When we think of wellness, mental and physical health often come to mind first. Almost as important, however, is financial wellness, which can directly contribute to mental and physical health. Unfortunately, many Canadians struggle with financial stress. Many consumers lose sleep over their financial woes, and nearly half of Canadians say that a late paycheque would compromise their ability to meet their financial commitments.
As challenging and overwhelming as financial stress can be, there are actionable steps you can take today to improve both your physical and mental health, as well as your financial situation.
Key Points
- Financial stress is the anxiety you feel as a result of money-related problems.
- Financial stress can stem from multiple factors, such as debt, income, savings, and unexpected expenses.
- Your mental health, physical health, professional life, and personal life can all be negatively affected by financial stress.
- Fortunately, there are many steps you can take to alleviate this anxiety, such as creating a budget, focusing on one debt at a time, and seeking professional help.
What Is Financial Stress?
Financial stress is fear, anxiety, and worry about one’s finances. There are many sources of financial stress, including general ones such as:
- Living with extreme debt
- Difficulty saving money for financial goals
- Experiencing new, unexpected expenses
- Managing daily expenses
- Living paycheque to paycheque
There are also more uncommon life happenings that can contribute to financial stress, including:
- Divorce
- Becoming a parent
- Becoming a caregiver
- Natural disaster
- Job loss
What Can You Do To Relieve Financial Stress?
The good news is, it is very much possible to relieve and manage financial stress. There are many ways to tackle your financial stress:
Start Budgeting
Creating a budget can help you attain financial freedom. First, you need to make a realistic outline of your income and track it against your expenses. Once you lay it all out, it’s easier to see where you can cut back.
Budgeting apps can help you organize your spending and provide you with alerts in regards to your savings goals, bills and spending. It also ensures minimal tracking errors and many provide an overview of your financial progress.
Start Paying Off Debts
Debt is an aspect of financial stress that has been linked to mental health issues. Although it isn’t always possible to pay off all of your debt at once, it’s worth it to create a feasible plan for yourself to start paying off your debt in a timely fashion. This will free up some of your resources, and in turn, result in less financial stress.
There are a couple of strategies you can use to tackle your debt:
Snowball Method
The snowball method focuses on paying off your smallest debts first. Meanwhile, you’ll make minimum bill payments on your bigger debts. Once you’ve paid off the smallest debt, focus on the next smallest debt. Repeat this process until all your debts are paid off. This method helps build momentum and motivation as you see debt being eliminated.
Avalanche Method
The avalanche method focuses on high-interest debt first to save you money over time. Start by arranging your debts from the highest to lowest interest rate. Put all extra money toward the highest-rate debt until it’s paid off while making minimum payments on all other debt. Once the highest-interest debt is repaid, put the extra money into the next highest-interest debt. Repeat this process until all your debt is paid off.
Consider Debt Consolidation
Consolidating your debt involves combining all your existing debt into one monthly payment. This debt management strategy is designed to streamline your finances and make it easier to manage.
It can also help you save money if you consolidate high-interest debts into one loan with a lower interest rate, which will reduce the overall interest you pay. Plus, managing one monthly payment instead of several can help you avoid missed payments and late fees.
Build An Emergency Fund
Life is unpredictable, and sometimes you’ll get hit with a big bill. Medical expenses, loan interest, credit card debt, or utilities, the possibilities are almost endless. With an emergency fund in place, you can cover these expenses without having to resort to an expensive short-term loan.
An emergency fund is simply a savings account that is easily accessible when unexpected expenses arise. Experts recommend having at least $1,000 saved in your emergency fund to help offset the mental and financial burden of an unexpected expense.
Where To Keep Your Emergency Fund
A great account option for an emergency fund is a high-interest savings account, which can help you generate income through interest on your investment. Robo-advisors are a new investment platform that can also help you invest your emergency fund in a way that’s flexible and low-cost.
Additionally, making transactions automatic in your bank account can help take the stress off of managing your savings. Decide on a date that is realistic with your income and expenses to have money automatically leave your bank account and be put away in savings.
Seek Support
Sometimes, the financial stresses of life can be overwhelming to bear on your own. If financial stress is causing you distress, consider talking to someone you trust, or to a professional, such as a therapist or credit counsellor.
By opening up to a trusted friend or family member, you might come to realize that you aren’t alone in the struggle and that many of your peers also face financial stress, or have at some point in their life.
Speaking with a credit counsellor can provide you with a person to unload your stresses on while getting sound advice on how to handle your particular financial woes. They can review your finances and may be able to suggest appropriate steps to deal with your situation.
Explore Debt Relief Options
If your debt is overwhelming and you’ve tried various methods to deal with it with no success, consider debt management or debt settlement options. Some options may be more severe than others, so make sure you’ve exhausted all options before resorting to those that can have a significant impact on your credit profile. Here are a few options to consider:
Debt Management Plan (DMP)
A credit counselling agency can help you come up with a DMP. This involves negotiating with your creditors to lower your interest rates and monthly payments, while you make a single monthly payment to the agency.
Debt Settlement
Debt settlement involves paying your creditors an amount that’s less than the full amount owed. This can reduce your total debt, though it can negatively impact your credit score.
Consumer Proposal
Consumer proposal is a legal process where you propose to pay your creditors a portion of your debt over a set period. It provides legal protection from creditors and helps you avoid bankruptcy, including losing your assets.
Bankruptcy
Bankruptcy is a legal process that can discharge most of your unsecured debts. However, you could lose some of your assets, and your credit score will be severely affected.
Don’t Compare Yourself To Others
You can make financial stress worse if you compare your financial situation to others. Everyone’s situation is different. Rather than stressing out over how someone else may be seemingly managing their finances better than you, focus on your own progress instead.
How Financial Stress Can Affect You
Financial stress affects many aspects of your life, including your mental and physical health, personal relationships, and work.
Mental Health
According to the FP Canada™ 2023 Financial Stress Index, money is the top source of stress for Canadians. In fact, Canadians have lost sleep (48%) and experienced mental health challenges (36%) due to financial stress.
There are various mental health symptoms of financial stress, including depression and anxiety. While these can be issues all on their own, depression and anxiety can leak into negative effects on your physical body and personal relationships as well.
Physical Health
Financial stress can affect your physical body in the following ways:
- High blood pressure
- Heart disease and heart attacks
Work
If it weren’t enough for financial stress to impact your physical and mental health, it also has the ability to directly impact your performance at work.
Personal Relationships
Financial worries have been found to cause strain on various personal relationships, including marriages, partnerships, familial relationships, and friendships. A recent study found that financial stress is the number one reason for divorce.
Final Thoughts
Financial stress can be intimidating, overwhelming, and seemingly hopeless at times. However, keeping a positive outlook and focusing on ways to manage your financial stress will help you take control of your financial wellness and minimize worry.
