How to cope with financial stress

Financial stress is something most of us face in an uncertain world. The Covid-19 pandemic, inflation, rising interest rates, and the global effects of war have affected people’s financial stability and their emotional wellbeing.  

In a Money Stress Tracker survey conducted earlier this year by DebtBusters, some 70% of respondents indicated that they are facing some form of financial stress. Of these, a whopping 76% believe that this is affecting their health.

This article unpacks financial anxiety, and offers some practical coping mechanisms to protect yourself against further stress.

Tip: Did you know that debt consolidation can help to improve your cash flow and alleviate your financial stress? Find out more here.

Why does financial uncertainty cause so much stress?

Everyone has some degree of stress, no matter their financial situation. Most of us are unable to achieve the kind of financial security that will allow us to take care of our families in tough times, says Paul Nixon, head of behavioural finance at Momentum Investments.

Many South Africans have had to drop their standard of living, forfeit their status in society, and/or rebuild after catastrophic loss, all of which can affect mental wellbeing. It doesn’t help that many South Africans live beyond their means to impress friends and neighbours, and are not diligent savers.

“Most South Africans don’t have an emergency fund, which is as much a psychological safety net as a monetary one,” Nixon points out.

Take control of your finances

As much as South Africans are vulnerable to financial stress, they don’t always like to confront the issue. However, taking active steps to manage your money problems can go a long way towards making you feel better, says Johann Rossouw, a certified financial planner at Fiscal Private Client Services.

“The first thing to do is to take an inventory of your finances,” Rossouw says. “The starting point of any good financial plan is a budget, because it allows you to monitor exactly where your money is going. This reduces anxiety and helps you to avoid that sinking feeling you get when you look at your bank account.”

Rossouw says that spending just five minutes a week on budgeting will give you a clearer picture of what you spend and where. There are banking apps that can automatically categorise your spending, making the process even quicker.

Once you have a budget in place, it’s easier to identify unnecessary expenses.

“Are you paying for a streaming service or gym membership that you rarely use? Rather cancel these subscriptions,” Rossouw says. “If your insurance premiums are becoming too expensive, shop around for alternatives.

“Focus on expenses that add no joy or utility to your life, and try to reduce or eliminate these. Spend wisely, but don’t completely deprive yourself, which could lead to a spending spree.”

Avoid debt as far as possible

Debt is easy to get into, but difficult to get out of, and it’s a major source of stress, particularly if you are overindebted.

“The cost of servicing debt is increasing in a rising interest-rate environment,” Rossouw cautions. “Try to avoid relying on credit cards and personal loans from banking institutions, where interest rates can easily be 15% and above. Use any surplus funds to pay high-interest debt as soon as you can.”

If you already have debt, make sure you pay at least the minimum monthly repayment.

Nixon says doing some scenario planning with a financial adviser is a good form of “stress inoculation”. Possible scenarios might include losing your job, needing an emergency medical procedure, or being unable to pay school fees.

Putting together a plan to get you where you need to be, and having measures in place should you face a stressful scenario, will give you a greater sense of comfort. Could you rely on family or friends, or would you need to take out a loan? Having a course of action can reduce your stress levels markedly.

Ways to manage anxiety

Nixon advises trying to regain your balance, as stress can take up a disproportionate amount of your mental bandwidth.

“As a start, try to eat healthily, exercise, or just get out into nature, which releases serotonin and helps to stabilise your mood,” he recommends. “Spend time with family and friends who can help you to reframe your anxieties and put your situation into perspective.”

Relying on stimulants like alcohol or sugar may seem like a coping mechanism, but they will likely make you feel worse about your situation - not to mention guilty.

“Rather use some techniques used by successful asset managers to identify when anxiety levels are elevated, so they don’t make any poor trading decisions,” Nixon says. “These include journaling and mindfulness. There is a lot of information about these techniques on the internet.”

Planning to succeed

Pieter Albertyn, head of product solutions at Momentum Investo, points to the importance of speaking to a financial adviser to reduce your stress around your finances.

Financial service providers are cognisant that people’s disposable income is under pressure during tough financial times, and for this reason, some offer a “contribution holiday”. This can give clients a couple of months to get their finances back on track, and still keep their product portfolio intact.

“Keep this kind of ‘backdoor’ for a lasting crisis, however,” Albertyn says.

“Another way to reduce stress is to ensure you save enough for emergencies, or specific goals like retirement.”

Nixon says the biggest misconception is that you need to earn a high income in order to start saving. “Wealth is not a function of income, it is a function of saving,” he says. “High spending is visible, but saving is not.”

If you are constantly struggling to make ends meet, starting a side hustle may help to free up some cash, Rossouw says.

“Find your niche, such as tutoring learners in maths, walking dogs, taking on art commissions, or setting up an online store. This can empower you to take greater control of your finances, which will help to alleviate your anxiety.”

Tip: Saving for retirement will reduce financial anxiety now, and later in life. Find out more about retirement funds here.