Financial well-being and mental health

MENTAL health issues are becoming more common and so are receiving the media attention they deserve. Sadly, many of these issues stem from money worries. Financial stress causes many of us to become anxious about the future and suffer depression. Many people enjoy a sense of security, self-confidence, and wellbeing when their finances are performing well, but slip into anxiety or despair when events negatively impact their finances. The recent lockdown and attendant economic slowdown have led to financial stress for many households. How then do we navigate such situations and avoid turning financial stress into mental stress?

Financial stress is defined as the inability to meet financial obligations due to cash shortage. It affects everyone, whether billionaire or common man, business or individual. This column is not a psychological or psychiatric column, so we will not make any attempt to look at issues from the medical perspective. Instead, we will explore practical strategies for avoiding financial stress or managing them when they occur.

Prevention, they say, is better than cure. One of the best ways of forestalling financial stress is the Emergency Fund – a fund with cash and near cash items that can be easily accessed to cover shortfalls. The rule of thumb is that an emergency fund should cover six months of the living expenses of yourself and your dependents. It is a rainy-day fund you can fall back on when the unexpected happens. It would remove or reduce financial distress that could lead to money worries. We must be diligent in building our emergency fund. It is best to define “emergency events” up front so that we can exercise discipline and not dip into it for non-emergency expenses. If we mismanage our resources in the time of “plenty”, we will accelerate the effects of financial stress in the time of “famine’.

One of the greatest ways to prevent or reduce financial stress is financial literacy. There are time-tested strategies for effective personal finance management, and we must learn these in order to understand the factors that lead to financial prosperity or mere financial survival. We must be armed with financial literacy in order to make the right money decisions in everyday situations, and not be derailed by peer pressure or over-hyped advertising.

Have sufficient knowledge of important topics like financial planning and budgeting, savings strategies, assessing expenses, credits, investment products, financial reports, risks management, estate planning, dependents’ planning, financial education for children, financing cultural obligations, banking and non-banking financial services etc. If you are a borrower, you need to educate yourself on debt management, financial negotiation, and the mechanism of compound interest.

If we are already facing financial stress, we must rework our expenses by down-sizing. Scale down our household expenses. We would have to convince every member of the household so they can actively cooperate with the new normal. If we do not carry our children along, they may not understand why we are not providing for them at the level at which they are familiar. This, no doubt, would lead to friction and mental stress for the whole family. Family budgets require the buy-in of the whole family.

Borrowers may not be able to meet loan payment obligations due to reduced incomes. The stress of bad debts and threats of losing assets pledged as collateral can be a relentless source of mental stress. Be transparent with your creditor. Request in writing for loan rescheduling. Suggest a new repayment plan. Negotiate what you know you can achieve and endeavor to meet the new arrangement. Obtain free advice from knowledgeable friends and family on how best to negotiate with your creditors. Rescheduling the repayment plan reschedules your obligations and therefore removes the stress.

Keep income flowing. If you have lost your job and are looking for another one, sitting at home may bring mental stress. Find something small to do whilst waiting for the ideal job. I do not recommend starting a new, big business with your reduced finances. But you can sell your services (without spending a kobo) on a small scale to your neighbors, friends and extended family. This will generate income to cover some household expenses and reduce the strain on your purse. You may need to work pro-bono at first, to convince your new clients of your competencies.

If we adopt the right strategies on time,we can overcome financial stress and avoid mental stress. The Art of the Comeback by Donald Trump (published in 1997) is recommended as additional reading. Please, note that this book is recommended strictly for financial management, it is not a political endorsement. Happy investing.

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