Dealing with financial stress

Australians are experiencing the lowest level of wages growth in at least two decades (just 1.9% last financial year) and underemployment is a feature of our current labour market. Along with this, we have soaring energy prices, high levels of indebtedness and the prospect of higher interest rates on the way.

Some Australian households could soon find themselves in a vulnerable financial position, especially those with large new mortgages. If your outgoings exceed your income or you’re unable to afford extras such as nights out, you may already be feeling financially stressed.

To help deal with financial stress, or better still prevent it, take a look at our tips for taking control of your finances.

1. Talk to a partner or family member

It’s important to be on the same page as your partner so you’re well placed to start taking appropriate steps. Professional advice is also important for some issues. Factors behind financial stress can be complex, and a professional can often spot solutions that may be harder to find on your own.

2. Set a budget and monitor your spending

Either start from scratch or review your existing budget if you have one. Elements such as cashflow and household spending are key when you are trying to work out how much you have to spare. Monitor ongoing spending against your budget, so you are better placed to understand future expenses. Review debt repayments – and when possible, repay debt earlier than necessary to save on interest payments and free up future cashflow.

3. Save and invest

Once you know your own financial position well, plan to spend 90% of your after-tax income, so you can save and invest the remaining 10%. The 90% includes your mortgage and super – the 10% should be on top.

4. Prepare for emergencies

Start building up an emergency fund: money that can be set aside to cover unexpected expenses and financial emergencies. If you know you can tap into your emergency fund to cover things like car repairs, a lot of the stress will go away.

5. Organise your financial records

Keep all finance-related documents in a proper filing system – that means everything from current account statements through to superannuation statements, estate planning documents and previous years’ tax returns. Essentially, if it involves money, you should know where to find it.

6. Change your mindset

You might think that having more money solves financial stress. It doesn’t necessarily – in fact often the more money you have, the higher the financial stress. The real key to dealing with financial stress is to change your behaviour towards money. Spend smarter, invest more, and save some.

7. Create a safety net

That means buying the right insurance for general items such as car and home and for personal factors such as life insurance and income protection.

8. Plan for your retirement

Starting to be proactive sooner rather than later will not only reassure you that things are in hand but also give you time to benefit from compound investment growth.

9. Get your estate in order

Like retirement, this is an issue that benefits from planning sooner rather than later. Completing or reviewing your Will means you can be sure that if the worst happens, events will go the way you want them to go. You might also want to think about powers of attorney and guardianship.

10. Set financial goals

Goals provide a sense of purpose and are the foundation for achievement. Financial goals often relate to the causes of stress e.g. being debt free, living the retirement you want, protecting income if the unexpected happens. By having clearly defined financial goals and a plan to achieve them, you are more likely to have financial peace of mind.

Every stage of life has its own financial pressures, so dealing with financial stress is a moving target. If you need professional advice, talk to your local Accru financial planner.

About the Author
Known for a direct approach that achieves results, James is often asked to assist outside of the direct responsibilities associated with partnership at Accru Harris Orchard. He is the South Australian representative to the Institute of Chartered Accountants Public Practice Advisory Committee and is on the South Australian Family Business Association (FBA) advisor group.
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