Money, relationships and stress.
Whether we like it or not we live in a world that runs on money, especially in OECD nations.
Money, relationships and stress
Don’t blow your savings
Don’t blow your savings.
The endless restrictions and lockdowns Australians experienced during the pandemic did more to us than make us want to socialise and dine out.
Pandemic put’s young families under huge financial stress
Pandemic put’s young families under huge financial stress.
Even if you don’t have children, you may be aware through your friendships and networks of the burden that the Covid-19 pandemic has placed on families.
Continue reading “Pandemic put’s young families under huge financial stress”
Paying bills and staying ahead
Paying bills Paying bills and staying ahead.
Back in 2017 when the Financial Mindfulness journey began we asked our growing army of Facebook followers what were the biggest financial stressors in their lives.
What you need to know to be a mindful shopper
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.
Continue reading “What you need to know to be a mindful shopper”
Managing financial stress – Decision making, literacy, learning new skills
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.
Being disorganised with finances will invariably lead to an increase in financial stress.
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).
What to do if lockdown has caused me financial stress
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:
-
- Properly determine your household income
- Begin tracking your living expenses over three months
- Balance your budget – subtracting all your expenses from all your income
- Go back and review your expenses – what’s missing?
- Review your income potential
- Balance your budget again, this time with nothing missing!
- Maintain your 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:
-
- Schedule a budget 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 become accountable
- Become proactive – and stay positive
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:
-
- Lifeline crisis support service (24 hours): 13 11 14
- Suicide Call Back Service (24 hours): 1300 659 467
- Beyond Blue phone support and online chat service (24 hours): 1300 22 4636 or www.beyondblue.org.au
How to reduce the shock of unexpected expenses
How to reduce the shock of unexpected expenses
Unexpected events are by definition surprising and can cause anxious feelings in most of us.
Where it’s a positive surprise that speaks for itself, positive feelings of wellbeing usually follow.
But where it’s an unwelcome unexpected event, we can be quite shaken.
A flood or fire, a theft, a vehicle accident, or a shock health diagnosis will all create feelings that lead us to think our lives have been turned upside down.
Even something as temporary as a lightning strike taking out the electricity in our street radically changes life for a few hours or even days.
It’s similar if an essential appliance just stops working one day, such as your fridge or hot water system, or if a beloved pet gets sick.
In a day and age where everything has a cost, unexpected events usually mean unexpected expenses.
That means as well as we suffer some level of shock, the same thing can happen to our finances.
‘An unexpected expense is one that you have not planned for or previously known about,’ says Behavioural Money Coach Lea Clothier.
Even some positive surprises come with costs, such as pregnancy or when a marriage proposal gets accepted.
An unexpected windfall can radically change our financial reality, too, though that isn’t the subject of this blog.
Here we want to look at those unexpected expenses that can threaten to derail our financial plans and create financial stress.
‘It is possible to reduce the shock of unexpected expenses and the financial stress they cause,’ Ms. Clothier says.
Dealing with a sudden financial shock
If an unexpected circumstance means you owe money and can’t see how you can pay all or even some of it, the first essential point is to communicate this to the person or organisation you owe it to
‘Putting your head in the sand like an ostrich may be a temptation when faced with acute financial stress, but it won’t work,’ Ms. Clothier says.
‘Doing that could cause you more financial stress with penalty payments and fees,’ she says.
If it’s a problem, you pay to fix it; avoiding the issue till the last minute could cost you more.
Think about that: would you rather book a plumber to look at your faltering hot water system when you know it’s playing up, or call one out at 6 pm on a Sunday when they can charge whatever they want?
It’s essential to assess the priority of the expense properly, Ms. Clothier says.
‘Can it wait until next month? Is there an alternative option? Can I arrange a better payment option? Do I need to spend this amount on it? Is there a less expensive option?’
Another crucial point to make here is to avoid the temptation to borrow quick and expensive credit when faced with the debt.
We strongly advise against borrowing money to pay a debt too often that creates disempowering financial situations known as debt traps or debt spirals.
Debt spirals can lead to a life of chronic, debilitating financial stress.
So, look at all other options before borrowing to pay a debt.
It is possible to arrange a payment plan for most debts – if you contact your creditor and are very clear about what you can and cannot do.
‘Communicate with the creditor or person you owe the money to. You may be able to negotiate a payment plan or way to help you manage the expense,’ says Ms. Clothier.
Getting past an unexpected expense is likely to mean a change to your other spending for a month or so, maybe longer, as you shift money around.
To do this, you may need to cut back on spending in the short term.
If you don’t have access to cash reserves to cover this expense, and you’ve determined that the expense must be taken care of, then you’ll need to review your budget to see where you can make some changes to try and cater to this expense.
‘Review your budget – where can I cut something this month? Is anything in this not absolutely essential?’ Ms. Clothier says.
‘Can any other expenses be put off for a month?’
Before you decide to borrow money, determine if you can raise money some other way, for example, selling something of value you don’t need/use anymore?
As a last resort, you may consider asking for a temporary increase in a credit limit you already have.
Unexpected expense or unplanned expense?
This is another crucial point on this subject.
Sure, acts of God can’t be accounted for – even though most can be covered in a way that won’t financially ruin you. We’ll return to that.
But many unexpected expenses are better described as unplanned expenses. Or costs we just didn’t think through or forgot entirely.
It’s important to get honest with yourself on this point. Is there any way you could have seen this expense coming? Or was it genuinely impossible to have predicted it?
Once you start to keep better track of your expenses, you will begin to see many of these are just one-off future expenses.
Where people go wrong with unexpected expenses
The primary way we go wrong on future expenses is by regularly putting aside small amounts for more one-off significant expenditures.
‘People are often surprised by unexpected expenses such as a wedding, Christmas, holiday or even home maintenance pr repair costs,’ Ms. Clothier says.
Rather than looking ahead and thinking through what might or could happen and putting aside a regular amount towards these, people get blindsided by big bills that break their budget.
Many people take an “it won’t happen to me” approach and plan for the unexpected.
They don’t think about what could crop up financially if something were to go wrong with their health, possessions (home, car, and other assets) rather than brainstorm what could potentially go wrong and work towards creating a cash reserve or buffer that would cover this,
Borrowing to cover unexpected expenses is a significant way people make the wrong choice. That includes using credit cards.
‘Turning to high-interest credit options (such as credit cards) to manage expenses can add pressure or strain on future cash flow as it creates new ongoing expenses (i.e. the expense of paying the credit card back, plus the interest),’ Ms. Clothier says.
Another way is that they may try to ignore the expense or try the ostrich approach of burying their heads in the sand, hoping it might go away.
If you know you’re going to have problems paying unexpected expenses, the sooner you can speak to the creditor, the better.
There are often options, including payment plans, etc., that can be arranged if we are upfront and willing to work with them to find a solution within our budget.
How to stop unexpected expenses derailing us in the future
‘Having a plan or strategy to manage unexpected or emergency expenses can significantly reduce your financial stress,’ says Ms. Clothier.
It can also support you to stick to a budget, save and build wealth for the future. Failing to have a safety net or plan can be very stressful if you are faced with a surprise or unplanned financial obligation
Being able to develop and maintain a cash reserve is a great way to manage.
This is all about planning.
Once we start to pay much better attention to our finances, we plan ahead naturally and learn to put money aside if it is possible.
We also realise there are even ways to put money aside for things like fire, flood, or health emergencies – by taking out insurances to protect against these expenses
It’s a valuable exercise to make a list of all of the so-called unexpected expenses you’ve experienced. It might look something like this:
-
- Medical expenses;
- Prescriptions;
- Doctor/Dentist bills;
- Unplanned school fees;
- Kid’s expenses such as sports, activities, trips, and other expenses;
- Vet bills or animal care;
- Membership Renewals / Subscriptions;
- Car Maintenance, Registration;
- Home maintenance and repairs;
- Weddings;
- Gifts for celebrations, birthdays + parties;
- Talk of interest rates going up; and
- A family member starting to become unwell.
‘There are also likely to be other predictable expenses that you can add to your list that are more specific to you,’ Ms. Clothier says.
How many of these could not have been predicted?
Estimate the cost of these expenses. Estimating the costs of upcoming expenses will help you make a plan for managing them.
Review your bank and credit card statements to see what irregular expenses pop up, or research what the cost might be if you were to face these expenses in the future.
Build these expenses into your budget or spending plan.
When you go to do next month’s budget or spending plan, review this list of items to see how and where you can incorporate irregular expenses into your budget.
These steps shift your focus to planning for these unexpected expenses instead of being surprised by them.
KEY POINTS
-
- Don’t borrow to pay off an unexpected expense.
- Don’t bury your head in the sand.
- Talk to the person or organisation you owe money to – asap.
- Are your unexpected expenses just unplanned costs?
- Develop a plan for unexpected expenses.
- List all possible future/irregular expenses.
- Build these costs into your budget.
- Consider whether insurances may be necessary.
How can we reduce mortgage stress
How can we reduce mortgage stress.
Despite sustained, record low interest rates, repaying a mortgage remains one of the most significant financial stressors for many Australians.
According to Moody’s Analytics, 20 percent of all Australian households are said to be under mortgage stress in Australia.
Government figures record just over a third of Australian households has a mortgage.
Considering the size of those mortgages, it’s hardly a surprise that the debt stresses us out.
ABS data shows the average mortgage across Australia is $728,500.
In NSW, it is $939,700 and in Victoria, it is $785,000.
Types of mortgage stress
At this point, it is important to define mortgage stress.
Mortgage stress is a technical term describing spending more than 30 percent of income on mortgage repayments.
That is the type of mortgage stress Moody’s refers to above.
However, another type of mortgage stress goes along with the technical definition and is real and consistently impactful on people.
This is the mental and emotional pressure of financial stress caused by being fearful, even panicking, about what might happen if your household could no longer afford the current mortgage repayments.
Why does mortgage stress happen
In short, the size of mortgage debts – for many Australians, it is the most significant loan they will ever repay.
When households are squeezed into paying over 30 percent of income towards meeting mortgage repayments at a low-interest rate, even the merest hint of a change in interest rates causes physical and emotional stress.
Don’t forget how the emotional significance of owning a home – and the fear for some of losing one – it’s a heavy burden for a lot of hardworking Australians.
As interest rates have remained low, mortgagees have become used to their repayment levels, meaning any increase in interest rates will only exacerbate mortgage stress.
“I think what is important though to realise that whilst most people are currently coping with their mortgage repayments, there is still a lot of anxiety about the future with regards to possible interest rate rises, security of employment and property prices becoming unaffordable or property prices going backwards in the future,” said Hamish Ferguson, Director of Vision Property and Finance.
How can we reduce mortgage stress
There are several successful methods of reducing mortgage stress. They include:
- Ensuring you are paying extra on your mortgage to build up a safety net or buffer which can be used when interest rates rise;
- Fix your loan if you are worried about rates going up and only have a small weekly surplus to your budget. This way, you won’t have to concern yourself with increased repayments for the time frame you have fixed for; and
- Review your expenses. Often when we are stressed, our level of comfort spending increases. We need to be aware of this and monitor our spending on those items that we tend to purchase when we are stressed. Eating out, TV subscriptions, buying gifts for ourselves or others, and upgrading items such as mobile phones, TVs, cars, and fashion.
How can we stop mortgage stress derailing our finances and relationships
What if we can’t eliminate our mortgage stress. How do we stop it from taking a heavy toll on our lives?
Perspective is so important. If we focus on the negative, on the difficulty of financial strain, then our relationships with money will remain challenging.
An example might be rather than saying ‘I don’t have enough money’. Instead, try to say, ‘well, at least I am still able to meet my commitments.
When it comes to relationships and money, transparency and openness are essential.
We can’t stress enough how important it is to ensure you are communicating with your partner and family and not bottling up worries and problems.
Being mindful of money goes hand in hand with good communication.
As we touched on, so much of the mortgage stress equation is about acceptable margins. Small changes – either way – in interest rates can have a significant impact.
Mythbusting our beliefs about financial stress
Mythbusting our beliefs about financial stress.
Financial Mindfulness interviewed a dozen people in Hyde Park Sydney while gathering footage for a marketing video, every person we spoke to believed financial stress was all around them.
The problem is “huge, huge”, said one respondent, while others suggested 70 per cent of the population might be under financial stress. A couple said “everyone” was under financial stress; another commented that they “didn’t know anyone” not under financial stress.
Most understood that financial stress could cause, or at least be associated with, other problems in our lives, from depression to anger, insomnia, affecting our concentration and lower productivity at work, and things like social isolation.
Marc Richardson, a Sydney based clinical psychologist, says you can add “hits to your self-esteem”, relationship difficulties and a tendency to alleviate stress with drugs and alcohol to that list.
But there was little consensus among the people we spoke to – and a sense of helplessness – about how to help someone suffering from financial stress: answers ranged from providing financial advice to lending money through to just listening.
When it comes to how we interact with money, the optimum state is one of financial mindfulness.
Financial mindfulness is 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.
There is no doubt financial stress is a serious problem. But a key to finding solutions to financial stress is in understanding what it is – and what it is not.
Here are five common beliefs about financial stress – we assess if they are true or false.
Belief 1 – Financial stress is just another type of stress, and stress is normal (so get over it)
Broadly speaking, stress is a physiological reaction to stimulus and is not always bad. “Stress can be helpful and good when it motivates people to accomplish more,” says the American Institute of Stress, while pointing out stress is “a highly subjective phenomenon that it defies definition”.
Technically, the word “stress” is interchangeable with “pressure”, and more often, we use stress when we really mean “distress” or “strain”. Financial stress is a reaction to pressure around money, which can quickly turn to distress. This is undoubtedly partly because – thanks to consumerism – Western society tells us acquiring new stuff is a sign of success. Who would disagree that, in a nutshell, we want more than we need?
Stress can be acute, recurring or chronic. The stress of any type can feel upsetting, but chronic stress can cause illness: the longer we are under money pressure, the worse we feel. That’s where financial stress can be so damaging: it’s mentally exhausting to continually struggle with payments that have no end in sight.
If you add in the tendency to medicate our stress by spending on excesses or luxuries – especially things you won’t or cannot talk about – it’s likely chronic financial stress will take hold.
One expert on financial stress in the United States, DR J. Galen Buckwalter, has identified a syndrome called “acute financial stress disorder”. Think of all the drivers: credit cards, loan and especially mortgage repayments, stress-relief spending and for people on lower incomes, basics like food, heating and rent.
If that last sentence makes it sound like financial hardship is the cause of financial stress, not always.
MOSTLY FALSE
Belief 2 – Financial stress is the same thing as hardship
The Australian Bureau of Statistics’ indicators for measuring financial stress include being unable to pay various bills on time and being “unable to raise $2000 in a week for something important”. However, further reading shows its indicators are pointers to “households … experiencing economic hardship”.
But that is only part of the story of financial stress: it’s likely many more people are under financial distress. Much of the stress we suffer happens because we’ve convinced we need bigger or newer possessions. Or because of rising prices of, for example, housing.
Disturbing revelations about mortgage stress in recent weeks include the news that 130,000 households in New South Wales and Victoria are spending an unsustainable 30 per cent more on repaying their mortgages. More than half of all Tasmanian households are in this position.
The maximum households should spend on repayments, according to many financial advisors, is no more than 30 per cent of gross income.
With interest rate changes long overdue and the unpredictability of unexpected expenses, spending so much money on a mortgage is a recipe for financial stress. That quickly turns to distress with major expenses or a spending habit that is hard to control.
Rent is “unaffordable” or “severely unaffordable” for the majority of people living within an hour’s drive of Sydney city, according to the SGS Rental Affordability Index (and even worse if you live in the city). This means the cost of renting for most people in or near the city puts them under “housing stress”. The situation is not as severe in Melbourne, although most inner-city rental properties qualify as “unaffordable”.
But few homeowners or renters – at least not those in regular work – would qualify for government assistance based on financial hardship, even if they are struggling to stay afloat.
FALSE
Belief 3 – Everyone is financially stressed
From one extreme to the other.
When we talk about chronic and damaging financial stress – the kind defined by the Australian Bureau of Statistics’ financial stress indicators such as having trouble paying bills on time – then no, not everyone is financially stressed.
But it’s very common, and the chances are it’s affecting someone in your family or someone you interact with regularly at work. The Australian Psychological Society’s Stress and Wellbeing Report in 2019 found 35 per cent of Australians report having “a significant level of distress in their lives”.
That report found “personal finances” (49%) were the single biggest cause of stress for Australians for the preceding five years, ahead of “family issues” (45%) and “personal health” (44%).
Those numbers suggest that someone around you is financially stressed, and probably a few people.
ANZ Bank chief executive Shayne Elliott says the lender is preparing to deal with a much larger number of financially distressed customers next year as government support fades, though ultra-low interest rates will give struggling borrowers more time.
The critical question that may never be answered is why some people suffer financial stress while others faced with similar challenges do not.
The American Institute of Stress uses the analogy of people on a roller coaster to show the difficulty of predicting distress. Some people thrive on the shock and discomfort of the roller coaster experience, while for others, it’s pure torture.
“Many times, we create our stress because of faulty perceptions you can learn to correct,” The institute explains. The use of the word ‘perception’ indicates that the institute of stress believes this is partly a problem of thinking as much as anything else.
It elaborates: “all of our experimental and clinical research confirms that the sense of having little or no control is always distressful – and that’s what stress is all about.”
This suggests our personal relationship with the unexpected is a factor that perhaps a sense of helplessness determines whether we turn a normal level of stress into distress.
So, what do we do about financial stress?
PARTLY TRUE
Belief 4 – financial stress will go away if I have more money
A windfall or pay rise is the holy grail for the chronically financially stressed, but unless you are debt-free – or are one in a million and suddenly get rich – it’s unlikely to work for long.
Chances are, the reasons you are chronically stressed about money are more complex than how much you earn (or the state of the housing or job market), as suggested by the above. It may seem the outside world is causing your financial stress, but it’s also possible at least some of your financial stress comes from inside you.
For example, if you can be prone to impulse spending, wanting to buy the latest expensive gadget, or even have a tendency to shower people in your life with gifts, you will likely spend much of that extra money.
Or if you committed yourself to spend 40 per cent (or more) of your salary on your mortgage or rent and a pay rise gets your head above the waterline, might that extra income justify the risky decision you made to over-commit?
If a windfall were the cure to financial stress, then the ultimate solution would be a lottery win, right? Wrong. A shocking 70 per cent of lottery winners end up bankrupt, according to America’s National Endowment for Financial Education.
The truth is that the cost of living, especially in a capital city, combined with servicing debt caused by a lifestyle beyond what you need creates financial stress. Full stop.
When dealing with or preventing financial distress, it is not just about how much money you can acquire. But, unfortunately, that may be missing the point.
So, time to be honest: how much freedom do you have around your spending?
What may be causing you as much distress as the dollar figures keeping you up at night and distracting you at work is the stress itself. In other words, ruminating on the problem of ‘how do I get better with money is probably a painful process.
Perhaps it’s time to go back a step and examine your whole relationship with money?
FALSE
Belief 5 – You can only help someone under financial stress by giving them money or financial education
There’s no doubt the answers to financial stress – which at least superficially presents as having trouble meeting financial obligations – has a few elements.
Some of those include effectively setting goals that promote change, learning more about how to manage money – Andrew Fleming, Founder & CEO of Financial Mindfulness says “in addition to improving financial literacy and goal setting, being self aware of your current financial behaviours, good or bad, is so important to unearth those unconscious behaviours. For example, why did I buy another phone when the one I had is perfectly fine. I ended up paying more than I had to and the upgrade features didn’t change anything significant. It was an impulsive decision I made at the time. The clever marketing achieved is purpose at my expense.”
ANZ’s national survey of adult financial literacy showed many Australians have strong levels of understanding around money. However, there were still many people who didn’t save regularly (23%) and did not feel in control of their finances (22%).
“Those most likely to feel out of control were … household incomes of $65,000 or less with children at home and people with a mortgage of $300,000 or more and a household income of less than $100,000,” the report found.
Marc Richardson, says; “mindfulness is very effective at shifting old, hard-to-shift negative beliefs we have about money, such as “I’m no good with money”, “spending makes me feel better” and “money is stressful”.
“Through mindfulness, we can raise awareness of our thought patterns,” he says.
“It’s only through raising awareness of when our negative emotions arise that we can develop capacities to deal with thoughts and feelings. Mindfulness is a beneficial strategy for breaking the cycle of negative thought patterns that lead to negative emotions and enhance feelings of helplessness, hopelessness, and then negative behaviours.
“In fact, without mindfulness, it would be tough for us to catch the underlying attitude which then governs our thoughts, reactions and behaviour.”
MOSTLY FALSE
