We’ve all had money moments that make us wince. Whether it was a moment of clumsiness or an ill-advised splurge, there aren’t just consequences for your budget – your racing heart and sweaty palms show how it can affect your state of mind too.
In November 2015, freelance journalist and cultural critic Mel Campbell spilt a cup of tea over her computer keyboard. This small, simple accident brought about the swift and untimely death of her machine. And she had no idea where she’d find the money to replace it.
This wasn’t the first time Mel had been under financial stress. The fiscal ups and downs of freelancing life had brought her close to this point before. Events like losing a regular gig, an unexpected tax bill, having to move house or find a new housemate – that is, all the normal things that can happen in a normal life – may not generally be stressful individually, but added together, they can become a real burden.
Mel found that despite having some measures in place like a credit card and a second savings account for squirrelling away tax, her financial buffer wasn’t enough to absorb the unexpected expense.
“I try to soldier through stress and take a ‘things always look better after a cup of tea’ attitude, which is what made the death of my computer so cruelly ironic,” says Mel.
“I’d exhausted not just all my financial resources but also all my mental resources for coping, and I was kind of broken by the idea that I’d just destroyed my key tool for getting back on top of things.”
Money worries are real
When it comes to dealing with unexpected expenses, Mel’s not alone. Research suggests around 20% of “middle income” earners in Australia don’t have room in their budget for a surprise (not the good kind) bill. Or, say, a new computer when your old one fatally encounters a hot beverage.
While a lot of us can’t scrounge together the cash for an unexpected expense, there’s also the bigger picture issues, like the housing market. If you want to buy a property, then you probably feel ill each time new data is released, with Melbourne and Sydney seeing property price increases of around 11% over the last year. Meanwhile, wage growth is at a dismal 2.2% in comparison.
So there are some real reasons to worry about money and personal finances in Australia right now. And we’re not feeling good about the situation. A 2015 survey by the Australian Psychological Society found personal financial issues were at the top of the list of things that stress us out.
And those stresses can quickly build, as Mel found, especially if a pesky cup of tea gets involved at an inopportune moment.
Luckily, Mel’s story has a real life happy ending: in her despair, Mel reached out to a Facebook group of women writers, explaining how she was beginning to see this cup of tea as a sign she shouldn’t be a writer anymore.
The group came to her rescue. “A group of people – some friends, some total strangers – clubbed together to buy me a new computer,” she recalls. “The immediacy of this solution – the instant financial resilience it gave me – was like a fairytale.”
For some of us, however, fairytale endings are hard to come by, and the financial worries we all have from time to time can suddenly start to become more troubling. In some cases, they can even lead to mental health issues, like anxiety and depression.
But we never really talk about this stuff. Maybe we have hang ups about it being ‘impolite’ or maybe it just seems hard. But that doesn’t mean we shouldn’t talk about it.
Here, we examine money anxiety from both the mental health angle and the money one. We’ll talk about the intersection of money and mental health and then get real on what you can do to start getting on top of your finances – starting with creating an emergency fund, taking control of your savings plan, and coming to terms with debt. Farewell money anxiety, your time’s up.
Mental health and moolah
When it comes to looking at how money and financial concerns can impact our mental health, we’re really talking about money as a source of stress. beyondblue explains that anxiety, for example, can develop because of “one or more stressful events.”
But, as Associate Professor Vijaya Manicavasagar from Black Dog Institute explains, it’s not necessarily the stressor itself that’s the direct cause. Certainly, money can cause real and direct stress for people facing poverty. But here, we’re looking at money concerns that don’t quite reach that level. In this case, it’s more about what the stressor means to us.
For the majority of us, “what it means to an individual to not have money or to have money makes a huge difference. And that’s the level of stress that they might encounter,” says Assoc, Professor Manicavasaga.
What money means
The meanings we give to money can come from everywhere, including parental and family influences. Assoc. Professor Manicavasaga points to our experiences in childhood and how our parents handled (or didn’t handle) money issues and the accompanying tensions and actions, positive and negative.
While it may be tempting to blame our parents, there are of course a whole range of broader environmental factors that colour how we feel about money. The housing market is perhaps the most glaring example, but again it’s really about digging into what the current conditions mean to us.
“Quite often stress-driven mental health issues are driven by comparisons people make between themselves and others,” says Assoc. Professor Manicavasaga. In the case of the current economic conditions, that often means comparing ourselves to previous generations. And we’re not thrilled with what we see.
A recent survey reported that 87% of Australian millennials believe the Australian dream of home ownership is just as important to them as it was for their parents. But the great majority (80%) believe they’re not on track to achieve that dream, with 52% blaming the increasing cost of living and rising house prices.
Deloitte’s 2017 Millennial Survey similarly found us to be a pessimistic bunch, with only 8% of Australian millennials believing they will be better off than their parents and a teensy 4% believing they will be happier.
In terms of how this impacts our feelings about money, Anna Dooland, from Financial Counselling Australia, has a theory.
“Because that’s always been a historic dream there’s suddenly this big void when you don’t have that,” says Anna.
“A lot of people don’t really know what they want or what their goals are. They would like to own a house but they don’t expect to, so there’s this big void about where their money is going and what their future holds.”
Anna believes some millennials fill this void by spending their cash in a way that gets them into debt. “I don’t think millennials spend without any idea what they’re doing,” she says.
“It’s more a sense of hopelessness about the economy that leads people to spend.”
Comparison is also a big feature of that most millennial of acronyms – FOMO. In particular, the Instagram brand of FOMO that shows the beautifully curated side of life, and not the bank balance that goes along with it.
And what we see on Instagram is reflected in changing attitudes in the general population to what we expect from a comfortable standard of living. Research by IPSOS has found three quarters of respondents (aged 25 – 70) agreed that “having a comfortable lifestyle means having enough money to do what I want, when I want.”
But this comes at a cost. Almost half spend all their wages to achieve this lifestyle, including 27% of households earning $150,000-$199,000 and 22% of households earning $200,000+. So a pay rise doesn’t necessarily solve the spending issue.
Recognising the signs
The thing about these comparisons is they don’t discriminate. Peter Hayton, practising psychologist and clinical director at The Banyans health and wellness centre, observes the stress or anxiety felt by an individual isn’t really about the number of zeroes involved.
It’s not necessarily a lack of finance, he says, but how people manage their lives around finance.
“As humans, we’re very good at seeing how life can be,” Peter says. “Which is quite beneficial, it helps us to set goals and move life forward. But, of course, that also causes pain and aggravation when life isn’t quite there.”
He says keeping an eye on some of the basics of life, like your sleep patterns, how you’re dealing in your relationships and your anger levels, can help you identify when the pain and aggravation is becoming too much. Another sign is withdrawal. This may feel like you’re removing yourself from temptation or some of the aggravating comparisons, but really you’re just straight up avoiding the situation, rather than dealing with it.
Then there’s more risky behaviour, like gambling or self-medicating, both of which feel like a solution but in reality prevent you from doing the problem-solving you need to do. And knowing in your head that it’s not really going to help doesn’t change things.
“People will look for that quick, easy fix and they will really enjoy all of the highs that gambling gives them and of course they end up in a much worse financial state,” Peter says. “That negative reinforcement just entrenches them even further in the stress and anxiety and just allows that gambling behaviour to continue on.”
Self-medicating can often be more insidious. Coming home and having drinks may not seem like a big deal, but Peter says it’s more about frequency, intensity and reliance.
“Someone could be coming home from work quite stressed out because things aren’t going well and have a few beers, and suddenly they want to have those beers every night,” he says.
“They can have a bottle of wine a night and that’s starting to be quite significant in terms of alcohol consumption. But a lot of people would say they’re not an alcoholic. They’re only drinking at night, they’re not drinking at 10 o’clock in the morning, when actually they’re developing a problem because they become reliant on that alcohol to deal with the day’s stress and aggravation.”
“One of the fallacies that we often get into is that when it comes to dealing with stress and anxiety what we need is some kind of a way to get away from the stress and anxiety. Which when you’ve got financial concerns is pretty difficult,” Peter says.
But actually, it’s about motivation. “If I’ve got a debt there and I’m quite motivated to do something about it I’ll find creative solutions to be able to work on a better budget or work on some financial planning or do some extra income earning to deal with the financial aggravation,” says Peter.
Sometimes the stress becomes too much. “That’s when people get into real trouble,” Peter adds, “because their capacity to work through or work out the problem becomes quite reduced because there’s no motivation there and they’re just left debilitated by the stress and anxiety.”
There are real practical steps that can be taken to help manage financial issues which may help reduce stress and we’ll get into those next. But from a psychology perspective, if you have reached the point of losing motivation or you’re engaging in destructive behaviours like gambling and self-medicating, then it could be time to ask for professional help.
How to organise your money (and your life)
This is the bit where we start talking about what you can actually do to get your finances sorted. Because – hopefully – this helps to change what money means to you through managing those real concerns that we all have from time to time before they threaten our health.
For many of us, that means getting up close and personal with our finances in a way that many of us haven’t really done before. And it can all feel a bit uncomfortable. Or at least maybe it should. Part of the problem may be we’ve become a little too comfortable with something we should approach with a little more caution: debt.
The devil’s in the debt
“Probably the biggest issue for our generation is we’ve had easy access to credit from day one,” says Sarah Riegelhuth, CEO of financial advisory firm Wealth Enhancers. She finds a lot of millennials have a credit card debt that just doesn’t budge. Maybe they’ll pay down a bit each month, but at the same time they continue to use the card, taking it back up to the same level.
“What it means is they’re technically spending more than they earn because they’re not able to reduce the debt and therefore they don’t have any savings,” says Sarah. And anyone with a rudimentary understanding of year 10 business maths knows if you can’t balance your debits and your credits then you’re in a pickle.
As a financial counsellor, Anna helps her clients to unpick the decision making process behind debts and to engage with banks and other lenders to negotiate aspects of the loan, like lowering repayments.
None of this sounds like fun, but when it comes to prioritising savings or paying down debt, Sarah says the textbook answer is to pay down the debt as soon as possible. Again, it’s simple maths: the interest on your debt is always way more than the amount you earn on savings.
It’s about discipline, Sarah says, and being committed to paying off your debts.
Then, set your sights on savings
Sarah recognises you walk a fine carrot/stick line when you only focus on paying down debt. “Psychologically, it sometimes feels good to see something building up at the same time as you see your credit card going down,” she says.
And that’s where your savings come in. More specifically as a first step, your emergency fund. “Having an emergency fund or back up is really, really important. We always recommend three months’ salary. Whatever your net salary is,” says Sarah. “So if it’s $5,000, make it $15,000 just sitting there, doing nothing. You don’t touch it and it’s genuinely for emergencies.”
While there’s no perfect number, three months is generally considered a good amount to cover you if you were to fall sick, become injured or lose your job. And basing it on your net salary makes the amount relative to your lifestyle.
Lifestyle goals, not financial goals
Paying down debt and getting your emergency fund sorted are part of what Sarah calls building your foundation. And obviously you should have a budget. These steps are about dealing with the present. From here on, it’s about the future.
It’s something Sarah finds her clients often don’t think about early enough. “We live so in the moment, which is really nice. It’s just a balance between living in the moment and not screwing yourself later.”
She works with her clients to set goals for their future. “It’s not so much financial goal setting, it’s setting goals for your lifestyle. Setting a goal to build a share portfolio is really not that motivating,” she says.
Rather, it’s about asking “what do I want from my life and how much is that going to cost me? Because that’s a lot more motivating, if you know that share portfolio is there so that you can spend two years living in India or whatever you want to do, you’re much less likely to stop contributing or withdraw it.”
“So make sure you set goals that you’re really connected to, that you want to achieve,” she says.
Knowing your timeframes around your goals also helps to inform your investment decisions. Sarah believes we should all have cash, property and shares over our lifetimes.
But as to where and how much, that really depends on your goals. “Property is a very long term investment, shares are a good medium to long term investment, and cash is perfect for anything short term as you can withdraw it at any time (unless it’s fixed into a term deposit),” Sarah says.
If there’s one thing that tells you you’ve officially entered adult-dom, it’s thinking about insurance. It’s not exciting and often it feels like you’re shelling out your hard earned dollars for nothing. Until it doesn’t.
“Everyone thinks ‘I’m young, I’m healthy I don’t need it, I’ll get it later.’ But actually, if your income gets cut now, in the worst case something happens where you can never work again or you can’t work for a long time due to some kind of illness or injury or whatever, you’ve ruined everything. There’s no future then,” says Sarah.
She sees income protection insurance as a must, with trauma insurance a close second. “We need insurance more in our 20s and 30s then we ever will in our future. Right now is when we haven’t had a chance to build our wealth and we’re most vulnerable to what would happen in that case.”
Get the help you need
We all tend to think we should be able to manage our own money, which can stop us asking for help. But this is not an ‘act first, ask later’ situation.
At Financial Counselling Australia, Anna finds most people seek out a financial counsellor at their lowest. But she encourages everyone not to wait until that point. “We obviously prefer you call us before everything has hit the fan because it’s easier for us to pick things up if everything hasn’t already disintegrated almost to nothing,” she says.
And there’s a lot that can be done. “We try and get people out of the debt cycle so that they can get back into planning for their future. And then our goal is that they won’t need us, they’ll need a financial planner because they’ll be planning for their wealth.”
Which is where people like Sarah come in. She says speaking with a financial adviser should help you uncover what you want your life to look like, what your beliefs about money are and where they might be holding you back.
“It should be viewed as a long-term relationship. Ideally, you want to find someone who you’ll work with for the rest of your life. Because it’s really not something that you just do once and then you’re good to go.”
Yep. Money. We’re stuck dealing with it for life, so best get on with it.
beyondblue: 1300 22 4636
National debt helpline: 1800 007 007
Need some professional help with your finances? Head into your local Westpac branch to speak to a financial planner.
Kate is a Melbourne-based writer with a mild podcast obsession. She’s awful at social media, so don’t go looking for her there.