Pain is special only if you make it useful

26/01/2021
Posted in Blog
26/01/2021 Mduduzi Luthuli

If you’re worried about money, you’re not alone. Many of us, from all over the world and from all walks of life, are having to deal with financial stress and uncertainty at this difficult time.

Whether your problems stem from a loss of work, escalating debt, unexpected expenses, or a combination of factors, financial worry is one of the most common stressors in modern life.

A 2020 survey by Old Mutual aimed at understanding the financial stress faced by South Africans, in which they questioned around 1,500 respondents between 29 May – 23 June for the survey, found that more than half (58%) of the surveyed households in South Africa face high or overwhelming financial stress as the Covid-19 crisis knocks savings and raises debt levels.

The survey also states that, “Not only are absolute income levels under pressure as many take salary cuts but demands on share of wallet are increasing as never before. A third of consumers find that they are having to support more people financially than they did before the pandemic. Couple that with a constant fear of retrenchment or loss of income and no wonder stress levels have skyrocketed.

The recent economic difficulties mean that even more of us are now facing financial struggles and hardship. Like any source of overwhelming stress, financial problems can take a huge toll on your mental and physical health, your relationships, and your overall quality of life.

Feeling beaten down by money worries can adversely impact your sleep, self-esteem, and energy levels. It can leave you feeling angry, ashamed, or fearful, fuel tension and arguments with those closest to you, exacerbate pain and mood swings, and even increase your risk of depression and anxiety.

You may resort to unhealthy coping mechanisms, such as drinking, abusing drugs, or gambling to try to escape your worries. In the worst circumstances, financial stress can even prompt suicidal thoughts or actions.

Getting good financial advice is essential to helping you tackle your money problems head on. You can find a way through the financial quagmire, ease your stress levels, and regain control of your finances—and your life.

When financially distressed clients come to us for assistance we normally advise the following 6 points as a meaningful departure point on the journey to financial recovery.

  1. Identify what needs the most attention – Write down your three biggest money challenges so you know what you’re up against. Whether it’s making your monthly bill payments, reducing debt, or saving for retirement, it’s important to focus on the main sources of your financial anxiety. (Keeping the list short can help you feel less overwhelmed.)
  2. Stay Positive – Your mindset can help keep you motivated to fix your financial problems. Rather than get bogged down by thoughts of never getting out of debt, imagine the amount of stress you feel decreasing as your debt load gets smaller and smaller. It’s important to believe you can do it.
  3. Be Realistic – Determine what you can reasonably achieve and then dedicate yourself to following through each and every month. Make yourself a promise: “Each month I will spend less and put the difference toward my debt so my balance declines by at least R1, 000”. Just like a crash diet or intense new workout routine can lead to burnout, you don’t want to set overly ambitious financial goals that you may abandon in a few weeks or months.
  4. Maximise Your Income – The belief that you simply don’t have enough money to put towards your goals can keep you from dealing with your financial problems. Try to focus on making the most of the income you do have by spending wisely.
  5. Slow & Steady Wins the Race – Forgive yourself if you slip up. Sticking to a budget is not always easy, and there may be days when your resolve falters. If that happens, remind yourself of how much you have to gain by reaching your goals. Then examine your spending patterns to see why you overspent. You may need to modify your budget or your behaviour.
  6. Accountability – Leaning on your relationships can help keep you on track. Every hard task becomes easier with the support of friends and family, so share your goals. There’s no one better to hold you accountable and remind you what you’re sacrificing for than those you love, trust and respect.

When handled effectively, a financial setback can even provide you with the motivation and tools needed to become a better investor and perhaps, ultimately, a richer one.

At the very least, it’s an opportunity to assess your financial habits and see where you can improve. The most obvious fix for a hole in your financial situation is to spend less and save more.

Another solution is to resolve to work longer. Simply extending your working life by 2- 5 years can go an enormous way to repairing today’s financial damage.

It gives you chance to earn longer, pay off more debt and invest more towards your retirement income. Most people find that if they combine a longer career with a bigger savings habit, they can overcome even grievous financial damage.

Perhaps the trickiest part of restoring your financial health is acknowledging you have a problem. Many people bury their head in the sand, and ignore the evidence that things are going wrong as they slip further into the financial abyss. Yes – time is an amazing healer, but don’t miss any opportunity to set things right.

Some people will rush to make up their losses by leaping into high-risk investments that promise big returns, fast. It’s a sure recipe for disaster.

Others will go to the opposite extreme, parking their money in a savings account or other safe investment vehicle. This guarantees low risk, but also locks you into low returns.

It’s also not uncommon for those who’ve faced financial loss to shy away from the markets, and instead opt for bricks and mortar believing that a tangible property they can see, feel and understand is a better investment.

However, the numerical evidence doesn’t support this belief, and a lack of diversification into an illiquid and volatile asset class, such as real estate, can lead from the frying pan into the fire.

The best solution for nearly everyone is to systematically invest. That is, to invest according to a fixed plan, consisting of…

  • Choosing a globally diversified portfolio.
  • Picking an asset allocation in line with your risk tolerance.
  • Using low-cost investments.
  • Avoiding trades that attempt to predict what’s ‘hot’ – a practice known as market-timing.
  • Talking to an expert

The right financial advice can help you make up the ground you’ve lost. We’re here to help. Contact us on info@luthulicapital.com for your wealth management needs.

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