When you keep thinking about money (or the lack of it) even when you are doing an activity which you enjoy. One study concludes that financial stress can increase risk of heart attack by 13% and therefore it is critical for everyone to work on their holistic financial planning. I wrote an article previously on living a life paycheck to paycheck which can increase the financial stress.
Is it that bad?
The same logic goes well in this type of stress as with any other type whether it is related to job or your own education. Little stress can be good as it helps to keep you on your toes and not just keep procrastinating important issues /action items due to lethargy. But excess stress about it is certainly bad as it will not allow you to focus or enjoy the other aspects of life.
What could be the factors responsible for this stress?
Running short of funds for your regular expenses:
We may have noticed how there is no money at the end of the month. Lot of times, we don’t even know how and where the entire income got spent. If you are the one who uses credit card for most of your expenses, then do analyse your statements once in a while and split your expenses into discretionary expenses and non-discretionary expenses.
Pressure that you will not be able to pay your EMIs:
This could dent your credit score severely if you do not make even the minimum payment. Previously, I have written about this topic.
Job loss or lower salary increments / career progression:
Private sector jobs are perceived to be riskier and therefore may build financial stress. Sometimes, there could be developments beyond control like overall recession, internal politics, automation etc which can impact jobs. Certain industries are more prone than others making certain types of jobs redundant. Continuous skills redevelopment coupled with a good personal financial plan can help in alleviating such stress.
Personal lives and our relationships within family also have known to have a direct bearing on the financial stress. It has been seen that money is one of the major reasons for family issues and divorces. Open communication on the same without hiding any money secrets is the key to reduce financial stress.
These are just some of my thoughts and I am sure there are more factors responsible for financial stress. Your thoughts welcome in the comments section.
What you can do to reduce financial stress?
Do a goal-based planning and simply follow and track the same, classifying your goals into short term, medium term and long term. Consult a financial advisor (IFA) if you do not have the expertise or the time to do it yourself.
Control your emotions:
Markets can be erratic and the factors can be beyond our control. Lot of decisions are made based on emotions. That is the behavioural aspect. If investments were done based on a long-term approach, there is no reason to act irrationally. Do look forward to my blog on behavioural finance in future.
While it is good to go aggressive on your investments, so that you can reach your goals comfortably, do keep your cashflows in mind and also any unexpected expenses along the way. Don’t go overboard and make it very tight for yourself. Keep an emergency fund up to six months of your expenses into a liquid fund / fixed deposits.
A salary hike or a promotion may not be the solution to your financial stress. It is not important how much you make, but what you do with the money. With a higher salary, your expenses could also go up and you could still be running out of money.
Loans or credit card?:
Credit card is not the solution. We do get enticed by banks with a higher credit limit and if we are not responsible enough to make the full payment on time, this is an easy way to get into a serious debt trap. This topic is in my agenda too for a future blog.
Money relations in families:
If you are married, then have a frank and open communication with your spouse over money matters. If left unattended, this could seriously escalate into a big issue adding further stress. Related article on Personal finance & Women, but do look out for a separate blog in future.
Don’t ignore insurance:
Remember insurance is not a sunk cost. It gives you the much-needed peace of mind at a nominal cost. While term insurance protects your family in case of your untimely demise, health insurance helps you tide over if there is a sudden (and often unexpected) hospitalisation in the family. Previous blog on life insurance.
This blog is only an overview. Please do read the other blogs I have written on relevant topics and watch out for my future blogs. Please do comment and let’s make it more interactive. Do have a conversation with your financial advisor regarding a holistic financial planning which would alleviate financial stress in your lives.