Financial stress: causes, effects and solutions

Overall well-being rests on three essential pillars: mental health, physical health and financial health. When the balance between these dimensions is upset, the repercussions can quickly be felt in day-to-day life.

For many Canadians, money-related concerns are now the main source of stress, ahead of work, personal health or even relationships.

In fact, almost 43% of Canadians say that financial issues are their biggest source of worry, illustrating just how much financial pressure can affect quality of life.

What is financial stress?

Financial stress refers to the state of worry or pressure felt when a person has difficulty managing their financial situation or fears that they will not be able to meet their financial obligations. It generally occurs when income is no longer sufficient to cover current expenditure, when debts pile up or when an unforeseen financial event upsets the balance of the budget.

This situation can manifest itself in different ways:

• Constant worries about money;

• Difficulty paying bills;

• Impression of living from paycheck to paycheck;

• Inability to put money away.

Over time, this financial pressure can become overwhelming, with repercussions for many aspects of daily life.

What causes financial stress?

At a time when the cost of living is rising and the unexpected can happen at any time, many people find themselves under financial pressure without necessarily having anticipated it.

Here are the most common causes of financial stress.

1. Cost of living

The rising cost of living is one of the main sources of financial stress. Over the years, a number of essential expenses have risen sharply, including groceries, housing and travel costs.

Food prices, higher rents and increased mortgage payments can quickly reduce a household's financial room for manoeuvre. Added to this are transport-related expenses, such as the price of petrol, which can fluctuate sharply and put a strain on the monthly budget.

When these fixed expenses account for a large proportion of income, it becomes more difficult to save or to deal with unforeseen circumstances, which increases the feeling of financial pressure.

2. Debt

Debt is another common cause of financial stress. Credit card debts, personal loans, lines of credit or car loans can gradually accumulate and become difficult to manage.

When several payments have to be made each month, it can become difficult to keep up, especially when interest rates are high. Even if minimum payments help you stay up to date, they can give the impression that you are making progress while the debt is falling very slowly.

What's more, the new standards now require credit card issuers to gradually increase the minimum payment so that the debt can actually be repaid within a reasonable period of time, which can add to the monthly financial pressure.

This can lead to a feeling of suffocation, where a large proportion of income is used solely to repay debts rather than to improve the overall financial situation.

3. Financial contingencies

Even with good budget management, unforeseen events can destabilise personal finances. A costly car repair, a health problem, a job loss or urgent work around the house can quickly lead to major expenses.

When there are no emergency funds available to absorb these expenses, people often have to turn to credit to cope. This can lead to a cycle of indebtedness and increased financial stress in the medium and long term.

What is the impact of financial stress?

Financial stress is not just about worrying about money. When it persists over a long period, it can have a significant impact on health, personal life and general well-being.

Mental health

Financial pressure can lead to a significant mental burden. Constant worries about bills, debts or uncertainty can lead to anxiety, a feeling of insecurity and a loss of control over one's situation.

Some people may also feel ashamed, guilty or suffer a drop in self-esteem when they feel they are failing to stabilise their finances. In the long term, this pressure can lead to severe mental fatigue, difficulty concentrating and, in some cases, symptoms of depression.

Physical health

Financial difficulties can also have an effect on physical health. Prolonged stress can disrupt sleep, cause headaches, fatigue or muscle tension.

When these concerns become overwhelming, some people may neglect their health, delay medical care or adopt less healthy lifestyles. Chronic stress can also increase the risk of long-term health problems.

Personal relationships

Stress can seriously affect relationships with those close to you. Worrying about money can create tension within a couple, provoke family conflict or lead to feelings of isolation.

Discussions about spending, debts or financial priorities can become a source of disagreement. In some cases, financial pressure can even influence family dynamics and the quality of communication between household members.

How can you reduce financial stress?

Reducing financial stress often starts with a better understanding of your situation and the implementation of simple strategies to regain control of your finances.

Although every situation is different, there are some practical steps you can take to ease the financial pressure and regain a sense of stability.

Drawing up a budget

The first step is generally to establish a clear budget. A budget allows you to visualise all your income and expenditure so you can better understand where your money is going each month.

It can be useful to distinguish between fixed expenses (rent or mortgage, insurance, debt payments) and variable expenses (groceries, transport, leisure).

This approach helps to identify expenditure items that can be adjusted and to prioritise essential expenditure.

Setting up an emergency fund

An emergency fund represents a reserve of money set aside to deal with unforeseen financial circumstances. Even a small amount saved regularly can make a difference.

The aim is to create a financial cushion so that you don't have to resort to credit when an unexpected expense arises. Over time, this fund can help to increase financial security and reduce anxiety about the unexpected.

Reducing debt

When debts become high, reducing them can be an essential step in reducing financial stress. This can involve prioritising debts with the highest interest rates, such as credit cards, or putting in place a structured repayment plan.

In some cases, solutions such as debt consolidation with a financial institution can help simplify payments and reduce interest. If the situation becomes more difficult to manage, consulting a financial recovery advisor can also help to identify the options available to return to a more stable financial situation.

When should you ask for help?

Sometimes it's possible to manage stress on your own by adjusting your budget or cutting back on certain expenses. However, when difficulties persist or debts become too much to bear, asking for help may be a necessary step towards regaining financial equilibrium.

Licensed Insolvency Trustee

When debts become difficult to manage and traditional solutions are no longer enough, it may be appropriate to consult a Licensed Insolvency Trustee. In Canada, this is the only professional authorized to administer legal processes such as a consumer proposal or personal bankruptcy.

A trustee like Mallette will analyse your financial situation, explain the various options available and help you find the most appropriate solution. Our aim is to reduce the pressure of debt and put you on a sounder financial footing.