Learn quick and easy ways of how to reduce debt.
Finance is a large part of a person’s life. Who doesn’t require substantial amount of money to lead a happy and fulfilling life.
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What you need to know to be a mindful shopper.
The pandemic has placed enormous pressure on the global supply chain, which has led to retailers warning goods will take longer to arrive than they would have before the pandemic.
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Loss of employment.
Losing a job is one of the most stressful things that can happen to a person.
Disorganised finances.
A persistent, nagging fear of money is all too real for many people.
The medical word for it is Chrematophobia, also known as Chrometophobia and its sufferers have a much higher likelihood than average to experience financial stress.
The individual reasons are probably as varied and nuanced as the number of sufferers, but it’s a reasonable assumption that we haven’t learned how to manage money effectively.
One way to consider the fear of money is to ask: how many with such fears are disorganised with their finances?
We’re not suggesting an answer to Chrematophobia – we’ll leave that to you, your financial counsellor, and even your psychologist.
But we can help encourage people to look at the widespread issue of disorganised finances.
Why does it happen?
For some, it will be deep-seated issues, and again, we won’t go into that. But it’s worth considering whether you do fall into that camp before considering the next point – and getting extra help if you do.
Avoiding our finances to the point they become disorganised can feel strangely empowering in the short term.
We all know that feeling: ‘I don’t have to do this difficult thing if I don’t want to or maybe ‘This is boring/hard/exhausting, so I’ll get back to it tomorrow/next week/next month’.
This is avoidance, with more than a little misguided rebellion at its heart.
Whatever is underneath our avoidance of maintaining our finances, the result is often the same: it’s a bit of an ‘own goal’.
‘It can be a bit like a teenager not wanting to clean their room. They don’t see a need for it,’ says Hamish Ferguson, a Director at Vision Property and Finance.
It is frustrating when they can’t find an important document or number, but unless it becomes a large enough pain point, people generally don’t – or won’t – understand the need and don’t make it important.
One thing we all have, of course, is plenty of distraction these days.
There are usually too many other things we believe need to be done now or make more important – and we focus on those instead of our finances.
“Examples could be keeping the boss happy, dealing with children or a spouse that wants attention or even just allocating time to more pleasurable activities such as TV, time with friends or outdoor activities,” says Mr Ferguson.
The link between financial stress and disorganised finances
If we don’t pay attention to our finances, they don’t usually improve. This may seem obvious,s but it’s important to act on it.
Paying no attention to our financial situation means some form of financial stress, and even distress becomes inevitable.
If you can’t see this coming, you probably need some new habits with money!
“Generally, the more stressed we are, the less logical we think and or the more disorganised we become,” Mr Ferguson says.
With a stressed mindset, we don’t tend to manage our time well because we spend more time on the stressor than the solution.
“We often fail to realise that being organised with money will reduce the time that we tend to think about money, which should give us more freedom and time to spend in more pleasurable areas,” Mr Ferguson says.
The importance of regular routines around money
The busier we are (or more’ time poor’ we are), the more important having healthy routines are.
Most people can recognise that sense of not having enough time in the day.
“So, building structure and routine around our finances is essential,” Mr Ferguson says.
Some examples of healthy routines with money are:
What’s a good place to start if my finances are disorganised?
“Being disorganised with finances is often an indication that bills are not being paid on time, savings are limited (or even non-existent) there isn’t a savings habit or goal,” Mr Ferguson says.
When we experience any bill as an unexpected expense, we need new habits with money and quickly.
In the most basic terms, a person disorganised with finances often doesn’t know how or where to allocate money helpfully over the long term.
Becoming organised would mean thinking about the following:
Once or twice a year, it is helpful to sit down and analyse three months’ worth of transactions.
If this seems too onerous, looking at some software to help you be proactive here may be worth considering.
Also, many banks now offer basic cashflow analysis.
“Are you using the free tools available to you? There are plenty,” Mr Ferguson says.
A final word on goal setting.
‘This is very, very important,” he says.
Financial goal setting actions can be as simple as looking at major expenses on the horizon and breaking down the need into weekly or fortnightly amounts to putting away can help become organised.
But they can also be empowering when we look forward to what we want to do with the next 5-10 years: buy a property? Travel? Open a business?
The possibilities become almost endless when our finances become organised, and we can start making financial goals and achieving them.
What to do if lockdown has caused me financial stress.
Right now, millions of Australians are under public health orders to stay at home in an attempt to reduce the spread of the Delta variant of the Covid-19 virus all around the country.
More than half of all Australians face this uncomfortable but necessary reality, and it is producing feelings including loneliness, fear, worry, depression, and stress.
The unprecedented – and extended – interruption to normal life has worn so thin that for many, it’s starting to feel like a depressing new norm.
Uncertainty and fear were defining characteristics of the pandemic from the outset.
The uncertainty isn’t something we can do much about: nobody has a crystal ball.
Fears are a little more tangible. We fear for the health and safety of our families and ourselves.
Thankfully, there are plenty of official and expert resources to help people deal with their mental health during the pandemic.
Here’s a great government link with plenty of advice and links to specific types of support.
The respected Black Dog Institute has produced 10 tips for managing anxiety during Covid-19.
We suggest you use these links if you need them.
People also fear for their finances, and this isn’t just a ‘first world problem’; it’s real and much deeper.
While some of us are saving because we are not going out, the lockdown means many people cannot get to work and have lost hours, and therefore, their wages are reduced. In mid-August, it was revealed 150 child care centres closed – all have staff, and all those staffs lost wages.
In 2020 Australia experienced negative wage growth due to the pandemic-led economic downturn.
Or even worse, some have lost their jobs. This is acknowledged by the government’s latest round of Covid disaster payments.
Everyone losing wages or their job will experience financial stress, sometimes at an acute level, and if these changed circumstances persist or worsen, the financial stress will likely become chronic.
Fearing for our financial security shakes us to our core; for many of us, it feels like it’s about our very survival, even a matter of life and death.
Financial stress has moved from a fringe issue to a serious, even core problem. It is acknowledged by the likes of the Black Dog Institute’ managing financial stress during lockdown.’
‘Mental and financial health can be a vicious cycle,’ says Black Dog. ‘Financial instability can lead to poor mental health, which can make taking action to protect your financial situation harder.’
‘When people are under pressure, they may start drinking more or avoid talking to family and friends, which can make it even harder to cope.’
This blog looks at financial stress during Covid lockdowns – why we feel stressed, what we can do with financial fears, and what practical steps we can take.
Why do we feel financial stress during lockdowns
Hamish Ferguson, a Director at Vision Property and Finance, says it’s important to acknowledge that feeling financial stress during a lockdown is to be expected.
“Lockdowns introduce unpredictability into our lives. One of the requirements of effective cashflow management is being able to predict both your future income and expenses.”
There is a saying that in the absence of good information, people will make poor decisions.
There is a lot of emotion in the community, and at times misinformation spreads. This poor-quality information can affect people who give it too much attention, and some will either not look after themselves or spend too much money thinking that this is an excellent way to reduce stress.
‘Many of us will spend more money when we have higher levels of emotion,’ Mr. Ferguson says.
‘It is quite clear that emotion levels in society are higher, so this will produce binge spending or emotional spending at a higher level.’
What can we do about our financial fear during a lockdown?
Practicing mindfulness is not just about sitting down to meditate, though that is recommended.
Mindfulness is actually about paying attention to thoughts and feelings and is said by experts to resemble curiosity as a state of mind.
So be curious about how your spending patterns are changing and where your money is going.
That helps us achieve financial mindfulness, which is simply described as having awareness and paying attention to your finances and financial behaviours.
It means more than being money smart or financially savvy, as it includes the capacity to regulate emotional responses that can lead to unhelpful financial behaviour and financial stress.
‘One of the strategies that many professionals will suggest is to break down the information we receive into what we know to be true and separate it from what may or may not be true,’ says Mr. Ferguson.
This can help us to focus on more reliable information.
Another strategy is to focus on verbalising things we can be thankful for when stressed or anxious. For example, are you safe at home, and do you have good home-cooked meals and a relatively comfortable environment where you live?
Being thankful can help to balance the information we are receiving and not just focus on the negative.
An example of the power of positive thinking is that rather than just thinking “I might lose my job”, to say to yourself, “Last time this happened, my employer and the govt worked well together to enable me to keep my job. I don’t have any reason to think that this won’t happen again.”
We’d also suggest turning off the television, or the online and social media news updates, as often as possible.
Constant updates on Covid are not helpful to most people. Information from sources of dubious origin is even less helpful.
‘Sometimes we just need to switch the world off and enjoy the silence,’ Mr. Ferguson says.
He suggests reaching out to people in your community going through similar experiences, for example, work colleagues, family friends.
‘Especially reach out to those people that you see as positive or “glass half full”. They are more likely to help you balance your thoughts,’ Mr. Ferguson says.
What are some practical steps we can take
In a period where our emotions are potentially impacting our financial behaviour, especially in a negative way, it’s time to take a step back and look at the basics.
“Review all spending to ensure you are focusing on needs and not wants. Strip your budget back to bare basics,” says Mr. Ferguson.
He suggests focusing on identifying the real fears or stress points and finding someone to help you work through those.
“Community and communication are very important.”
If you are not budgeting or haven’t reviewed your budget for a while, then it’s an excellent opportunity to do so.
Why revisit my budget?
Instinctively, we know that budgeting allows us to manage money wisely, avoid financial stress, and be in control.
During a lockdown enforced by the government, one thing we don’t feel is in control. That’s not comfortable for many people. Budgeting helps us to get back some sense of control in our lives.
Also, it’s a habit that is always helpful to our financial situation.
Even if you have a budget, here’s a reminder of the main steps to building a budget:
Remember, most people who try to budget fail to get the benefits of a budget because they cannot maintain the practice.
Maintaining a budget involves several steps too:
You can read our complete blog series on budgeting at these links: why budgeting helps your personal finances, how to budget and maintaining a budget.
If you are still struggling with balancing your budget, you can seek support. You could consider contacting a financial counsellor or a budgeting coach for help.
Remember, budgeting is learning a new life skill; it takes practice. And at a time when you may feel worried, uncertain, or even out of control, it will help with financial fear and financial stress.
If you are struggling with your mental health, please seek help:
Buy now pay later.
Popular new payment services like Afterpay, Openpay, Zip Pay and soon, Paypal’s ‘Pay in 4’ – collectively known as ‘buy now pay later’ services – perform something of a trick in the minds of consumers.
The trick results in people walking out of a store with a television, a carry bag of clothes, and high-end vacuum cleaners before they have fully paid partially switches off a healthy fear of debt.
But like credit cards, they are a form of credit – basically a loan – and with the real potential to increase financial stress in users.
With buy now pay later services, the consumer can purchase items with only paying the first instalment of the purchase value, then paying the remaining instalments in the future over the next 6 – 8 weeks. It’s like a cross between a layby service and credit cards but you get the product or service now.
The appeal of BNPL payment services
Buy now pay later is attractive for the buyer because the buyer had to only pay a portion of the item before they could take it home.
This appeal combined with clever marketing has become hugely popular.
In one recent Afterpay ad, Hollywood actor Rebel Wilson tells her on-screen boyfriend Afterpay is like eating a whole tub of ice cream at once but spreading the calories over six weeks.
This brilliantly captures the allure of the ‘instant gratification’ culture that is not just popular with millennials but with many people in nearly all age groups.
Afterpay boasts on their website they let customers get what they want when they want it, increasing average order value by up to 40%.
It is estimated one-in-five Australian consumers use a buy now pay later service, with over six million active accounts. The Reserve Bank of Australia says Afterpay is most popular with 3.4 million accounts, ahead of Zip Pay with 2.5 million.
The value of purchases made nearly tripled in Australia between 2017-18 and 2019-20, from just over $3 billion to over $9 billion.
Retailers love the services because they give the appearance of a new, cool, easy option when paying for your shopping – one that lets you walk out with products after spending just a quarter or one-fifth of its value.
How BNPL taps into the psychology of consumer spending
Buy now pay later have cleverly tapped into the consumer spending psychology and convinced shoppers to open their wallets – even though they don’t realise that is what they are doing.
Deferring payments is a relief to consumers, a positive feeling that reduces the pain of paying cold hard cash and even the nagging ‘I shouldn’t be doing this’ feeling that comes with using credit cards.
According to Dr Carey Morewedge, Asst. Professor at Carnegie Mellon University, the ‘pain’ of paying feels like it is reduced when using a buy now pay later service because we actually equate an imagined ‘pool of resources’ to having more cash.
M2P’s fintech blog explains the idea in an article titled ‘Factors and Psychology Behind the Great BNPL Allure’.
The larger your resource, the greater will be the inclination to make costlier purchases. For example, when shopping using BNPL, you feel like spending a small fraction of money from a large reserve with no immediate deadline.
So, the pain of paying becomes dramatically less with BNPL.
Whereas drawing a few currency notes out of your pocket seems like you are consuming a large portion of the available fund. Thus the pain of paying in immediate cash payment is more significant.’
Of course, buy now pay later providers know exactly what they are doing.
If a consumer cannot meet their end of the deal – and repay the full price within the agreed number of instalments, they are hit with late fees and charges, which vary depending on the fine print in the terms and conditions of each BNPL service.
It’s a very different mindset to using credit cards, which were first launched in Australia in 1974 and have peaked in usage in the past decade.
In 2020, there were 14.8 million consumer and business credit cards in Australia – more than one for every adult.
As credit card use has declined, the card companies have tried various marketing ploys to boost the use of their services, such as loyalty points schemes to 0% balance transfers.
But because so many people got into trouble with the complex and expensive interest payments on credit card companies, providers go out of their way to make it clear how repayments work.
According to Illion, Millennials under the age of 30 are twice as likely as their parents to fall more than two months behind in their credit card payments, suggesting they have greater difficulty balancing spending and debt, regardless of their credit limit.
The perils of buy now pay later services
The perils of credit card misuse are now well-known and widely understood. But the perils of buy now pay later are still developing as they are relatively new.
Afterpay, Zip pay, Openpay and equivalents remain relatively unregulated compared to the banks – meaning the gloss has not yet come off the services.
The perceived ‘win: win’ does not consider that our spending behaviour sometimes doesn’t make sense – for instance, how we can spend money based on our need to distract or ‘feel’ better rather than our need to stay within our limits.
Who could say they have never spent without thinking through all the consequences of a purchase? Probably none of us.
While it is entirely human to do so, it is the definition of mindless spending.
According to the Australian Financial Review, in 2020, Afterpay made $70 million from late fees, representing 20 per cent of its revenue.
The Australian Securities and Investment Commission also found that one in five buy now pay later customers were regularly missing payments.
An alarming half of users aged under 29 had taken out other loans to pay their buy now pay later debts.
How to use BNPL payment services safely
Just because buy now pay later services are relatively new, and the mixed impacts don’t make them bad news for everyone.
Andrew Fleming, Founder and CEO of Financial Mindfulness, says; ‘the way to avoid trouble with these payment services is the same as using any type of credit.’
‘Budgeting and sticking to your budget is key to ensure you do not get into trouble with BNPL products, but it also relates to any type of credit product, impulse spending is not wise’ he said.
‘Understand the product properly, including the fine print. Use BNPL services following your spending budget.’
‘The line between safe and unsafe use of these services is the difference between spending according to your budget and ‘reckless spending and not paying on-time’, he said.
You’ll have to decide for yourself what constitutes reckless, but it’s safe to assume that putting everyday shopping on instalments is not sensible.
To make the most of buy now pay later services, the optimum state of mind is one of financial mindfulness, which we define as ‘having awareness and paying attention to your finances and financial behaviours’.
But you have to hand it to the Founders of Afterpay, who discovered early the behaviour change with Millennials preferring to engage in cashless and credit-free spending lifestyles.
They have become a huge success story. The company was started 7 years ago and recently sold to Twitter founder Jack Dorsey’s Square for $39 billion making it the largest deal in Australian corporate history.
How to maintain a budget.
Setting up a budget is a great step toward improving your relationship with money and, ultimately, your financial position.
How to budget successfully.
Last week, we established that budgeting isn’t easy, so you need to understand why it’s a behaviour that must be followed up with regular—and even daily—actions.
Why do a personal budget.
We have started a new financial year. Like in previous financial years, new rules come into effect.
Find out by completing our Financial Stress Index (FSI) now.
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