R U OK? Day - financial stress and mental health

R U OK? has had a huge impact on the national conversation around suicide prevention. Prior to the first R U OK? Day in 2009, mental health was still something of a taboo subject in Australia. But thanks to high-profile celebrity support and a refreshingly simple message, R U OK? has achieved an extraordinary level of cut-through.

One of the primary causes of mental health issues listed on the R U OK? website is ‘financial difficulty’. Unfortunately, with many people now having to navigate multiple interest rate rises and a cost-of-living crisis, this is likely to be more prevalent than ever.

When is R U OK? Day?

R U OK? Day is held on the second Thursday of September every year. In 2023, this falls on 14 September.

How to cope with financial difficulties

While the number one priority for a person in serious difficulty of any kind should always be psychological and emotional support, there are several easy-to-implement strategies which can help someone regain control of their finances.

Understanding your situation

The first step towards sorting out your personal finances is to gain a proper understanding of the situation. If this feels like an intimidating prospect, the good news is that it’s no more complicated than knowing what’s coming in and what’s going out. And you know what’s even better? When you’re clear on those details, you will be in a position to start turning things around!

Record your income and expenses

The first thing to do is record your income. For many people, this involves nothing more than making a note of their salary. But you might have alternative or additional sources of income such as an investment property, pension, or government payment. Add up any that apply to get your total.

Then it’s time to look at the other side of the balance sheet. First there are your essential expenses. These are things like rent or mortgage repayments, transport costs, power and phone bills, and groceries. Basically, anything you can’t do without. Minimum loan and/or credit card repayments belong in this category too. An easy way to find this information is by looking at your bank statements. So, if you’ve been avoiding doing that, now’s the time to rip the band-aid.

Don’t underestimate non-essential spending

When you’ve factored in both your income and essential expenses, what’s left are, well, non-essential expenses; so that’s stuff like streaming services, gym memberships, takeaways, socialising, hobbies etc…

It can be difficult to get a clear picture of this side of your outgoings as a lot of it won’t be regular, fixed amounts. Plus, it’s human nature to underestimate non-essential spending. For our purposes here, it’s best to err on the side of caution and round up your best guess.

Once you’ve recorded all this information as accurately as possible, congratulations! You’ve just taken the first step towards regaining control of your finances.

Pro tip: the easiest way to record this information is with an online budget calculator.

Optimising your budget

Now that you have an accurate snapshot of your finances, you can start to make the necessary adjustments to regain control of them.

The most obvious place to look at making savings is your non-essential spending. Do you really need all those streaming services? Are you getting value out of that gym membership? Would losing your Friday night takeaway be the end of the world? Unless you’re living like a monk already, it should be easy enough to spot some cost-cutting opportunities.

There should be some wiggle room in your essential expenses too. You can’t do anything about fixed costs like rent or mortgage payments but there are tips and tricks to reducing how much you spend on essentials like power bills and groceries.

In fact, it just so happens that we have a whole range of them on our Thrifty Thursdays page!

Build in an emergency fund

It’s important to be realistic though. While the best things in life are free, unexpected expenses certainly aren’t. For example, your car could break down or you might need to pay the dentist an urgent visit. That’s why it’s a wise move to build some sort of emergency fund into your budget.

National Debt Helpline

Having said this, there will be cases where it simply isn’t possible to make the numbers work. If you can’t find enough money for a modest emergency fund plus a bit extra to tackle your debt, it’s time to start talking to people who can help.

The National Debt Helpline is an excellent first port of call. Not only can you organise a free and confidential chat with a financial counsellor, but its website is also full of useful information.

It’s a good idea to reach out to your creditors too. It’s often possible to come to alternative repayment arrangements which give you a bit of breathing space. At the end of the day, organisations you owe money to would much rather hear from you than not.

And while it may not be some people’s first thought, speaking to your bank is also a sensible move. You are, after all, a customer, and it’s in their interests to help you. Many banks, including Great Southern Bank, have some sort of financial hardship program.

Debt consolidation loans

When it comes to paying down debt, there are a number of options. A debt consolidation loan can help combine and pay off multiple high-interest debts such as credit card balances, car debts and other high-interest loans. Having a single repayment with a lower interest rate and fewer fees can help you pay your debts off faster.

The importance of checking your credit score

Before you apply for a debt consolidation loan, it’s a good idea to check your credit score. A successful application depends in large part on having a good credit score. As credit scores are based on factors such as your credit history (e.g., how you’ve managed previous credit repayments), your credit profile (e.g., the age of your credit file), and how many and what types of credit applications you’ve made in the past, a personal loan might not be a realistic option for someone experiencing financial difficulty.

You’re entitled to a free credit report, which includes your credit score, every three months. Equifax is a credit reporting body (CRB) that can provide you with your free credit report.

Alternative ways to accelerate debt repayment

If you don’t feel that debt consolidation is appropriate, there are a couple of alternative strategies for accelerating debt repayment. These are known as the snowball and avalanche methods. Choosing the right one is largely a matter of psychology because while the avalanche will save you more money in the long run, it can be challenging to stick to. The snowball, on the other hand, creates a sense of positive momentum right from the start.

The snowball method

With the snowball method, you make a list of all your debts from the smallest through to the largest. Once you’ve factored in the expenses from your newly-optimised budget (which must include minimum repayments of all your debts), you then throw everything you can spare at the smallest. When that’s paid off, you move on to the next smallest and so on. The ‘snowball’ effect of knocking over increasingly large debts creates an incentive to keep at it until you’re debt-free.

The avalanche method

The avalanche method, by contrast, involves sorting your debts from highest interest to lowest interest, and focusing on the highest first. A quick look at the maths confirms that this approach saves the most money… but it requires a considerable amount of discipline, which might not suit everyone.

If you’re unsure which method to go with, it’s worth noting that a team of researchers at a leading American business school found that “people with large credit-card balances are more likely to pay down their entire debt if they focus first on paying off the cards with the smallest balances — even if that approach doesn’t make the best economic sense.”

Help is at hand

Financial difficulty can be stressful and overwhelming, but the good news is that there’s plenty of help available to those in need. As the success of R U OK? Day continues to demonstrate, reaching out and talking to someone is the best way to start tackling any problem, financial or otherwise.