Episode 21

Financial Stress: A major issue for many Australians…We worry about money more than anything

To start today’s episode, I want you to think about if there is something that you keep putting off. A nagging little task, like paying a bill, lodging a tax return, doing a budget and so on.

Does this cause you stress? Little things in the back of your mind actually tend to build up over time, taking up your brain function bandwidth. When you actually get around to doing it though, it’s never as bad as what we think. We build things up to be a big problem in our minds, but they really aren’t. Once it’s done it wasn’t as bad as we thought.

Today we are going to talk about financial stress, and what can be done to avoid it and prosper.

Financial stress is a major issue for many Australians – We worry about money more than anything

The Australian Psychology Society– research shows financial issues are the leading cause of stress – Stress and well being in Australia Survey (2015)

  • Financial issues – leading causes of stress (49 per cent in past five years)
  • Others items included: family issues (45%), health issues (44%), workplace issues (32%).

What causes financial stress

  1. Causes – really comes down to one thing: not being able to pay the bills.
    • People tend to spend what they earn, or more than what they earn
    • Maintaining a lifestyle – Debt or pay cheque to pay cheque
    • Uncertainty – Not having enough to cover what we spend
  2. Financial Stress – The definition
    • Struggles of meeting day to day costs – Bills, utilities, rent, mortgage
    • Worries about upcoming costs – next week’s bills or upcoming expenses
  3. Anyone can feel it – Even high-income earners can suffer from financial stress
    • Stress arises when they spend their money on discretionary items

Stress – Why is it bad?

  1. Impacts health – Cortisol and bad habits to cope
    • Cortisol (Hormone) – Created when under stress as one of the body’s short-term coping responses
      • But when you are always under stress it isn’t good – decreased immune system, depression, weight gain, weakness/fatigue
    • Over eating to deal with stress – Dopamine release to get some feeling of achievement
  2. Impacts our relationships
    • Shorter fuse and more conflict, which creates additional stress
  3. Lack of sleep – Of those who are financially stressed, 7 in 10 people lose sleep over about it (compared to 1 in 10 for non-stressed)
  4. Compounds the issue – A study found that financially stressed people drink more, sleep less, have worse mental and physical health, and more conflicts in relationships
  5. Compounding Effects
  6. Decreases ability to make decisions – Can lead to worse financial decisions
    • Bandwidth – Additional stress reduces ability for other tasks
    • Ever had something on your mind (breakup or another stressful event). How well can you concentrate on what you need to do?
  7. This compounds the financial issues, like getting into more debt due to coping behaviours which aren’t helpful
    • Drugs/alcohol – CoreData: Financial Mindfulness in 2017– 35.2% people are likely to use alcohol/drugs to manage negative feelings
      • Those not financially stressed – 2%
    • Continue spending
      • Spending more gives a good feeling, and helps to ignore the negative feelings
      • Makes it all worse – If you are in a hole, stop digging, digging ‘up’ doesn’t help

What are the elements that help?

Regaining control

  • Finances shouldn’t control you – Get the finance monkey on your back
  • Having control/certainty reduces stress – Knowing what you are in for helps, but being able to control it works better
  • Tail wagging the dog – Financially stressed people spend to feel better
  • Have $10k in CC debt, so spend $300 on a night out to make it better – spending gives control
  • But, you can get control over the debt – forming good habits and increase certainty

 

Ways to solve these issues

Three time frames to focus on; Now, medium term and longer term

  1. Build the basics now – Short term
    • What you can do right now – gaining control immediately
    • Get disciplined – Stress comes from the unknown –
      • Get a budget – Get to know what you are spending, and when you are spending it
      • Set aside money to cover this – Aim to have your own left over as well
    • Make it a habit –
      • Direct debits – Once you know your costs and incomes, you can pre-plan. You can “set and forget” to remove the stress
      • Get apps to track it for you
    • Very simple to do – yet it can be a very harsh reality – ‘hard truth’
    • Example – Once you are covering your bills with ease, start managing your money to get ahead…and ready for next stage
  2. Medium term –
    • Once you are feeling less stressed you’ll be feeling more in control you can plan for the future
    • Start planning! Savings targets to be achieved need longer term planning
    • You need to have covered the basics before moving on to stage two
    • Examples – Wants: Holidays, new cars, home deposits
  3. Long term
    • Start Investing – Long term goals normally include having debt paid off or generating a passive income
    • Long term goal of reducing financial stress for your future.

Why are all three important?

  1. The long term will become the short term if you aren’t careful
  2. Short term – Stress occurring now – Meeting the bills day to day (ultimate stress and priority)
  3. Stress that will occur in a few years – May not be at the front of mind, but it will be when it comes time that you need a new car
  4. Stress that will occur at retirement – One of the long-term consequences of not planning is having stress for the rest of your life financially
    • Get to 65 and not have enough to live off – it might feel like a long time away, but if you get there and don’t have enough, well, you’re are back to the short term financial stress

 

Summary

  1. Financial stress can be solved – Takes some additional stress (potentially) at first
  2. Work on the short term – It will feel good once you are in front again
  3. Those positive results will compound to your personally and financially

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