Want to avoid financial stress: ask yourself these questions

on December 02, 2020 / by Financial Mindfulness

Want to avoid financial stress: ask yourself these questions.

There’s never been so many options for accessing cash quickly as there are today, and that’s very appealing around this time of year – especially this year, with many more people unemployed as a result of the ‘pandemic induced’ economic disruption.

Nobody wants to be in financial stress (or distress) or have money worries. But sometimes a quick fix becomes a long-term problem if we ‘go there’ over and over.

We all know the quick fixes to cashflow problems available today. On top of the huge success of ‘buy now, pay later’ products like Afterpay and ZipMoney, people are increasingly signing up to so-called ‘pay-on-demand’ services that – for a fee of around 5 per cent – will let you draw cash against your pay before it is deposited into your bank account.

New financial services arise (and succeed) because someone has identified a need and met that need. That’s fair enough. Financial products and services that give people flexibility and help them out of a squeeze are welcome. There are a lot of positives when one considers all the angles and different perspectives.

These new services, referred to above, are sign of the times. They also tell us some important things – that many people basically live paycheck to paycheck and that there is a groundswell of support for the idea that employers shouldn’t pay in arrears and instead should pay as people earn.

We need to be clear – and we urge mums, dads and singles to be clear about what these services really are: they are loans that have to be repaid.

As a rule, we cannot endorse the regular use of fee-based short-term loans to get by every week.

Here are at least four reasons:

1. Paying regular fees for basically spending your own money is just adding another debit to your account, and it’s not insignificant (Think about it: how often would you pay $15 to withdraw $300 from an ATM?)
2. The second reason is there’s a basic truth that these service providers (let’s call them small lenders, as that’s what they are) want you to ignore: spending more than you earn every week is a dangerous habit.
3. Financial stress. See points 1 and 2.
4. We believe that with ‘mindful spending’ – spending done with full awareness of your financial position and your needs and wants – you can reduce, and avoid, damaging financial stress.

The good news is that by using awareness and acceptance of your financial position, you can feel much more in control of your personal finances and your week-to-week expenses.

With a healthier financial mindset – where you aren’t experiencing the symptoms and impacts of financial stress – short-term loans become what they were designed for: a useful solution to an emergency cash flow problem.

Here are some questions to ask yourself if you regularly use ‘buy now, pay later’ services like Afterpay, and have used – or want to use – ‘pay on demand’ apps and services.

1. When was the last time you looked at your credit card statement? If you are avoiding it, why is that?
2. How many ‘buy now, pay later’ accounts do you have?
3. Do you keep track of the total amounts owed? Are those totals increasing over time?
4. How often do you use buy now pay later services?
5. What do you buy using these products? To solve emergency money issues, or for normal living expenses? (Note: clothes and haircuts are rarely an emergency)
6. How often would you use ‘pay on demand’ (getting an advance on your pay) apps and services?
7. What would you buy with the money you receive from ‘pay on demand’ services?
8. Is your overall financial position better or worse after using ‘buy now, pay later’ and/or ‘pay on demand’ services?
9. What would it really take to improve your overall financial position?