Money stress occurs when we can’t afford something that matters to us, and when we fear that occurring.
That can range from worrying about affording the basics through to affording what lights us up.
We all stress about money
In late 2019 Fidelity surveyed Australians and found that two-thirds of us worry about money at least monthly. Half of Aussies worry about money weekly and for a quarter of us, money is a daily worry. (And that was before the pandemic.)
Personal financial issues are the most prevalent cause of stress according to the Australian Psychological Society ‘Stress and Wellbeing in Australia’ survey 2015.
It costs our health and relationships
Financial stress is cited as the most common reason that relationships break down. (Relationships Australia Relationships Indicators Survey 2011.) And divorce is one of the biggest destroyers of wealth.
Financial health and mental health are also intrinsically linked, as noted by the mental health organisation Beyond Blue.
Financial stress also impacts your physical wellbeing, as the Black Dog Institute notes “people may engage in unhealthy behaviours to try to cope with financial stress, from avoidance, to overeating and alcohol and drug misuse, which in turn can worsen mental health.”
To prevent money stress do this
Not affording something that matters to us can happen when there’s:
- Not enough surplus income to absorb the expense
- Not enough savings to cover the income shortfall
- Not enough safety net to cover misfortune
1. Save for the significant
In guiding people on how to wisely use their time Stephen R Covey, author of The 7 Habits of Highly Effective People, said “the key is not to prioritise what’s on your schedule but to schedule your priorities”.
The same applies to your money. Prioritise saving for those significant life events, choices, and experiences that make life fulfilling. This needs to be the first allocation you make when your pay arrives.
By prioritising saving for what lights you up you hopefully won’t use debt to fund those experiences. Paying interest on debt means you’ll have less money for other things that matter to you.
2. Cover your commitments
Having a payment bounce or not being able to cover a bill is stressful.
Automatically set aside money for your foreseeable commitments. This includes infrequent essentials such as clothing, utilities, and medical.
To ensure you don’t over-commit build a thorough plan to afford your priorities.
3. Create contingencies
Unfortunately, life doesn’t conform to our neat little plans. Create contingencies so you can absorb the inevitable detours, with minimal if any stress.
Three layers of contingencies that help prevent money stress are:
- Buffer. Some predictable expenses like car servicing can cost more than we planned, so when covering your commitments build in a buffer of 5 to 10%.
- Emergency savings. To cater for the bigger but rarer misfortunes, like accidents or losing your job, separately set aside 3 to 6 months of your expenses.
- Insurance. Bad stuff like serious illness, injury and property loss, happens to good people. Insurance helps protect you from the financial impact of those experiences so you can focus on recovering.
Having implemented those three steps you can blow the rest of your money on whatever impulses your heart desires.