How can we cope with financial stress?

Over 400 billion euros. According to the National Bank of Belgium, this is the amount of money in the savings accounts of Belgian households. This corresponds to more than EUR 80,000 in savings per family. Not so bad, you might think at first glance.

Even so, many Belgians are concerned about money, not least because the 400 billion euros isn't divided equally among every household. About a third of households say they have little or no savings.

Another reason for these worries is that we often misjudge exactly how much money we need in order to live comfortably. Statistically speaking, people who are 'comfortable' are nevertheless worried about not having enough. Sometimes we tend to overestimate – or even underestimate – how much we need to set aside for a rainy day.

There are also many other explanations as to why so many Belgians are concerned about money: low income, high debt, health problems, redundancy, retirement, divorce, rising costs for their children, economic climate, coronavirus, etc.

Financial turmoil with or without the coronavirus

Worrying about money is not a new phenomenon. Research (European Consumer Payment Report 2019) shows that many Belgians were struggling with financial worries even before the coronavirus crisis hit. In the study, 3 out of 10 Belgians say they are not always able to pay their bills on time. Half of them state that they are unable to save enough. A quarter point out that financial worries lead to tensions in the family.

The current crisis is likely to make these figures a little less rosy. For example, according to the latest Big Money Survey, 4 out of 10 households are worried about encountering financial problems due to the coronavirus.

What is financial well-being?

Generally speaking, well-being offers a conclusion about the extent to which you feel good physically, mentally and socially. All these aspects are intertwined. Your health affects your social contacts, your social contacts influence how you feel mentally, and so on. Financial well-being belongs on that list. Financial stress also affects your well-being and can cause physical and mental symptoms: from headaches to depression. According to a study by Princeton University, financial worries can even temporarily reduce IQ by 13 points.

Your financial well-being is high if you:

• are able to pay bills on time
• have little or no dependence on loans and debts
• are able to put a little bit aside
• have sufficient financial knowledge to make the right decisions for your assets and to have sufficient peace of mind about your money matters

Reducing financial stress: 4 tips

1. Create a budget

First of all, you should have a good overview of your figures. Creating a budget and regularly updating it can eliminate a lot of (unnecessary?) fears. Whether you use a booklet with graph paper, a spreadsheet or an app, they all help to maintain an overview.

A budget not only enables you to track how much money is coming in, but also how you spend it. It also gives you a much better idea of where there may be problems, which also makes it easier for you to take steps to address them. Can I stop making certain purchases? Can I share or rent instead of buying? Is there a cheaper alternative to those streaming services or energy suppliers? The list goes on.

2. Create a buffer (but don't overdo it)

A savings buffer of 80,000 euros is too much for most families. A reserve of 3 to 6 months' net family income is sufficient for most. This buffer is there to cover unexpected costs. Does a slightly higher buffer give you a little more peace of mind? That's fine, too.

Bear in mind that you will receive hardly any return on savings at the moment. Because inflation is higher than the savings rate, you're actually losing purchasing power by saving. In other words, goods and services become a lot more expensive every year on average, while interest rates on savings accounts have not risen for years. It is therefore better to invest money that you can do without in the longer term. Not enough savings is not a good thing, but too much may not be good either.

3. It's not just about what you know

A person might be able to explain perfectly how a structured product or hedge fund works, but if they need that money to come flowing in immediately, they've got a problem. In other words, it is important not only to understand how money works, but also how you feel around it and how you approach such matters.

A shortage of money is not the only cause of financial stress. It may also be due to uncertainty or a lack of awareness of how to handle money. Bear in mind that you can make your future brighter by taking the time to learn about and organise your money. You will find plenty of inspiration, advice and useful tools at the Belgian Centre for Budget Advice and Research, the Dutch National Institute for Budget Information and Wikifin.

4. Feel free to take a little more time

Now or never! Enjoy this exclusive benefit today! Tomorrow it might be too late! Campaigners and advertisers use this technique to appeal to our urgency instinct. This instinct encourages us to make quick decisions in order to avoid risk or to seize opportunities.

Our distant ancestors needed this instinct to be able to run away from predators immediately. We rarely need to do this today. There's almost always more time than you think, especially if you have to make a big financial decision.

Making decisions under pressure is not only stressful; it can lead to poor results in the long term. When you are under (time) pressure, you are usually less able to distinguish between what is important and what isn't.

That's why it's better to take it easy. Gather information, consider various options, ask for advice or additional time to reflect, and sleep on it.