Managing Financial Stress

Financial stress is experienced by millions of people everyday. Financial stress effects not only the poor, but anybody who experiences uncertainty over their finances. Individuals may have difficulty eliminating financial stress on their own, but their are ways to manage it.

financial stress

Introduction

 

Financial stress can be burdensome to individuals and their families.  Financial stress affects millions of Americans from various socioeconomic backgrounds.  Financial stress can cause a significant strain on your wallet, health, and relationships.  It is essential to manage and eliminate financial stress in order to live a healthy and happy life.

 

What is Financial Stress?

 

Financial stress is the pressure or anxiety felt by individuals or families who are experiences shortages of money to meet their financial commitments.  Stress takes an emotional toll on individuals and families who experience financial shortfalls.  Common emotions felt by people experiencing financial stress include:  anxiety, depression, anger, frustration, and fear.

 

Causes of Financial Stress

Debt

 

Overspending tends to be one of the largest contributors to debt.  Debt originates from spending or borrowing more money than you have.  High expenses can cause debt to accumulate.  The more debt accumulates the more difficult it becomes to pay off.  Common forms of debt include:

  • Credit card debt
  • Loans:  (mortgage, student, home equity, and car)
  • Bills:  (phone, medical, and  legal)
  • Taxes
  • Divorce payments
  • Gambling debt

Unemployment/ Underemployment

 

Unemployment and underemployment are huge causes of financial stress.  Unemployment occurs when a person who is seeking a job cannot find a position in the workforce.  Underemployment occurs when a person is employed, but may only be working part time.

Many individuals face hardships due to the tough transition after losing full time employment.  Many people fail to adjust to their diminished income.  It is important to understand that while unemployed or underemployed an individual’s standard of living may change until full employment can be restored.

Due to the 2008 recession, and recent health care changes many employers have cut back on employment positions.  Many businesses have learned how to survive with fewer employees.  Furthermore, many businesses have elected to hire part time employees in order to avoid having to pay additional medical fees associated with full time employees.

Financial Inertia

 

One of the biggest causes of financial stress is financial inertia.  In science, inertia is defined as the resistance of an object to change in its state of motion.  Financial inertia is an individual’s resistance to changing their current financial state.  Simply put, financial inertia is procrastination.  Many people feel as if they can put off getting their financial house in order.  This resistance to take action and change their current financial state can cause financial stress.

 

Effects of Financial Stress

Personal Finance

 

Financial stress seriously impacts people’s wallets.  Personal finance as well as future goals can be hindered due to financial stress.  Effects from financial stress that effect individual’s personal finance include:

  • Lack of savings:  (bank, retirement, and college)
  • Compulsive shopping:  (spending money on luxury items to cope with stress)
  • Lower credit score:  (prevents individuals from acquiring loans or finances)
  • Higher interest rates

Health

 

Financial stress affects not only an individual’s wallet, but also their mind and body.  Stress can have a profoundly negative effect on an individual’s health.  Harmful health risks associated with financial stress include:

  • Unhealthy coping behaviors:  (smoking, excessive alcohol consumption, and overeating)
  • Sleep deprivation:  (weakened immune system, sleep deficit, decreased cognitive abilities, and moodiness)
  • Poor emotional state:  (depression, anxiety, and depression)
  • Diminished personal care:  (Due to less money to spend on food, medicine, and hygiene)

Relationships

 

Financial stress can severely strain personal relationships.  Financial uncertainty can cause severe rifts in the family unit.  Many couples argue about finances and how it will affect their family’s standard of living.  Financial stress causes many people to experience negative emotions, which in turn can cause arguments amongst couples.  Constant bickering over finances increases the probability that a marriage will end in divorce.  According to a study by Kansas State University:

  • Arguing over finances is the number one predictor of divorce.

According to a study by Utah State University:

  • Couples that argue once a week or more about money are 30% more likely to get a divorce than couples that argue only a few times per month.

 

How to Reduce Financial Stress

Eliminating Financial Stress

 

Reducing financial stress is essential for those who wish a healthy and happy life.  Consider taking these steps in order to help eliminate financial stress:

  • Calculate Your Free Cash Flow (Total monthly income (salary & wages) – Total monthly expenses (rent, utilities, gas, etc.)
  • Start a Budget (Eliminate unnecessary expenses)
  • Reduce/ Restructure Debt
  • Start an Emergency Fund
  • Declare Bankruptcy
  • Hire a Financial Advisor

Avoiding Financial Stress

 

Furthermore, being proactive in managing your finances can help prevent financial stress.  People who avoid financial inertia and take a proactive approach are less likely to experience financial stress.  Some helpful hints to avoid financial stress include:

  • Talking to your partner prior to marriage about their finances:  (credit score, credit card debt, student loan debt, etc.)
  • Monitor your free cash flow:  (know what’s coming in and what’s going out)
  • Pay all of your bills on time:  (pay your bills in full not just the minimum and on time to avoid late payment fees)
  • Talk to your financial advisor:  (set up a financial plan, move funds, maximize investments, restructure debt, find different interest rates)

 

How Right Financial Advisor Can Help

 

Financial advisors are extremely useful for individuals who need help managing their finances.  Financial advisors offer a wide range of services that can help individuals manage their finances and make better investments.  Right Financial Advisor connects you with a professional who can help you put your finances together and eliminate financial inertia.

Right Financial Advisor can help connect you to the financial professional who can meet your individual needs.  The right financial advisor is the key to eliminate financial stress.  The right financial advisor can help you to better manage your finances to increase your chances of living a healthy and happy life.

Right Financial Advisor is a web-based algorithm that matches individual investors and their families to qualified vetted financial professionals.  Right Financial Advisor is committed to matching investor core financial needs and personalities to the core competencies and personality of advisors.  Right Financial Advisor makes it easier to find a qualified financial advisor who is right for you.

 

Right Financial Advisor’s Nick Bredow, contributed this report.

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