It is the sweet, simple things of life which are the real ones after all.
Laura Ingalls Wilder
Simple
I love anything simple! I really do. And you would think this means I don’t complicate things. But that’s not the case and I know I’m not alone. Have you noticed how often people make simple things complex, then try to solve the complex problem with complex solutions?
In today’s blog, I will be sharing simple ways to reduce financial stress as we focus on financial literacy this month. Financial stress is definitely not a simple topic and with the COVID-19 pandemic, there are increased levels of financial stress.
Do we need more data?
There is a lot of data indicating the severity of the pandemic on personal finances and its impact on people. I don’t need to show these data because almost everyone, if not all have been directly or indirectly impacted this year.
And frankly, who needs data to prove their lived experience at this point? Don’t get me wrong, I love data and the stories that data reveal to us. Data is great for doing work on what needs to be done. However, there’s just so much in our faces that individuals need simple ways to support themselves and become resilient as we go along in these uncertain times.
For some people, the negative impact of the pandemic on their life and personal finances, has been a lot to bear. For others, not so much, while a few more have not been negatively impacted. In any case, we all know people who have been hard hit financially due to the pandemic – and the counts are still ongoing. Worse yet, there are so many other stresses on people from financial stress to mental health stress and to physical health stress.
it is a lot!
Financial Literacy and Financial Stress
The Organisation for Economic Co-operation and Development (OECD), states in the 2020 international survey of Adult Financial Literacy that “The COVID-19 crisis is a severe test on individual financial resilience BUT ALSO an opportunity to re-focus on the essential elements of financial literacy.” I couldn’t agree more. COVID-19 has shown us the importance of financial literacy and basic money management habits
Only 17% of adults consider their financial knowledge as high; 53%- average; and 26% low.
OECD/INFE 2020 International Survey of Adult Financial Literacy
The results of this survey are consistent with findings from surveys conducted in Canada and the United States. And in this blog, my focus is on the outcomes of financial education as I discuss 5 simple ways to reduce financial stress.
What is Financial Literacy?
OECD/INFE defines financial literacy as: “‘A combination of awareness, knowledge, skill, attitude and behavior necessary to make sound financial decisions and ultimately achieve individual financial well-being.” I like this definition because it covers (1) the many levels of financial literacy from awareness to behaviours that (2) influence financial decisions which in turn (3) impact our financial well-being.
The simple ways to reduce financial stress we explore here, cover 1 & 2 of the definition above while reducing financial stress is part of our financial wellbeing (#3)
What is Financial Stress
Financial stress may look different for each individual. This year has, in so many ways, elevated the overall financial stress of many people. I like to define financial stress by what it may feel like. And my very simplified definition is: Financial stress is when I am feeling overwhelmed and lack control about my financial situation.
There are many different things that can trigger this feeling of overwhelm around money. And oftentimes, once there’s that feeling of stress, things begin to spiral down really quickly from there. Personally, when I am stressed, I don’t make good decisions. It’s from one bad choice to another – retail shopping; eating too much of everything; jumping to wrong conclusions about things and being distracted.
Unfortunately, money worry is common and anyone feeling overwhelmed by their financial situation is definitely not in the minority. With lots of job losses and uncertainties this year, things may feel hopeless. It’s challenging to find answers in this situation. In fact, the mere act of thinking of money can be exhausting and frustrating for many right now.
I struggled initially with what to write because the reality for a lot of people isn’t that bright. This has motivated me to think deeper about how I can offer some hope and inspire someone to action. I choose to focus on the opportunities created by the pandemic.
Life doesn’t happen to you; it happens for you.
Jim Carrey
Why Reduce Financial Stress
When I think of money, 2 things come to mind: security & options.
Anytime one or both of these 2 things are threatened, I experience financial stress. These 2 could be summed up in one word – Control. Feeling a sense of control and security over my finances has a positive effect on my well-being.
Financial Well-being is the opposite of Financial Stress. The Consumer Financial Protection Bureau (CFPB) of the USA defines Financial Well-being as “a state wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life”
The financial goals we set, and the work we do to keep our personal finance in good shape is ultimately for our well-being and to avoid financial stress.
Doesn’t it sound good to be at a place where all your financial obligations (current and ongoing) are met? This means you have zero debt and can pay all your bills in full and on time. For many people, this may sound like La La Land but it’s actually doable. There are already people in this financial state. Knowing that it can be done is a good first step which can then be followed by other simple consistent steps over time.
It is also wonderful if you find yourself at a place where your financial future is secure. You know that no matter what is happening in your external environment, you can weather the storm. You know that in your old age, you have enough financial security to maintain a good quality of life and can take care of increasing health care and other personal care costs.
This is not Utopia. There is abundance promised to all, but we first have to believe and get rid of any scarcity mentality we may have ascribed to. Next, we do the work, following fundamental principles that are available to everyone equally. In 2 Corinthians 9:8 (NLT), Paul tells the Corinthians in his letter: “And God will generously provide all you need. Then you will always have everything you need, and plenty left over to share with others.”
Your Financial Well-being is the reason to reduce financial stress. You will flourish and other areas of your life greatly improve when in a state of financial well-being. You will be living that promise in John 10:10 (GNT): “… I have come in order that you might have life – life in all its fullness.”
5 Simple Ways to reduce Financial Stress
I recognize that the best-designed financial literacy program cannot help anyone that does not have access to sufficient income, job, and benefits or access to money achieve financial stability.
However, hope is never lost when an individual takes a holistic approach to their challenges and opportunities. As you embark on the journey to financial well-being, here are the 5 simple and practical ways to reduce financial stress:
1. Know yourself & be yourself:
“This above all – to thine own self be true. And it must follow as the night the day, Thou can not then be false to any man.” – William Shakespeare, Hamlet
Personal finance is personal. There is no one size fits all so nobody can prescribe a single solution that will work for everyone. Do you know and understand clearly your circumstances, challenges, money mindset, and goals? This may sound like a weird question to ask. But have you taken some time to reflect on your situation or do you accept whatever you are going through as happening to you? Use the Personal Financial SWOT or other financial assessments that can be found online to understand what you already have and know to get yourself to action.
2. Tackle one specific area of your finances at a time:
From the financial goals you have identified from your assessment, consider what you can immediately act on. Identify concrete and simple steps to tackling one financial goal. For instance, if you have identified that the continued use of your credit card causes you to be in more debt and elevates your financial stress, consider a specific action you could take to help reduce this stress. You may decide to use only cash to buy groceries. This will trigger other changes that will ultimately lead you closer to financial well-being. You may find yourself spending less because if there’s no cash available, you cannot spend any money.
3. Improve key financial skills:
Key financial principles are common knowledge and common sense. Like most people know that they should not spend more than they earn and should live within their means. Yet, common sense does not always translate to common doing. This disconnect between what people may know and what they actually do is caused by many factors including level of literacy/exposure, discipline, opportunities, access to information, etc. To put financial knowledge to use, it’s important to build skills such as knowing –
- when and how to find reliable information needed to make financial decisions;
- how to process the information, and
- how to follow through
For example, for a while, I shied away from investments because I just deemed them as complicated. But after I read an article, I signed up for a practice account that provided me “fake” funds to practice with. I also downloaded podcasts and the more I practiced and read, the more confident I felt. And knowing I could start with smaller amounts to build up my portfolio was very helpful. It was also important to set up automatic transfers on a regular schedule to ensure follow-through.
So whether it’s building up an emergency fund or paying down debt, educate yourself and start implementing small steps towards accomplishing your goals.
4. Build a buddy system:
So now, you have gained some knowledge and skills, however these alone do not always lead to action. Once again, there’s yet another gap between what people intend to do and what they actually do. If you’ve come this far, you are probably motivated to reduce financial stress and improve your financial well being.
Strong willpower and desire alone may not keep the momentum on achieving your goals and reducing financial stress. Building a buddy system can help you focus on your values, persevere in the face of obstacles, and build up confidence knowing that you can achieve your financial goals.
Example: Do you have a lot of debt to pay off? You could start with paying off the smallest loan and celebrating the accomplishment with a trusted buddy.
5. Make it easy to make good decisions and follow-through
This last step involves setting up simple systems to help you make good decisions that support your goals. Automating bill payments and savings are good examples of simple things you can do to implement your good decisions effortlessly. Technology can be used to simplify budgeting, expense tracking, bill payments, reminders, notifications, and celebrations.
In Isaiah 32:8 we read: “But the noble make noble plans, and by noble deeds, they stand.” So be encouraged as you set up these simple steps. By being consistent in educating yourself and putting into practice the knowledge and skills you get, your confidence will increase and you will slowly but surely reduce financial stress.
Financial well-being is the opposite of financial stress. You can reduce financial stress by knowing and being yourself; picking one specific area of your finances to focus on at a time; improving your key financial skills to close the gap between what you know and what you actually do; finding an accountability partner, because your will power can be exhausted and lastly, by creating simple systems that help you make & follow through on your decisions to attain financial stability.
Thanks for reading and do share your simple tips in the comments.
Blessings.
