Financial stress

A common cause of stress is financial worries. An American Psychological Association study found that 72% of Americans feel financial stress at least once during their lifetime. Many worry over debts or paying the monthly rent. Taking control over your financial situation will help to reduce stress.

The basis of financial stress

Most people experience financial worries from time to time. One might worry over having enough money for a particular holiday or for a particular car. However, these are minor tensions, and are not counted as real financial stress.

Financial stress is rather a constant emotional tension because of severe financial problems. For someone with financial stress it is very difficult to make ends meet. It means that someone is constantly worrying whether he or she can pay the rent, or whether it is possible to have some meat on the table. These financial worries are related to the uncertainty of being able to live your life with at least a minimum quality of life, covering basic needs like housing, food and having a satisfying social life.

Everybody can fall prey to financial stress, but those with a lower income are obviously most at risk. But even people with top incomes can experience financial stress when their lifestyle is not in balance with their income.

Financially stressed people may try to relieve their stress by not opening their bills anymore, or by avoiding answering telephone calls from creditors. Psychologically, this is known as denial behavior: denying the poor financial situation they are in, and making financial stress worse in the long term. Stress will come back and not paying the bills is more costly than paying them on time because of fines and/or charged additional administrative costs.

Financial stress is accompanied by other stress

People with less income might experience additional stress due to their jobs. They will likely find themselves at the bottom of the hierarchy in the company they work for. Biological and psychological research has shown that a low position means that people have no control over the work they are doing. This is one of the most important and common causes of stress at work.

Also, less income jobs may not always be the most satisfying jobs. They can be demanding, involve unpleasant environments, or lack flexibility when it comes to taking time off for vacation. Many people are afraid to speak up to improve their working conditions or to leave and find another job. This is because they won’t be able to support themselves and their family financially while they are looking for another job.

Financially stressed people may also fear the reaction of their friends or family members when they tell them about their poor financial situation. They may feel ashamed, as they feel they are not successful in life and not even able to support themselves and their family. This can lead to social withdrawal, which gives further stress, which is social stress. Financial stress may ruin your self esteem.

The effects of financial stress on health

The effects that financial stress may have on health are related to the poor financial situation on the one end, and the effects of stress on the other hand.

A poor financial situation means that people may have to live in less-privileged neighborhoods. People with low income and financial stress may live in a neighborhood with many social tensions (giving rise to chronic stress), or with limited access to medical care. Even if they could afford going to hospital or seeing a doctor when they are sick, they may simply not find them within the limits of their neighborhoods. Also, they may not be able to buy healthy food, which would directly have a negative effect on their physical and emotional wellbeing.

The stress-related effects are those that you would observe for any type of chronic stress. These include:

• Difficulty sleeping (insomnia). You may have problems falling and staying asleep when you think about your debts, unpaid bills or a loss of income.
• Anxiety. Having money in the bank can give a feeling of security. If you don’t, you may feel vulnerable and anxious. Some anxiety symptoms include sweating, a pounding heart, shaking and panic attacks.
• Weight loss or weight gain. Both can happen when you are chronically stressed. Some people will start to eat more hamburgers, french fries and drink more cola. These are known as “pleasure foods” and can boost morale for a short period of time. However, the effects in the long term are deleterious to your health: overweight and perhaps diabetes. Other people will rather eat less, not only to skip a meal to save money but also because they simply lose appetite.
• Physical ailments such as cardiovascular disease, headaches, gastrointestinal problems or diabetes. Just to name a few. Because of financial difficulties, you may decide to delay a visit to your doctor, which aggravates your health even further.
• Depression. Debts are a serious risk for stress and depression. A study performed by the University of Nottingham in the UK has shown that people who have debts are at risk to suffer from depression. Depression arises mostly because of the perceived problems of being in debt. The persons involved do not in general indicate the objective cause of being in debt, such as gambling, loss of income or falling ill.
• Difficulties in relationships. Money is probably the most common issue couples argue about. Do both partners agree what to spend money on, and how much? If these questions are not being resolved, they can lead to stress.
• Social withdrawal. As mentioned above, financial difficulties are something that people feel ashamed of. Also, they give fewer possibilities to hang out with friends, because this costs money. Both are reasons to engage less in social interactions. Humans thrive on interactions, so that social withdrawal is a cause of stress.
• Behavioral changes. Financial stress may lead to alcohol or drugs abuse, gambling or overeating.
• Mental changes. Sometimes, financial stress can lead to self-harm or even suicidal thoughts.

The vicious cycle of financial stress and poor mental health

Financial problems lead to impaired mental health, and impaired mental health can aggravate the financial problems. This vicious cycle consists of three phases:

1. Financial problems impairs mental health. The stress that comes with debt or not being able to pay for basic necessities can cause feelings of depression and anxiety.
2. Impaired mental health makes it more difficult to manage money. It may be harder to concentrate on paying the bills on time, or you may simply not have the energy to deal with them properly. Or you may be absent more frequently from work because of mental problems.
3. The decreased capacity to deal with money-related issues makes financial problems worse. And this leads again to further impairment of mental health. The cycle repeats itself.

Getting out of the vicious cycle and coping with financial stress

It may be difficult to break the vicious cycle of poor financial and mental health. Fortunately there are things you can do to improve your financial situation and improvement of mental health will follow automatically. This is because the vicious cycle can also work positively, in which one reinforces the other.

Talk to someone about your financial stress in all openness and honesty

Many people with financial stress try to solve their problems on their own. They limit their social interactions with others, and may feel awkward in disclosing their complete financial situation to someone else. This would include mistakes you have made that you may feel ashamed of.

The purpose of talking about your financial stress with somebody else is twofold. First, talking about stress with somebody you trust or love can already provide stress relief, even if this other person is not able to fix your financial problems. You may thus improve your mental health, which would make it easier to take a fresh look at your financial situation and manage your money better.

Getting out of debt as fast as you can

Buying things on loan is never a good thing to do, because it is very expensive. The only thing we would suggest to buy on credit is a house in the form of a mortgage. Television sets, computers or cars, for example, should be paid with money that you have saved. If you don’t have the money, don’t buy and save more until you can pay for whatever it is that you want.

If you have debts, pay off those that have the highest interest rate. These are the most expensive ones. Even if you have little money to spend, make sure that you pay off your debt. When you cannot pay it off at once, pay parts of it each month, and try to pay as much as you can. To do so, you could include the amount of money you have to spend to get out of debt in your monthly budget (see below).

Take an inventory of income and expenses

To get control over your financial situation, it is important to know exactly how much money is coming in, and how much is going out each month.

You will have to make a list of all sources of income. These include salaries, bonuses, child support, alimony, or interest that you may receive.

A second list is an inventory of spending. Literally everything should be included, from buying the coffee on the go when going to work to the rent of an apartment. Each and every cent counts, especially when you are financially underwater. Adding up five coffees per week, and that for four weeks, still makes an impressive sum. List also subscriptions. These are recurrent fees that you have to pay each month. Check whether you really need them (like your actual subscription to Stressinsight!), or not (like subscriptions to streaming services).

Taking an inventory of your finances is an important step to devise a plan to get out of debt and make ends meet.

A third list that comes out of the list of spendings is the list of debts. Write down with whom you have debts, the amount you owe, and what interest rate you pay. This also concerns past-due bills. You may also owe some money to your family or friends. This should also come on the list.

A fourth list serves to identify spending patterns and triggers. When do you feel like going to the shopping mall or pulling out your credit card to buy things online? Is this when you feel stressed or bored? When do you decide to dine in restaurants instead of cooking at home? Do you buy things impulsively when you see something nice in a shop window or in a commercial? Impulsive buying is usually extremely costly. Write all of these triggers down.

The fifth and final list is a check of whether you need things. Spending money on subscriptions, the morning news paper, cigarettes, and so on, can add up to a significant amount of money that you have to cough up each month. Do you really need to spend money on shoes and clothes each month? Or can that money be better spent on paying the bills on time? Treating you with a small pleasure from time to time is OK to keep your morale up, but do this with moderation.

Make a plan and execute it

With your lists in hand, you can make a plan to improve your financial situation effectively. You will have identified the problems underlying your poor financial situation, and you can go ahead and solve those. Solutions differ for everyone, as problems are likely different for everyone. Some will benefit from moving to another job, whereas others will have to live on a tighter budget, find an additional source of income, declare bankruptcy, or seek for social aid.

In the end, improving your poor financial situation boils down to two options: increasing income and lowering expenses. You have to make a plan to achieve this, and execute it precisely. Here are the five elements of the plan:

1. Identify the origin of your financial stress. With the lists, this should be easy. You may find yourself with too much credit card debt or not enough income. Or you may see that you are too impulsive in buying things, or you buy because you want to feel better when you are stressed or anxious. It is very likely that you find several causes of your financial stress. You have to make a plan for each of them.
2. Find a solution. You may decide that you have to talk to the credit card company to negotiate a lower interest rate. Better still might be to prevent paying interest on credit cards, and use them as little as possible. You could also try to grow your professional network to find a new and better paying job. Or you may register yourself for social help or a local food bank, or sell things that you don’t use anymore on the internet to increase your income and pay off debts quicker.
3. Execute your plan. You go to work to get the plans in motion that should solve your financial problems. If you have decided that the credit card is too expensive, just cut it up and don’t use it anymore. You may negotiate with your boss about making more hours to increase your income, or change your car for a smaller one so that you can eliminate the monthly payments.
4. As with any plan, it is good to monitor progress. See what is working well and what is not. Revise your inventory list on a monthly basis. You may decide that your plan needs adjusting.
5. Sometimes, a plan does not work out as foreseen, or unexpected events happen that cost you money. Don’t worry about this, but analyze the situation again and adapt your plan.

Make a monthly budget

You know your income, your expenses, and you have a plan. Now it is time to make a budget, so that you can precisely allocate money to specific expenses without running into financial problems. This will give you control over your financial situation. As with your financial inventory and plan, make your monthly budget as detailed as possible.

• Write everything down that concerns your daily expenses that cover your basic needs. Allocate money for the grocery store, the rent or mortgage and these sorts of things (like utility bills). These are your priorities and come on top of the list.
• Talking about priorities, reserve money to pay off debts.
• You have to reserve money for insurance and taxes. At times you can pay them annually (sometimes with a small discount), so you have to divide the total annual sum by 12 to get the proper number for your monthly budget.
• Keep some money aside for unexpected expenses.
• Prioritize. Would you rather spend your money on a sports club for your children or on your 15th pair of shoes?
• See where you can economize. This will help to make your budget fit your income.
• Once you have no more debt, make room in your budget for savings. You need to have a financial buffer for the moment the car or the laundry machine breaks down. You have to be able to buy a new one without needing a loan. As said earlier, loans are extremely expensive and it is therefore much better to pay what you buy from your reserves.
• Once you have a sufficient financial buffer, you still want to keep some money aside for investments, and let your financial reserve grow for your retirement. The earlier you can start with this, the better.

Managing stress

Obviously, you also try in parallel to manage your stress better. How to do this is the subject of an entire series of articles here on Stressinsight. However, even when you manage your stress better, it is still necessary to take control over your financial situation. Once you do, financial stress will disappear automatically.