Welcome to Finance and Fury – I hope you are all going well

  1. In this episode – I want to talk about reducing financial stress – times are tough at the moment for many households – We have an economic environment of high prices of commodity-based goods, such as food, fuel and energy prices – on the property side of things the rental market is tight, along with increasing levels of debt repayments due to increasing interest rates – all leading to additional uncertainty and financial stress –
  2. So, the aim of this episode is to look at what the root causes of financial stresses are and talk about strategies to reduce these – both initially but then implementing long term strategies in your own lives

 

To start with – and to get in the mind frame of things that cause stress – I want you to think about if there is something that you keep putting off, and putting off – day to day, or week to week – where it is always the thought of “ill just do it tomorrow or next week” but then a month later that task is still unresolved – be it paying a bill, lodging a tax return, changing your address – or looking for a new career

  1. I Know I have been personally guilty of this – and it does cause some stress – little thing in the back of your mind constantly that we say to ourself that we need to do – this same pattern over time can create a negative feedback loop – of focusing on what we should do instead of what we have done
  2. However – so in the instances that you simply do the task at hand – once it is done it wasn’t as bad as we thought? Why were we putting it off? In most cases, it was just creating undue stress in our lives when compared to the effort to resolve the issue
  3. On the other hand – say there is something that you are uncertain about – Well, the unknown creates stress – as uncertainty is one of the worst things for our mental state in the long term –
    1. We can deal with it in the short term – say a game of sports – like a rugby match – the uncertainty about who is going to win can create some mild unconscious stress depending on who you support – but once that game is over, whether your team wins or loses, that stress is removed – obviously unless you bet the house on the game and lose
    2. But the removal of stress is due to a certainty of the result materialising – you know who won and it is no longer an uncertainty
  4. These have been some general examples – but similar examples hold true when it comes to financial stressors

 

Financial stress is a major issue for many Australians – As people tend to worry about money more than anything  

  1. The Australian Psychology Society– research shows financial issues are the leading cause of stress – from the Stress and wellbeing in Australia survey of 2021
    1. one in five (20%) of Australians aged 16-34 years experienced high or very high levels of psychological distress, more than twice the rate of those aged 65-85 years (9%)
    2. most of this differential comes down to that financial issues are one of the leading causes of stress (49% of Australians have experiences financial stress in past five years) – mostly experienced by those below the age of 65
      1. There is no one cause across the board – but the increased levels of uncertainty and tough economic conditions are likely contributing to this
    3. But when narrowing this down – around 20% of Australian are currently experiencing at least one financial stressor – The Families in Australia Survey – more than one in five respondents (21%) reported that in the previous six months, because of a shortage of money, they or someone in their household had asked for financial help from friends or family
  1. Stress – Why is it bad?
    1. Stress has major Impacts on both our physical by also psychological health – it increases our cortisol levels but also bad habits to cope with stress – such as over eating, drinking or other forms of drugs to cope
      1. Cortisol – Hormone – Created when under stress to cope in short term situation such as fight or flight – but when this is a long-term release, it can drastically impact out health
      2. When you are always under stress it isn’t good – decreased immune system, increases changes of depression, weight gain, and weakness/fatigue
    2. Impacts our relationships – Shorter fuse and more conflict can occur – Creates additional stress between friends and family which is also high up on the major causes of stress – further compounding the issue
    3. Stress can lead to a lack of sleep – When financially stressed – 7 in 10 people lose sleep over money worries (compared to 1 in 10 for non-stressed)
    4. Compounds the issue – Study: Financially stressed people drink more, sleep less, have worse mental and physical health, more conflicts in relationships
  2. These initial stressors can lead to compounding Effects – as with increased stress we can experience decision fatigue
    1. This decision fatigue decreases our ability to make decisions – often leading to worse financial decisions
      1. Ever had something on your mind (breakup or another stressful event) – How well can you concentrate on what you need to do?
    2. This again can compound our financial issues, say through getting into more debt – due to certain coping mechanisms
      1. Drugs/alcohol – CoreData: Financial Mindfulnessin 2017– More likely way of coping 35.2% used to manage negative feelings – when compared to those not financially stressed – 2% – if you aren’t aware, both drugs and alcohol can be expensive
      2. Or continue spending – Spending more gives a good feeling, helping to release dopamine and initially alleviate the feeling to stress through feeling in control, to ignore the stress you were already feeling for being in debt
    3. Essentially – many coping mechanisms can feel like they are helping in the short term – but are actually making it all worse long term – If you are in a hole, stop digging, digging ‘up’ doesn’t help sometimes

What causes financial stress – no one situation is going to be the exact same as another – but a combination of uncertainty and the feeling of a lack of resources are the most common causes

  1. Financial Stress – The definition can be simply put – someone struggling or feeling uncertain about how they are going to meet the day-to-day costs of living – through meeting food costs, Bills, utilities, rent or mortgage repayments
    1. I would go one step further and also include those worried about upcoming costs – and have uncertainty when it comes to their financial futures – as I see people stress about issues like retirement and having enough to live on once they finish work, even if they can make ends meat at the moment – again, this is uncertainty
  2. Causes – In reality – this can come down to a number of factors – but to narrow this down – a combination of someone’s reality and their perception can easily lead to financial stress –
    1. If someone is spending more than what they earn – this will create financial stress
    2. But if someone is a position that they can meet their monthly outgoing expenses – but are in a position of uncertainty – Not knowing if you have enough to cover what you will spend – this also creates undue levels of financial stress
  3. Anyone can feel it – Even high-income earners can suffer from financial stress – I know people who earn $300k p.a. after tax – and feel financially stress due to what they spend –
    1. arises when they spend their money on discretionary items and consumption items in line with their income – this can be very stressful because if this income were to decline -then their spending would also need to drop

What are the elements that help? Realising that stress can be a good emotion that can he harnessed to motivate

  1. To look at the first step – it is all about regaining control – Finances shouldn’t control you – you should control your finances
    1. Having control and certainty reduces stress – Knowing what you are in for helps, but being able to control it works better
    2. This helps to avoid a situation where the tail is wagging the dog – as previously mentioned, financially stressed people spend to feel better
      1. If someone has $10k in CC debt, they might spend $200 on a night out to make it better – as spending gives control – and alcohol acting as a suppressant alleviates the feeling of stress
    3. But an alternative to get control over the debt or financial stress is through forming good habits and increase certainty

Ways to solve – the first step is on the psychological side

  1. This is all about getting the right frame of mind –
    1. One thing that has helped me dramatically is gratitude – I am not poor – or struggling – but I have found myself guilty of comparing myself to other – friends and people that I know who are very very very well off – when I compare myself to someone in my social circle who is far better off than myself, this can put me down – and psychologically discredits my own achievements – increasing my own financial stress – as I could never keep up with them in their Ferrari or holiday spending
    2. Instead – I needed to learn to celebrate what they have accomplished and be grateful for the position I have worked towards –
      1. I can afford to put food on the table, meet my mortgage repayments, meet my investment goals and have the certainty in my life around my own financial goals
      2. This is where gratitude for what you have is incredibly important in a step to overcoming financial stress – if you are grateful for what you have, and truly appreciate this fact, then your levels of stress will decline – but if you instead try to keep up with the joneses – then additional stressors can be incurred
  • The reframing is very important here – as there will always be someone better off than you – so comparing yourself to others is unhealthy – especially when it comes to lifestyle expenses – but in Australia, if you are below the poverty line, well…congratulations, you are still likely in the top 1% of the world’s population in terms of income
  1. The other way to change your mindset is to believe that you are in control of your finances – where you are the one that controls the spending rather than have things/or spending happening to you –
    1. If you are constantly in a state of reacting to things – this is going to create a constant stress – creates fight or flight – increasing adrenaline dumps and cortisol releases
    2. You want to be in charge – you taking action rather than simply responding to what is happening to you is a major step in the right direction
    3. Simple changes in our way of thinking can make all the difference – this helps to alleviate needless stress which means you can put yourself in a position of power
    4. Changing the terminology in your own mind – self talk is very powerful – in our own minds we can create our own realities –
    5. If you have a pattern of self-talk that is negative – this is not good – say you need to do something, and you have put it off – you then say I need to do this – rather than thinking this way – say to yourself – I will do it –
    6. As soon as you think of the thing that you need to do, say I will do it – and then make to plan to do it

When it comes to the practical implementation of these steps – Three timeframes to focus on – Now, medium and longer terms 

  1. Short term is all about building the basics – What you can do right now – Gaining control – try to get the feeling that you are in control of your finances and this isn’t the other way around – where your finances are happening to you are you are simply trying to tread water to keep pace with your expenses
    1. This comes in two parts – the first is your frame of mind to reduce uncertainty – then keep a plan about what expenses are coming up
      1. General strategies that can be implemented to help alleviate stress can be things such as increasing your level of exercise or physical activity – which helps to reduce stress – but also practicing thinking positively and spending more time doing things that you enjoy
    2. The second part is to get disciplined and make a habit out of your savings and spending – Stress comes from the unknown – so the point of this step is to reduce this uncertainty
      1. Set up budgets – Get to know what you are spending, and when you are spending it
      2. Set aside money to cover your essentials – the basic aim is to allocate your resources to what has the highest priority for you – if you have expenses such as rent, food and utility bills – this is the first allocation of resources so some lifestyle cuts may be in order – but the question comes down to what is more important? Removing financial stress or having a lifestyle beyond what might be affordable
    3. The next step of this part is to make it a habit – either each month, check your spending or – do this automatically though technology
      1. Direct debits – Once you know your costs and incomes, you can pre-plan – set and forget to remove the stress – you can also get apps to track it for you
    4. Very simple to do – but can be a harsh reality – ‘hard truth’
    5. Example – Once you are covering your bills with ease – Managing to get ahead – Ready for next stage
  2. Medium term – Once you are feeling less stressed and in control – you can plan for the future
    1. Start planning – Set saving targets to help meet your upcoming spending needs – this does require longer term planning – but say you need cover upcoming larger expenses – such as holidays, new cars, home deposits – then the allocation of your resources towards these goals can help to reduce your stress levels when the time comes to meet these costs – the other option is to simply bring forward these expenditures beyond what would be otherwise possible – through taking on additional debt – this can compound stress and if possible, should be avoided
  3. When looking a period of time and stressors – whilst it may not be a concern right now, in the long term you will need to finish up at work – this is where long term plans should include a picture of what you retirement looks like and start allocation some resources towards this
    1. Start allocating resources towards this – obviously once you get out of short-term financial stressors – but if you have managed to do this, then long term goals normally include having debt paid off or generating a passive income in retirement – so options to look at can be allocating additional resources towards debt repayments and sources of passive income in retirement – it’s all about having long term goals to further reduce your financial stress for the future.

Summary

  1. In most situations, financial stress can be solved and doesn’t need to be your norm – It can take some initial additional stress at first a to work through the issues and fix the problem, it can be painful and require effort – similar to pulling off a band aide – can be initially painful, but solves the problem quickly rather than dragging it out
  2. The main focus is to work on the short term – get in the right frame of mind to solve the problem and then start working towards it
    1. It will feel good once you are in front again
  3. Those positive results will compound to you both personally in your state of mind, but also financially
  4. As once you are out of the reactive state of mind from being in stress – you can start to focus on the long term

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