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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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Money and relationships

Money and relationships

Money and relationships.

Many elements can lead to relationship tensions and even breakdown.

One of the most difficult to change can be disputes or differences over money.

Perhaps strangely, often ‘opposites’ attract when it comes to money and relationships.

“You’ll often see a spender/saver dynamic in a couple,” says Lea Clothier, a Behavioural Money Coach.

The reason for this can be based on deeply set value systems. Money can be tied to, for example, freedom, security or success.

“Money can represent all three to us, but we often have a dominant main value system around it,” says Ms Clothier.

Value systems and money

Understanding the underlying values in your relationship will give us insight into our behaviour and what is happening when there is tension over money.

Someone who sees money as a means to freedom is likely to be more of a spender, Ms Clothier says.

They are also less likely to stick to or use a budget (which they find restrictive). They may enjoy spending money on experiences and enjoying life.

On the other hand, someone who sees money as all about security may use their money more restrictively.

They are likely to be more savings-focused, manage money more tightly, and stick to a budget.

‘For these people, having a cash reserve gives them peace of mind and reduces financial anxiety,’ Ms Clothier says.

Those who see money as a measure of success may display their wealth through their choice of career, the car they drive, and the clothes they wear.

They may have big financial goals and see money as the tool to achieving these, Ms Clothier says.

Money is likely to be at the centre of or influence many of their major life decisions.

Conflict over money

Conflict can happen in partnerships and relationships when people have conflicting money values.

Imagine a relationship where one person is freedom-focused and the other security-focused.

The actions one person takes could be seen to compromise the other’s need for freedom or security.

Where money values are fundamental to us and clash with someone else’s equally strongly held beliefs, conflict seems inevitable at some point.

Understanding each other’s values around money can help reduce conflict and diffuse conflict.

“Many couples don’t manage money together as a team,” Ms Clothier says.

Getting ‘on the same page’ financially means both are taking an interest in finances in the relationship. Ideally, both also have an active role.

Ultimately a shared household spending plan is a great idea, so both partners work together towards joint financial goals.

Keeping some financial independence is also a good idea, perhaps in the form of having a small amount managed separately, so each can choose to spend independently of common money goals and actions.

But this should be transparent: any habit of hiding money will undermine trust.

Financial stability, relationship stability

Financial stress and financial instability are leading causes of stress globally and often contribute to marital and relationship breakdown.

Improving our sense of financial security and stability provides peace of mind and invariably helps to steady many partnerships, Ms Clothier says.

“It can create a platform for individuals to pursue their dreams and for a couple to achieve shared goals,” she said.

Financial stability is also the foundation for a stronger financial future and makes goals and dreams more affordable.

Financial stability is created through two essential elements: communication and cash flow, Ms Clothier says.

Money is a very emotional topic, which can make communicating about it difficult.

Learning to be open and transparent about money matters and communicate clearly about them is essential to remove the tension that money often causes in relationships.

Managing cash flow is the foundation of all financial plans.

“It’s about being mindful of every dollar that flows into your life and intentional with the very dollar that flows out,” says Ms Clothier.

When we have a system and process in place to manage our cash flow and ensure we are spending less than we earn, paying off debt as quickly as possible and building a cash buffer, we can begin to focus our attention on growing our wealth investing it.

Many people go straight to the investing part, only to find they are building on a shaky foundation.

If you are doing this, seek some help getting your fundamentals right – improving your cash flow situation to spend less than you make.

The dealbreakers of money and relationships

A major dealbreaker regarding money that will undermine a relationship, perhaps surprisingly, is poor communication.

Even worse is lacking transparency – which to a partner can quickly erode that most important element in any partnership: trust.

This applies to all stages of a relationship – including the beginning of one.

A partner with an undisclosed historical debt is a partner with a burden that can harm a relationship.

Hiding purchases and spending habits and having secret stashes of money will also destabilise a relationship.

Teamwork and shared responsibility regarding joint finances are essential. It’s constructive, but its absence is a big negative.

Working together on a joint budget, a spending and saving plan builds a sense of partnership – and trust because the goals are shared. Both partners can enjoy the feeling of achievement that comes from successful planning with structure and clarity.

If there’s debt, work out a debt management plan either together or with complete transparency.

“Lacking a plan means that our finances often control us, rather than us controlling it,” Ms Clothier says.

“It also means we are less likely to achieve our goals and dreams because we don’t have the means or method to achieving them.”

Another huge dealbreaker is procrastination.

So many typical money milestones fall on a particular date, so that that avoidance can be very costly.

So don’t put off paying the credit card bills or the insurance – that will create tension in a couple and family.

This also applies to investment. The saying goes: the best time to invest is yesterday and the second-best time is now.

Some regret over financial behaviours and decisions is inevitable and painful, but communication over shared goals can help prompt action rather than avoidance.

Another look at communication

In countries where the cost of living is high, money is one of the most emotive regular topics we face.

Shame, guilt, fear, anxiety, jealousy – all big emotions – are all common around money.

We can feel anger, too and even slip into useless or even damaging fantasies over finances.

And most of this happens in one place – inside our heads.

Learning to be open and transparent about money matters and communicate clearly can remove significant triggers for tension and disagreement.

It’s important to remember that a lot of financial behaviour is habitual.

“Most of us don’t bring much awareness or mindfulness to what we do with our money on a day to day basis,” Ms Clothier says.

Our money habits, particularly negative, can be detrimental to our finances and cause conflict in a relationship.

If you or your spouse notice some unhelpful financial behaviours, it’s important not to launch into judgement, blame or attack. Instead, offering support to see what is driving the habit or behaviour is more beneficial.

It’s important to explore – with honesty – if there are ways that one or more bad money habits, we have either individually or as a couple could be reduced or replaced with something healthier.

Suppose money is a source of regular conflict in your relationship. In that case, it may pay to consult with a financial counsellor, money coach or financial adviser who could support you to get back on the same page with your finances.

Often, they can provide perspective, an objective view, great support and practical tools to work together and master the art of managing money as a couple.

It’s important to note again that money challenges can reveal significant underlying issues, such as the need for security, freedom, or success.

Suppose the behaviour of one or other partners in a relationship is controlling or obsessive in pursuit of these values, leading to major relationship clashes. In that case, marriage counselling or couples therapy might also be helpful.

 

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How can we reduce mortgage stress

Top five reasons people get into 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:

  1. Ensuring you are paying extra on your mortgage to build up a safety net or buffer which can be used when interest rates rise;
  2. 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
  3. 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.