A recent survey found that 5% of Americans consider finances their biggest source of stress and nearly 47% say that 2024 has been the most financially stressful year of their lives. Financial stress is a major issue people face today, whether it is planning for the future or managing their current expenses. However, there are ways to manage this stress effectively.
One key step is hiring a professional financial advisor who can provide the right insights into money management and help eliminate some of your financial anxiety.
What is financial stress?
Financial stress refers to the anxiety and psychological pressure that comes from dealing with money-related issues. It often begins with a shortage of funds, but it can also stem from other factors like being overwhelmed with the process of financial management or feeling out of control with your finances.
Below are some of the common causes of financial stress:
1. Low income
One of the most obvious causes of financial stress is low income. When you are not earning enough, it can feel like a constant struggle just to make ends meet. You might worry about covering essential expenses like rent, food, healthcare, housing, or utilities, and this can lead to financial anxiety. The thought of possibly losing your home or not being able to afford basic needs can weigh heavily on your mind. Low or no income can increase both your emotional and financial burdens. In the worst-case scenario, it can also result in homelessness. It can also add to your insecurity and take a toll on your mental and physical health.
2. Poor money management
Financial stress can arise from not managing your money effectively. Even if you earn a decent income, you can still feel a sense of financial instability if you do not handle your money well. Living paycheck to paycheck, spending more than you earn, failing to set aside savings, or not investing for your future goals are all worrying signs of poor financial management. The lack of a clear plan or budget can lead to impulsive spending, leaving you with little to no savings for financial emergencies or future goals. The stress can build up slowly, and you might find that you still struggle to get ahead despite earning sufficient money.
3. Financial uncertainty
Uncertainty about your financial situation is another major source of financial stress. This can happen when you lack a clear plan for managing your income, spending, and savings. Not knowing where your money is going each month or how much you should be saving can lead to a sense of overwhelm. Financial security comes from having a direction and feeling confident when making decisions about your money. When you take charge of how, when, and where you spend or save, your confidence grows, and the stress can lessen.
4. Burden of debt
Debt can be a major contributor to financial stress. Credit cards, student loans, mortgages, etc., can all be financial burdens. The interest rates that you pay on your debt considerably add to your overall amount due. This way, you end up paying far more than what you originally borrowed, making it difficult to break free from the debt cycle. The pressure to keep up with monthly payments while trying to meet your regular expenses adds to the stress. Debt can also affect your emotional well-being. The constant reminder of what you owe can create additional challenges down the road. It also affects your credit score, which, in turn, can make it harder to get more loans at favorable interest rates.
How does financial stress affect your health and other aspects of your life?
Financial stress can seep into various aspects of your life. It could not only impacts your mental and physical health but may also your relationships, social life, work habits, and financial decisions.
Here's how financial stress may impact different areas of your life:
1. Lead to poor mental and physical health
One of the most significant effects of financial stress is the toll it can take on your mental health. Financial stress and mental health go hand in hand. The constant worry about paying bills, making ends meet, or not having enough savings can lead to severe anxiety, depression, and sometimes even insomnia. Financial concerns can linger on your mind and make it difficult for you to focus on anything else. This can spiral into deeper emotional issues and depression. The fear of falling behind on bills or not being able to provide for their loved ones can be overwhelming. The link between mental and physical health cannot be denied. When your mental health suffers, in many cases, physical health follows. Financial stress can lead to physical ailments like high blood pressure. It can also impact your immune system. On top of that, if you are dealing with financial difficulties, you may delay or avoid seeking the necessary medical care due to the associated costs, which can exacerbate your health problems over time.
2. Strain relationships and social life
Financial stress does not just affect you. It impacts the people around you as well. Money problems are a leading cause of tension in relationships, especially between partners. Couples may argue about their spending, common debts, or unfulfilled goals. Financial stress can also make it harder to meet the needs of your dependents, such as children, and lead to feelings of guilt. Therefore, this can strain your relationship with your children. Financial stress can distance you from friends and family, too. If you are preoccupied with money worries, it becomes harder to socialize. You may not be able to afford outings or gifts, which can be embarrassing. You may also feel anxious about spending your money on outings when you have other essential financial needs.
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3. Force you to work more
To escape financial stress, many people end up working longer hours or taking on extra jobs. While this may seem like a practical solution and can help you earn more and cover your needs, it also leaves you with less time for yourself, your family, and your personal life. You may also sense burnout from working all the time. This can further harm your mental and physical health. You may feel exhausted, which can impact your mood both at work and at home. It can also lead to poor performance at work, affecting your prospects of growing professionally. While you may earn more money, the stress that comes from working so much can undermine the very sense of security you are trying to achieve.
4. Affect financial decision-making
Another significant effect of financial stress is how it affects your ability to make sound financial decisions. When you are feeling overwhelmed by money problems, you may not want to take any financial risks. This means sticking to low-risk, low-return investments, which can slow your financial growth. You might avoid opportunities to grow your wealth out of fear of losing what you have, which can lead to financial stagnation. Financial stress can also lead to poor decision-making in terms of savings and investments. If you constantly worry about paying your bills, you may have little to no money left to save or invest. Even if you do manage to put some money away, the amounts may be so small that it feels like you are not making any real progress toward your financial goals. This can delay important milestones, such as buying a home or retirement. Moreover, financial stress can cloud your judgment when it comes to spending. People who are stressed or anxious are more likely to make impulsive purchases or take on debt.
How to deal with financial stress?
1. Identify the problem
The first step in tackling financial stress is identifying where it stems from. Financial stress can be caused by a variety of issues, such as not meeting your financial goals, living paycheck to paycheck, or struggling with managing debt. Often, there are multiple causes. Understanding the root cause of your financial stress can help you devise a targeted solution. For example, if your stress comes from unfulfilled financial goals, you can start by learning about different investment options, setting up a savings plan, or consulting with a financial advisor. A lot of times, people are unable to identify the root cause. Educating yourself about money management can be helpful here. The more you know about saving, investing, debt management, and budgeting, the more confident you will feel in handling your finances and identifying the issues with your financial planning strategy.
2. Clear your debt
Debt is one of the most common contributors to financial stress. High-interest payments can feel like a never-ending burden, especially when you end up paying more than you borrowed in the first place. Not only does it drain your current finances, but it also prevents you from focusing on your future goals, such as retirement, home ownership, etc. You can create a debt management strategy to manage your debt-related stress. Generally, it is important to start with paying off high-interest debts first to lower the overall amount you owe. However, you might also consider paying off small debts first for motivation. This can lower your stress while being easy to execute. Alternatively, paying off debts with the highest interest rates first can help you save money in the long run. While this may require some financial sacrifice at first, reducing your debt load will also instantly relieve some of the pressure. Additionally, you can try to reduce your expenses, so you do not need to rely on credit cards or other forms of debt unless necessary.
3. Make a budget
Budgeting helps you understand where your money is spent so you can make informed decisions and reduce unnecessary spending. You can start by listing all of your essential expenses, such as housing, food, healthcare, insurance premiums, etc. This allows you to allocate money to each of your goals accordingly. Once you have a clear picture of your income and expenses, you can find areas to lower your spending and save and invest more. Building a budget also helps you concentrate on your savings or investments. You can free up money to save for the future. Slowly, as you increase your savings, your financial worries will also reduce.
4. Hire a financial advisor
A financial advisor can help you overcome financial stress. Hiring a professional can be a good move if you are unsure where to start or feel overwhelmed by your financial situation. Financial advisors can help with everything from debt elimination to investment strategies and ensure that you are on the right track. They can also prevent you from making financial decisions that are emotionally driven as these could worsen your financial situation. Moreover, working with a financial advisor regularly will help you stay focused and motivated for the long term and ensure you keep working toward your goals. Having expert guidance can give you peace of mind and help you make sound financial choices.
In Conclusion
Financial stress can be challenging, but it is not impossible to overcome. The reality is that in today's world, most people will face financial stress at some point in their lives. However, understanding the root causes and their effects and learning how to manage them effectively is key to reducing their impact. It is important to take proactive steps and seek professional guidance from a financial advisor to quickly and effectively eliminate financial stress.
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