Do you wait until payday to check your bank balance?
Living payday to payday is a reality for many Australians. In fact, every second person is strapped without spare cash to draw on by the end of each month, according to the latest Household Financial Comfort Report.
While it can be tempting to wait until your employer boosts your balance before you assess your financial health if you’re only keeping tabs on your finances when money filters in, it’s likely you aren’t empowered by your digital wallet’s bottom line.
Many of us are so disconnected from our money and how it fits into our lives that we end up deliberately ignoring it altogether, which ultimately leads to worsening the issue.
The problem with ignoring your finances
Research states many people would rather live in financial denial and bury their head in the sand, rather than identifying the issue at the core of their financial situation.
But turning a blind eye to your bank balance is a self-sabotaging strategy that won’t ease your wealth woes – it will likely compound the problem and lead to avoidable penalties including overdraft fees, interest, and late fees.
The ‘do nothing’ approach often sends your finances snowballing in a downward spiral that gains momentum as time passes – and alarmingly, the effects of this stress are not restricted to your financial health.
The impact of ignoring your financial health
Failing to resolve your finances enables the stress to seep into other critical areas of your life and can impact you physically, emotionally, mentally and even cause a divide in relationships.
According to findings from The Core Data/Financial Mindfulness Stress Survey, money stress more often than not leads to feelings of fear, anxiety, and depression. The same research concluded that 75 percent of people surveyed admitted they argue with their partner about their financial pressures.
Further, Relationships Australia research suggests that financial stress is the leading cause of relationship breakdowns.
Escalating living expenses, as well as crippling home loan repayments, are the common driving culprits fuelling the financial burden.
The latest findings from Digital Finance Analytics estimate that more than 966,000 households are suffering mortgage stress nationwide.
How to effectively manage money stress
The good news is that there are proven methods for managing your money stress. The solution is to control your cash flow to ensure your monthly expenditure doesn’t exceed your monthly income.
In other words: Live within your means.
But getting out of the red requires far more dedication than running your finances on autopilot. It’s a balance Australians notoriously find difficult to strike, with one in 10 people spending more than their income each month, as explained in the recent The Household Financial Comfort survey.
Breaking the monthly budget on a regular basis will only result in increased debt – usually on high-interest rate credit cards – which only exacerbates the problem.
Alternatively, creating a financial structure, which manages your cash flow, can dig you out of your financial black hole and alleviate all the other carry-on affects stress can cause.
For most people, the majority of their expenditure is predictable – things like the weekly groceries, petrol for the car, mortgage repayments, monthly bills like the mobile phone and internet, and utility bills such as gas and electricity all come in on a regular basis and don’t vary much. These typically make up 60-70% of our expenditure and as they are predictable, they can be budgeted for from a dedicated bank account.
It’s the other 30-40% of expenditure that gets people in trouble. Things like holidays, gifts, entertainment, clothes and household goods (such as furniture), are more ad hoc and less predictable. Rather than put this expenditure on credit card, a better practice would be to regularly set money aside for this type of expenditure and commit to only spending what you have.
Focusing on increasing a sustainable cash flow can snowball into an increase in capital that will eventually allow you to consider impending an investment strategy to build your wealth.
Should you require more information or clarity on any of these topics, please contact us today on 1300 354 355.