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Under-earning and financial stress.
‘Under-earning’ – that some people earn less than what they’d like to or even deserve to earn – might sound like an odd idea to people with faith in a free market.
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.
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.
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:
‘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
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
Find out by completing our Financial Stress Index (FSI) now.
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