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Managing financial stress and mindfulness

How to budget successfully

Managing financial stress and mindfulness.

In the second part of our financial stress webinar covering managing financial stress, we look at goals, mindfulness, and monitoring progress with expert help from Lea Clothier, a Master-certified behavioural money coach involved in the development of the Financial Mindfulness program. Part one looked in detail, decision making, literacy, and learning new skills.

Setting financial goals

By definition, moving forward – out of financial stress – means we have to do things differently.

“If we stay where we are, we’re going to get more of what we’ve got,” Ms. Clothier says.

The reason for setting financial goals is because they can help unlock genuine and transformative behaviour change.

The theory of behaviour change is that we need to be motivated to make changes. Setting goals is a way of taking early but clear steps towards change.

“These goals can be tiny, or they can be very significant. I’m a big fan of what they call small but significant goals,” says Ms. Clothier.

One type of goal is a milestone – reaching a certain target of savings or being able to afford something we’ve targeted, like the deposit to buy a property, or fund a small business.

On top of the achievement of reaching a goal, the very act of setting financial goals can actually help reduce financial stress because it makes us feel a little more positive about our money.

“We can start to see the progress that we’re taking away from what we don’t want, towards that which we do want,” Ms. Clothier says.

In setting financial goals it’s a good idea to nominate an ‘accountability partner’ and make them part of your process.

That is a person to check in with around your progress.

The more you think about how you got into financial stress – this point where major change is necessary – and reflect on your history of self-defeating or disorganised behaviours with money, the more you’ll see accountability is essential in changing your relationship with financial stress.

It’s important to note things may not happen quickly. Making a meaningful change that can be sustained for a lifetime will probably be slow.

It is also just a reality that we are likely to go through periods of not seeing any changes or slipping back into old patterns with money.

That might seem depressing, but depending on your perspective and openness to change, the re-emergence of old habits is an opportunity.

How?

We have a clear choice: we can slip backward and give up or re-evaluate our goal, our process and perhaps set a new smaller financial goal.

Small financial goals and milestones are also rewarding.

It’s well-known by experts in goal-setting that most goals consist of smaller tangible goals, like stepping stones on a path.

“I’m also a fan of doing something physical to acknowledge reaching goals,” says Ms. Clothier.

“Whether that be like marking off a calendar every time you complete payment towards debt or colouring in a picture that has 52 elements of savings that you’re doing weekly over a year.”

This is important and useful because our relationship with money has become even more abstract than it was: very often we don’t even see or touch money in our cashless society.

Because so many transactions have become contactless or online during the pandemic the likelihood of not carrying any cash at all has increased for millions of us.

“We have lost that connection to the reality of our physical relationship with money,” she says.

“That money ‘disconnect’ is very real and it helps our ability to reach financial goals if we can get back a sense of connection to money.”

We are more likely to think of concepts and issues every day if we feel connected to them.

Discovering the power of mindfulness

Lea Clothier trained as a meditation and yoga teacher when she saw clients to her money behavioural coaching business were suffering acute stress.

“When they started to talk about money, they talked about their hopes and dreams with cash or their actual reality with money I could see that it was stressful, and I could see that stress was directly linked to their wellbeing,” she says.

Financial stress is a type of stress, and as we discussed in a previous blog which means it responds to a range of stress reduction techniques, including mindfulness.

Mindfulness – which at its most basic is about bringing our awareness to the present moment – is an important stress reduction technique.

“It means we are paying attention; we’re fully invested in this very moment,” Ms. Clothier says.

“We do that through the application of our five senses. It means that we start to pay more attention to our touch, our sight, what we can smell, hear and taste.”

“By doing that, we get out of that hectic, noisy head of thoughts that all of us have.”

The power of mindfulness with money is it’s two-fold.

It means we need to bring our full attention to our finances.

We need to pay attention to what’s going on in our bank accounts, with our spending, in how we earn money, and in the way that we interact with money every time we use it.

Mindfulness also has the power to help to reduce our stress levels. It is known and proven to be able to reduce cortisol, the stress hormone.

There is also research to show mindfulness can actually increase the density of the pre-frontal cortex, also known as ‘the thinking brain’.

This is important because our responses to money are so often based on how we feel and our emotions.

This means that we’re reacting when we’re interacting with money; we’re not responding. We’re not making logical, clear, calm, well-thought-out decisions.

“For me, mindfulness is like a superpower when it comes to our finances,” Ms. Clothier says.

“It’s a way to slow down and give provide enough space to practice better decisions and practice a better way to manage money.

“Think about when you’re in the shopping centre, and you’re about to buy something.  You’re not thinking much about it, you just like it, you’ve seen it and you want it.”

“You go to the counter, you tap as you go, you walk out, and as you leave, you get in the car, you go home. You get home, and you go, “Argh, I probably shouldn’t have bought that. I don’t have the money, and I’ve got those bills coming up.”

The emotional part of the brain reacts seven seconds faster than the thinking part. It’s unlikely we would turn to the knowledge gained in improving our financial literacy in that time.

But we can just stop.

A mindful approach with money in that situation would involve, slowing down our actions, and stopping before tapping the card, taking a breath, and checking in about how important the item really is?

The same can apply to investing in the share market, or lending money to family or friends for them to invest.

But by approaching and adopting mindfulness, we just slow everything down, and we don’t react.

“We can stop and consider the repercussions of any decision or action before making it.”

How to measure and monitor our progress

Very few of us know how financially stressed we really are. We need to have some kind of idea of this before we really know what progress looks like.

To measure financial stress, we need to look at more than just our bank account balances.

The context for how we spend, why we spend, and what we spend it on matters a great deal.

“Think to the gym and doing a fitness assessment before you get there,” Ms. Clothier says.

“Where you’re sitting with your PT, and they’re saying okay, ‘tell me about your diet, tell me about your state of mind, your sleep patterns, tell me about your exercise routines.”

“It’s the same concept as that, except it applies to your relationship with money instead of food or exercise.”

Financial Mindfulness developed the Financial Stress Index (FSI) as a way to measure and monitor the financial stress of individuals and groups of people in detail.

It is contained within the Financial Mindfulness app and measures the levels of financial stress on five dimensions with suggested solutions for individuals.

These are the financial status, the physical and psychological burden, the social engagement, the psychological impact, and the behavioural signs of stress.

The score given to each user is a starting point, a baseline.

Returning to doing the FSI every 30 days or more allows users to clearly see their progress across the five dimensions.

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Lowering financial stress and stress in general

Lowering financial stress and stress in general

Lowering financial stress and stress in general.

Financial stress is debilitating; it can add a layer of unwelcome, even toxic, distraction to everyday life.

It can affect our relationships and our productivity at work; plenty of research shows this, including research commissioned by financial mindfulness.

But people under financial stress don’t need research to confirm it, anyone under financial stress knows how it slows us down and makes everything that bit harder.

Financial mindfulness is a tool for reducing personal financial stress using mindfulness, goal-setting, and financial literacy.

“It’s useful to remember financial stress is a type of stress – and it’s helpful to look at what stress actually does to us,” says Dr. Michael Takagi, a Melbourne clinical neuropsychologist.

It’s also important to remember there are a variety of well-practiced stress reduction techniques which we can use to help address financial stress too.

Stress and financial decision-making

Stress can have a profound impact on us, Dr. Takagi says.

When it becomes chronic, it can adversely impact our lives in many ways, including our sleep, cognitive functioning, physical wellbeing, and overall health.

“Imagine trying to make a complex and impactful decision when you are sleep deprived, your scatterbrained and not able to focus, you have a headache, and your back is sore, and you feel rundown and exhausted,” Dr. Takagi says.

“It is not a recipe for good decision making.”

In the short term, we are more likely to make decisions that alleviate our immediate need for relaxation and help us to feel better, so-called retail therapy, buying expensive takeaway meals, drinking, or even gambling.

Doing those things to try and ‘feel better’ can add to our financial stress.

“In the long term, we are less likely to delay gratification and less likely to make the decisions that are necessary for long-term financial stability,” Dr. Takagi says.

Stress management techniques can help us reduce our overall stress levels, reducing the adverse side effects of stress, which helps us make better financial decisions.

Valuable activities for stress reduction

In general, exercise is among the best options, Dr. Takagi says.

The specific type of exercise is less important than ensuring you regularly do it. As an example, gardening can be a good option that people may not consider exercise.

While gardening doesn’t usually raise the heart rate, many people find it useful – you’re outside, getting fresh air, and exerting yourself.

These activities produced stress-reducing brain chemicals such as serotonin, dopamine, and endorphins, where you exert yourself.

“Going for a walk with a friend is another excellent option; you’re exercising and socialising at the same time,” Dr. Takagi says.

Socialising with a trusted friend produces stress-reducing brain chemicals such as oxytocin.

Similarly, team sports, going to the gym, and running are all good options.

The primary considerations should be enjoyment and a degree of physical exertion, which produce the feel-good natural highs of dopamine and serotonin.

“If you enjoy doing something, you’re more likely to make it a part of your routine,” Dr. Takagi says.

Including someone else can help too – you’re more likely to exercise if there’s someone to do it with you, keeping you accountable with the bonus of that important social aspect.

Mindfulness is also an excellent stress reduction technique, particularly with stress caused by financial stress.

Mindfulness has been shown to stimulate all the ‘happy’ brain chemicals, especially serotonin and (when we stick to a regular practice) dopamine.

The anti-stress benefits of positive routines

Stress reduction techniques and activities do not have to take a huge part of the day, and they can change, Dr. Takagi says.

This could be incorporating a morning walk into your routine a few days per week, a 10-minute mindfulness session before you start your day, or a 5-minute progressive muscle relaxation session before you go to bed.

“The most effective stress management techniques will vary from person to person and vary on when they are most effective during your day,” says Dr. Takagi.

“Identify the stress management techniques that are most effective for you (e.g., breathing exercises, mindfulness, walking) and then work on incorporating them into your routines,” he says.

This means getting curious about what works for you. Try something and if it doesn’t help reduce your stress, try something new.

You can maximise the benefits of stress management techniques and activities by incorporating them into a routine and continuing to do that routine.

We need to simplify how we do this, and one way to achieve that is to do positive things at the same time every day.

Many people find it effective to have a stress-reduction routine in the morning while having plenty of energy before their focus is taken up by work.

This could look like some meditation and a phone call to a friend when you get up, or a brisk 15-minute walk, then you begin with a firm foundation for the day.

But if it works best for you to have a stress-reduction routine after work or in the evening, then try and stick with that.

The main point here is to have a routine and try to stick to it. If you miss a day, don’t worry, just start the next day again.

KEY POINTS

    • Financial stress can be reduced in several ways.
    • A program specifically aimed at reducing financial stress is beneficial.
    • Financial stress is a type of stress, and there are many stress-reduction methods.
    • Exercise is one of the best, so is socialising and mindfulness.
    • Experiment and get ‘curious’ about what works for you.
    • Incorporate stress-reduction techniques into your daily routine.
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Mythbusting our beliefs about financial stress

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