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Recognising and dealing with financial stress

Written and accurate as at: Oct 10, 2017 Current Stats & Facts

At some point in your life, you may have experienced a certain level of financial stress.

This may have been due to one or a combination of issues, such as managing your debt obligations, running your household budget, and/or handling the financial considerations of a life event (e.g. marriage, birth of a child, job loss, a sickness or injury, divorce, or retirement etc.).

Recognising and dealing with financial stress is important. If left unchecked, it may lead to an overwhelming feeling or disengagement towards your personal finances, which in turn may affect your ability to focus and work towards achieving your financial goals and objectives.

In addition, it may also begin to impact other aspects of your life, whether they be personal (e.g. your family, relationships, physical and mental wellbeing) and/or work-related (e.g. your engagement and overall productivity).

In many ways, this can be reflected in our module, ‘Where Your Wealth Comes From’, where we discuss your personal financial empowerment, the importance of keeping your balance, and the implications of being out of balance.

 

Recognising financial stress
The first step towards dealing with financial stress is recognising that it’s present.

According to the most recent Australian Attitudes and Behaviour Tracker survey*, close to a third of Australians find dealing with money stressful and overwhelming. Furthermore, the Australian Bureau of Statistics^ proposes several potential indicators that a household may be experiencing financial stress. For example, to name a few:

  • You spend more money than you receive
  • You find it difficult paying your bills (e.g. utilities, insurance, registration etc.) on time
  • You cannot afford a night out once a fortnight
  • You are unable to raise $2,000 in a week for something important
  • You cannot afford a holiday for at least one week a year.

Depending on your personal circumstances, you may find that none of these indicators are relevant to you; however, despite this, you may still feel that financial stress is present in your life.

Although each person is different, perhaps one way to identify whether you are experiencing financial stress is to take a few minutes and think about how you currently feel towards each of the areas of your personal finances (e.g. cashflow, debt management, investments, superannuation, insurance planning, taxation and estate planning). For example, ask yourself, “Is there one particular area, or multiple areas, that I feel overwhelmed or disengaged with?” If the answer is yes, consider what the underlying issue or issues may be.

Pinpointing the source of your financial stress can help you to explore and apply appropriate strategies for dealing with it that are relevant to you.

 

Suggestions for dealing with financial stress
Whilst the appropriate strategy to deal with financial stress may depend on the underlying issue causing it in the first place as well as your own personal circumstances, we have provided you with a few suggestions, mostly centred on getting your personal finances in order, which you may find helpful:

1. Talk to your partner. This can help you to both be on the same page when it comes to assessing your existing financial situation, and working together towards achieving your financial goals and objectives moving forward. In addition, by having an open and honest conversation, this may also assist you with the implementation of some of the other suggestions listed below.

2. Seek help from your professional advice team. In our module, ‘Building Your Team’ and our recent video, ‘Teamwork, leverage and achieving a common goal’, we touch on the benefits of teamwork. This is especially important when you take the time to consider the different areas of personal finance, their interconnectedness and the diverse range of skillsets required to bring these all together to help you in a meaningful and comprehensive way. Furthermore, it’s important to remember that we can help you with many of the other suggestions listed below.

3. Get to know your Money Personality and increase your financial literacy by spending time on our quizzes, modules, and calculators (not to mention our articles, videos and life events!). This can enable you to better understand your natural personality preferences for dealing with money and improve your knowledge in the topics that relate to your personal finances.

4. Keep your finance-related paperwork in a filing system. This may include, superannuation and investment statements, estate planning documentation, general and personal insurance policies, product disclosure statements, debt documentation, bank statements, PAYG statements, and past tax returns (and receipts for future returns) just to name a few. This can assist you with the organisation of your personal finances and allow you to find and refer to things with greater ease.

5. Put in place a budget or revisit the one you already have. This can help you to gain a better understanding of your cashflow and an overall picture of your personal financial statement, as well as allow you to assess your household expenditure (and, subsequent surplus income potential). In doing this, you may find it easier to manage your money to meet future expenses, track and review your spending habits over time and devise plans to utilise surplus income for debt reduction, saving, and investing.

6. Establish an emergency buffer. Life can be full of unexpected events, but by pre-planning an emergency buffer, you can have funds available to cover unexpected events such as job loss, a medical emergency, home repairs and car repairs without the need to rely on other sources (e.g. credit cards and borrowing).

7. Get a handle on your debt repayments. In some respects, debt may be a necessity (i.e. home loan), whilst in other circumstances (e.g. credit cards) it may be used to spend more money than you receive. Either way, in the end, debt repayments restrict your cashflow and, if not carefully managed, can cost you money in interest that could have been better targeted towards something more beneficial to you. By repaying your debt obligations as soon as possible, you can free up cashflow to be used for other purposes such as saving and investing for the future.

8. Track down any lost superannuation and consider the consolidation of multiple superannuation accounts. As at 30 June 2016, there were 5.7 million lost and ATO-held superannuation accounts with a total value of roughly $14 billion. Furthermore, roughly 43% of people had more than one superannuation account*^. For further information on these two suggestions, please read our articles, “How to find lost super” and “Multiple super accounts and you”.

9. Make sure you have a suitable Plan B in place. Appropriate types and levels of general insurance (e.g. motor vehicle, private health or home and contents) and personal insurance (e.g. life, total and permanent disability, income protection and trauma) are a safety net that can provide you with peace of mind financially when an unexpected event occurs.

10. Consider selling household possessions that have been collecting dust. This extra cash may provide you with breathing space to meet upcoming expenses, establish an emergency buffer or top-up your existing savings. In addition, by updating your contents insurance to reflect this reduction, you may see a lowering of your relevant insurance premium.

11. Be proactive in planning for retirement. Understandably, it can be hard to engage with the topic of retirement, especially if it’s far off in the distance and you have competing priorities right now; however, by starting sooner rather than later, you can benefit from the power of compounding and give yourself flexibility if things change along the way. For further information, please read our articles, “Future self-continuity: Preparing for the future” and “Running the retirement race”.

12. Make sure your estate planning affairs are in order. By completing or reviewing your will and the nominated beneficiaries to your superannuation, you can make sure that your wishes are carried out in the event of your passing. Furthermore, this suggestion also extends to making sure you have procedures in place regarding the management of your affairs whilst you are still alive (e.g. powers of attorney and guardianship).

13. Take care of your physical and mental health. For example, eating a balanced diet, engaging in adequate exercise, allowing yourself time to rest, and acknowledging your achievements to date, may help you to reduce your overall stress levels. Furthermore, depending on your personal circumstances, this may also have positive outcomes when it comes to an insurer’s reassessment of health-related exclusions or loadings on your existing personal insurances.

Financial stress can arise at any point in your life. The cause and the subsequent level of financial stress that develops can vary. It’s important to recognise and deal with financial stress when it does present itself. Although the above suggestions are not a comprehensive list, you may find that getting your personal finances in order can help with alleviating the underlying cause of your financial stress.

As always, if you feel that you do need help in a specific or variety of areas related to your personal finances then please contact us.

 

*ASIC and EY Sweeny. Australian Financial Attitudes and Behaviour Tracker: Wave 4 (September 2015-February 2016). Retrieved from: http://www.financialliteracy.gov.au/media/559536/australian-financial-attitudes-and-behaviour-tracker_wave-4.pdf  
^ABS, Household Income and Wealth, Australia, 2013-14. Retrieved from: http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/6523.0~2013-14~Main%20Features~Financial%20Stress%20Indicators~33  
*^Australian Government, Australian Taxation Office. Super accounts data overview. Retrieved from: https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Super-statistics/Super-accounts-data/Super-accounts-data-overview/ 

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