually positive.
But if our money habits tend to be reactive and we spend as a reaction to feelings and even urges and impulses, our money problems are usually chronic.
Accepting past financial decisions isn’t easy, but it’s important.
“We can make peace with the past; we can learn from the past, and then we can move forward and make better decisions,” Ms. Clothier says.
The importance of financial literacy
Don’t take this personally, but levels of financial literacy in Australia are “abysmal”, Ms. Clothier says.
A recent Melbourne University survey, the regular Household Income Labour Dynamics in Australia (HILDA) survey found that half of the respondents could not answer five simple questions about inflation, interest rates, compounding, and diversification correctly.
We are not saying you can’t answer those questions, but the point is financial literacy is fundamental, it underpins most of your money choices.
Again, remember how important money is to our lives, and our ability to make choices – it pays for our day-to-day lives and sets up or potentially undermines our futures.
Even worse there is a frightening gender gap relating to financial literacy. One in three female respondents couldn’t answer any of the HILDA questions.
Most fundamental lessons people learned about money were learned in the home, and partly by watching and learning.
Schools are getting better at teaching financial literacy today, thankfully. The media also contains a lot of information about finances in the form of clips, podcasts, articles, and blogs, such as this.
The good news is that there are many tools out there, free websites, free content, classes, books, and podcasts that you can listen to increase your financial literacy.
“I always say that learning finance is like learning a new language,” Ms. Clothier says.
“You speak the lingo, and once you know the speech, it makes it a lot easier.”
Learning new financial skills
Continuing on from the above point, learning new financial skills is an important way to help us manage financial stress.
Knowledge is only powerful when it’s applied, we actually need skills to get the most out of our knowledge.
Even if we know certain key facts and believe in a course of action, we can still slip up because money is so emotional.
For example, we know we should spend less than we earn. We know we shouldn’t big amounts of money on our credit cards.
We know we should be looking at our financial statements and bills and budgeting regularly.
But just because we know those things don’t mean that we do them.
“This happens because money is emotional and because it seems difficult,” Ms. Clothier says.
The problem is many of us don’t have the skill levels needed to practice good day-to-day management of money and financial stress.
“Learning new financial skills can be a straightforward way to reduce our stress levels,” she says.
It’s building a habit; it’s making a unique knowledge and skill base.
It can involve something as simple as learning how to manage a credit card better.
Or even how to manage and read a credit card statement.
“I’m often surprised how many of my clients cannot read a credit card statement and understand the impact of only paying the minimum balance on an ongoing basis and what that means to them,” Ms. Clothier says.
Starting to build those skills from a basic level up to a more advanced level can help create a better and healthier relationship with money.
Next week: How to manage financial stress part 2 (using goals, mindfulness, and progress).