Financial Hardship
This blog discusses financial hardship based on the podcast season 2 episode 4.
Financial Hardship: Taking Back Control and Planning Ahead
In our podcast episode on financial hardship we explore its causes, effects, and most importantly how to know and recognise the signs and take proactive steps to address them.
In life, we all hope for smooth sailing, especially when it comes to our finances. However, the reality is that financial hardship can strike suddenly, turning our world upside down. Whether it's due to a change in circumstances, a health issue, a job loss, or simply being overcommitted, financial challenges can happen to anyone, at any time. Causes don’t have to be big life events either, but can be underlying problems that aren’t addressed, like habitual overspending due to impulsive behaviours, problem gambling that escalates, unexpected chronic health problems that manifest, or even being made redundant and having a period with no income while the job hunt and interviewing for the next position takes place. Recently, interest rate rises have been a catalyst for many Australians.
Understanding Financial Hardship
Financial hardship can manifest in various ways, from struggling to make loan repayments to facing the possibility of losing your home or car. It's a challenging situation that can lead to stress, anxiety, and feelings of helplessness. Without a plan and support, the impact of hardship can unfortunately be life changing and devastating. A Commonwealth Bank of Australia reporting in 2023 highlighted that financial stress is the #1 reason for relationship breakdown in Australia. However, it's essential to remember that there are steps you can take to regain control.
Recognising the signs
What exactly are the signs of hardship when it comes to money? At the beginning it might just look like living pay check to pay check and running low on money a few days before the next pay arrives. But as this progresses without intervention things can become dire quickly. Some more signals of financial hardship may include:
· Arguing with your partner about where money is being spent
· Having no money left before the next payday
· Having low or no savings available to fall back on when emergencies happen
· Living on credit cards or maxing out credit cards
· Unable to afford things like home heating or cooling
· Feeling fear, anxiety, stress, or not being able to sleep
· Feeling scared to shop for necessities that you can’t afford them
· Unable to repair or replace broken down or old appliances or vehicles
· Being late, or altogether not being able to pay bills
· Being late, or altogether missing payments on bigger debts or your home loan
· Forgoing things like clothing or shoes so the family can eat
Being Proactive
An ANZ report found that 62% of Australians struggling with their financial wellbeing are women. This correlates with the data showing 82% of single parent households are mothers.
The rising cost of living is hitting the most vulnerable groups hard. But there’s ways to seek support. Too often, people are ashamed or feel too overwhelmed, anxious, or guilty to reach out for help. But it’s important to move forward on your terms, not allowing debt to snowball and waiting passively for others like the bank to act first.
It’s better to have a conversation with your bank or lender BEFORE you miss a home loan repayment.
Tips to addressing financial hardship
· Take Stock of Your Situation: Do not react immediately. Understand your current position and think it through – get the facts before you act. The first step is to understand your current financial position. Take a close look at your income, expenses, assets, and liabilities to get a clear picture of where you stand. Understanding your financial position will help you identify areas where you can make changes to improve your situation. Know how much you need to live on – ‘Your Number’ – your income minus your expenses.
· Get on the same page: If you’re with a partner - make sure your partner is aware of the financial position too. Agree on what spending will take place in the next few months, clearly together, limiting things that are unnecessary.
· Reduce Expenses: Review your past spending over the last 12 months (use our amazing Spending Review template in Resources to make this happen!). Look for ways to reduce your expenses. This might involve cutting back on non-essential spending, renegotiating bills, or finding cheaper alternatives for your regular expenses. Shopping somewhere cheaper, cutting back on cigarettes or alcohol, and calling your telco, gas, electricity, insurance, and water providers to request their help with bills while you’re experiencing financial hardship. Every dollar you save can help ease the financial burden.
· Increase Income: Consider ways to boost your income, such as taking on a second part-time job or freelancing. Every little bit helps and can make a big difference in your financial situation. Be aware of how long this income could take to begin coming in (Be clear on when the pay check will arrive - monthly, fortnightly etc). Consider whether selling something like a car, a bike, unused toys, etc. could be an option to help with some faster cash, or find alternative creative ways to generate additional income.
· Seek Practical Support: There’s also organisations and groups who offer practical help. Start by reaching out to your local council, community groups, maternal child health clinic, community food pantries, and having a chat with your local op shops who also might be able to link you in with specific services in your local community.
· Seek Emotional Support: Dealing with financial hardship can be emotionally draining. Don't hesitate to reach out to friends, family, or a professional counsellor for support to help you cope with the stress and anxiety that often accompany financial difficulties. Talking about your feelings can help alleviate these emotions and help you feel less alone. There’s contact details at the end of this article.
· Set Realistic Goals: While it's essential to stay optimistic, it's also crucial to set realistic goals for yourself. Set achievable milestones that will help you track your progress and stay motivated. Whether it's paying off a credit card debt or building an emergency fund, setting specific, measurable goals can help you stay on track and regain control of your finances. Doing this goal setting with the support of a professional such as a financial wellbeing counsellor might be beneficial.
· Get Advice on your Financial Options: This might be speaking with a specialist. If you’ve got a home loan, speak with a mortgage broker who will be able to support you from an independent point of view.
· Plan for the Future: Use your experience with financial hardship as a learning opportunity. Set new financial goals and create a plan to achieve them. Building an emergency fund to increase your financial resilience to life’s curveballs, and living within your means can help prevent future financial crises.
· Contact your lender or bank: Call your lender or bank about their hardship assistance program. There are often solutions available that can help you manage your debts more effectively. It’s important to get in touch with your lender before you miss a repayment.
What does it mean to a lender or bank bank when someone applies for ‘hardship assistance’?
When a person contacts their lender and says they are struggling to afford their home loan repayments, they can receive financial hardship support.
In general terms, this means that you could ask for a pause on your repayments possibly up to three months. There needs to be a plan in place for what will take place after that pause period of time. So the bank might agree with you to increase your repayments over your remaining loan term to make those missed repayments up, or if your situation has improved, possibly paying a lump sum to bring your repayments back up to date. They may also work with you to restructure your loan.
Your bank will work with you to try to support you to keep your home. Losing your home is the last resort. We recommend understanding your cost of living, your financial position, and having a plan before you talk to your lender or bank.
In Summary
Remember, you're not alone in facing financial challenges. Hardship can be tough but it is a more manageable situation the earlier you address it. Empowering yourself with the facts about your financial position is the key to being able to move forward on your terms. By taking proactive steps, seeking support, and planning for the future, you can navigate financial hardship with confidence and emerge stronger on the other side.
Further Support
Get to know your number with our handy Spending Review template in our website resources: https://www.themoneycollective.com.au/resources
Money can bring up a lot of emotion. If you felt triggered by some of the things we discussed in this episode please reach out to us or see some supports you may wish to reach out to below.
· Lifeline Australia: 13 11 14 or SMS 0477 13 11 14 https://www.lifeline.org.au/
· Beyond Blue: 1300 22 4636 https://www.beyondblue.org.au/get-support
· National Debt Helpline: 1800 007 007 https://ndh.org.au/
Listen to the full podcast here: https://www.themoneycollective.com.au/podcast
This article provides general advice only. It does not take into account your objectives, financial situation or needs. Before acting on any information provided, you should consider the appropriateness of the information and the nature of the financial product in regards to your objectives, financial situation and needs. We recommend discussing your personal situation with a financial professional.
Blog article by:
DARLENE NEU
Co-Founder, Financial Wellbeing Coach and Mortgage Broker
The Money Collective