Financial stress and hardship can have a large impact on your mental health, relationships and your current living situation. It’s why many of us study hard, get a good job and work tirelessly to pay bills and make a living for ourselves and our families. However, financial stress can be caused by many different things such as poor management of money, job loss, gambling addictions and emergency expenses or unexpected injuries (which usually need immediate attention). While it may seem like you’re ‘drowning in debt’ or that you’re in a never-ending cycle, seeking support is the best way to move forward as the earlier you address the issue, the easier and faster you can get out of it.
What Causes Financial Stress?
There is a myriad of causes for financial stress, and these can vary depending on your age, where you live in the world or even the amount of people in your family. The main causes for financial stress can be boiled down to a lack of funds which are exacerbated by expenses that need to be paid (emergencies, bills etc), expenses that have been made for personal reasons or an unstable source of income.
Losing A Job
As we’ve seen recently with the global pandemic causing widespread disaster since 2020, many people have lost their main source of income (their jobs), due to businesses having to close as a result of restrictions and consequently being let go. This can be an extremely worrying time for all parties involved. If you need to support your family, or if you have large expenses coming up like car registration fees or mortgage payments, losing a job can cause immense stress.
Spending to Cope
Often financial hardship is caused by something occurring in your life which results in spending more on things that can ‘temporarily fix’ the problem. Identifying what these are can help you curb your spending and get in the habit of saving rather than spending. A lot of times, people turn to gambling, drinking or smoking to help cope with their situation, which can cause a never-ending cycle that seems difficult to break. Gambling can be an addiction and can severely impact not only your financial situation but your mental health and those around you. There are many resources
out there for people with gambling problems, whether it is yourself or someone you know. It is important to know that help is available and can save you a lot of long-term hardship and stress when sought out before things escalate further. Call Gambling Help Online
on 1800 858 858 for 24/7 help and advice for gambling addictions.
Spending Excess Amounts on Wants
Are you guilty of spending all your hard-earned cash on items that aren’t really a necessity? You might be relying on a credit card, or AfterPay to purchase clothes or products that you don’t have the money for. Perhaps you like to eat out with your friends or enjoy spending lots on takeaway or coffee while at work? Instead of trying to make more money or trying to cut out necessities, you should look to the root cause - your habits. These habits might be the reason your bank account never seems to grow or even worse, is constantly declining. This can be discouraging to see and can perpetuate spending on vices to cope (like discussed in the previous paragraph). Over time, this can have a gradual impact on your mental health as financial stress can become too overwhelming.
Simple Steps to Finding a Financial Solution
If you are extremely stressed about your financial position, this can trigger other health problems too. Ensure you are eating well and exercising as these can both be great outlets and can help reduce stress levels. You may also find it useful to do some meditation or mindfulness to balance and control your emotions. The impact of financial stress on your mental health should not be overlooked.
For further support, you should see your GP and make an appointment for a mental health care assessment. This will determine where you’re at mentally and if you need further support at a professional level (psychologist or medication). If you’re feeling overwhelmed, you can turn to various organisations or services that are available to listen to you or provide support. Beyond Blue
specialises in helping those who feel anxious or depressed and you can call them on 1300 22 4636 or chat with someone online. If you are having a personal crisis, Lifeline
is another great resource where you can chat with someone online or call 13 11 14 to seek help.
Contact Your Bank
Most financial institutions have policies and programs to assist their customers with financial difficulties. If you’re finding you are unsure how to proceed and are needing some extra help navigating your financial situation, contacting your bank allows them to assist you as best they can on your end and provide you with available options depending on your situation. Seeking help from your bank can ensure your money stays where it’s being kept and you don’t have to worry about transferring accounts or funds across into another service provider.
Consult a Financial Adviser
This can help you get on top of your finances and plan for the future. They’ve most likely seen situations that seem like there’s no coming back and their experience and wealth of knowledge can help guide you in the right direction. Professional advice is valuable, especially when you may be overwhelmed and not thinking clearly.
While it’s a commonly recommended strategy, even by us
, having a good budget that you actually stay disciplined to is what’s key. You should keep within the limits of your budget and make sure you rarely go over it to ensure you’re reaping the full benefits.
Here are some important steps to hash out when beginning to budget:
Identify key payment dates
These include when your payday is, when rent, mortgage payments and other big financial lump sums are being withdrawn from your account and when you have major bills due. This ensures you are prepared for when they arise and you aren’t scrambling to adjust your cash flow.
Allocate the rest of your money
Once you allocate all your money to your necessary payments, you should be left with an excess amount which you can then budget towards your lifestyle and general living expenses. Ask yourself: Can I afford my current lifestyle?
A good rule of thumb
for budgeting is the 50/30/20 rule. This translates to 50% of your income goes towards living (rent/ mortgage, groceries, bills, other necessities for living) 30% goes towards wants (shopping, dinners out, events, presents, short holidays/ day trips/ weekends away) 20% goes towards savings/ long term debt. However, it’s important to use this as a guide and to adjust to your own lifestyle and personal financial goals.
If we’re using the general rule of thumb, 50% used for living should be your biggest indicator of whether or not you can afford the lifestyle you are leading. If your day to day necessities are costing you more than 50% of your income, you should consider changing areas here to cut down. This could be in the form of renting an apartment that is costing you way too much, or you’re buying expensive groceries, having expensive electricity or water bills which means you are using too much power or having excessively long showers.
The ‘30%’ of allocated income is probably the easiest area to cut down on. All you need to do is ask yourself: "do I really want that?’, ‘can I go without it?’, ‘should I wait for it to go on sale?’ or ‘is there a cheaper alternative’. Even cutting down on your takeaway coffees by having one at home before you leave, or packing lunch instead of eating out, buying sale items rather than full-priced can help in the long run.
20% of the savings left should be thoroughly thought out. Having clear goals on what you are saving for can help ensure you are putting this money away. If you have nothing to save for, you may not be motivated to put money aside. It is important to ensure you are putting away money consistently. If or when you do experience financial hardship, the money you have put aside can be a great safety net that you have been adding to slowly over time. There are also many unexpected life events that require immediate financial attention like when your car breaks down, unexpected medical expenses, something in your home breaks, fines and much more. Being prepared can account for these unexpected finances.
Track your progress
It is one thing to budget everything out on paper, but you will not know if it is successfully helping you to manage your finances unless you track your cash flow. You can do this through various methods such as using an app (click here to find out the apps we like to use to track our expenses) or through your own manual spreadsheet/statements. There are many free resources available online if you’re wanting to use a tool to help you track and manage your expenses.
Have an emergency fund
While this is similar to your savings pool, this money should be in a separate account and should not be touched in any circumstance other than in an emergency. A good estimate of how much to have in the account is to save between 3-6 months of living expenses. This will cover you if you suddenly lose your job, or you are injured and need to spend extra money on your health.
How to Support Someone You Know Who is Experiencing Financial Difficulty
Often financial difficulty can be something people are embarrassed/ don’t enjoy talking about. Creating a safe, open, non-judgemental, private space for others to talk to you can provide them with the opportunity and confidence to tell you about their problems. Firstly, you can identify if someone has a financial problem if you notice them regularly borrowing money, lack of food and household essentials if they are receiving notices in the mail for unpaid bills or even a change in personality. You could ask them about their job situation and see whether or not their hours have been reduced or if they have been let go. Being observant of lots of new shopping bags or online packages around the house might also help identify if someone might need assistance with curbing their spending. There are two tips to help approach someone once you determine whether or not they might need help:
- Listen. Let them tell you about their struggles, don’t tell them about your own struggles in relation to theirs, it is their story. Provide emotional support and advice if you have some and depending on the relationship you have with them. Try not to be too opinionated or talk over them.
- Be mindful of their situation. If they are having financial difficulties it may be best not to choose the most expensive restaurant to meet them at for dinner. Instead, think of events/ things to do with them that they can participate in (not to exclude them) without paying a fortune. If you buy each other presents for Christmas/ birthdays, maybe suggest a ‘homemade’ gift this year.
If you’ve gotten to the end of this article, you’re likely wanting to help someone in financial stress or you may be facing it yourself. It’s important to keep level headed and try to take a step back before making large decisions regarding your financial position. If you run a business and need your bookkeeping in order
, don’t hesitate to contact the professional team here at Shoebox Books. We’re experienced with dealing with small businesses and can help achieve clarity when it comes to your box of receipts. Simply find a bookkeeper
near you or contact us on 1300 65 35 83.