Uncover the Root Cause of Your Debt Stress
When you struggle financially and suffer from debt stress, life gets difficult. Let’s talk about how you can begin to chip away at debt stress by understanding the four factors that impact and influence your financial stability.
Getting to the Root of Your Debt Stress
As challenging as personal finances can be at times, the only way to improve financial behaviors and develop healthy money habits is to truly uncover the root cause of your financial stress. This means taking the time to intentionally track, measure and analyze your current habits and routines.
Only you can do this for your own wellbeing.
Others can help you through the process, but you must own it. Consider your own personal circumstances and priorities.
There are primarily four different factors that impact and influence your financial stability and decision-making ability:
- socioeconomic characteristics
- financial learning experiences
- psychological influences
- personal biases
Some of them you can control, others you can’t. Learn more about each to uncover the root cause of your debt stress.
Finding Strength from Your Own Roots
“Storms make trees take deeper roots.”
You don’t get to choose the circumstances of your birth, heritage or upbringing. Socioeconomic factors in childhood shape learning experiences, opportunities and our sense of self. They shape you but do not define you. Each personal experience offers a lesson on becoming resilient, resourceful and confident.
What are some of the strongest memories you have from your childhood and youth? Who impacted you the most?
Find ways to acknowledge your story, the joys and the pains. Use your past to propel you forward.
Not sure how to get started? Take our free financial health test to see what you’re rocking – and simple ways to ease your debt stress!
Learning through Life’s Lessons
Another factor that impacts your financial health is the diverse learning experiences you have had. Some learning experiences may have been formal, while most tend to be informal. We learn attitudes and behaviors about money, wealth, debt and financial failure through personal experiences.
Think about some of your beliefs and positions on financial matters.
Where did you learn about them? Who are you trying to emulate and why?
Financial learning experiences are instrumental in building healthy financial habits. Give yourself permission to ask questions, expand your financial know how and define your own goals.
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Identifying Psychological and Emotional Influences
As human beings we tend to lean towards irrational decision-making, especially when we’re in a hurry or under significant stress. Snap judgments and auto-pilot attitudes can wreak havoc on personal finances. This is one of the biggest root cause of debt stress.
In Behavior Economics there is a concept called “Mental Accounting Bias” – from the work of Richard Thaler. Basically the concept states that people treat money differently based on its’ origin and intended use. People think about money in relative terms rather than absolute. We are really good at being overly optimistic and irrational when it comes to our money habits.
This is the phenomenon that makes it easier to put something on a credit card, when you might not buy it if you had to use cash. (Can you feel your debt stress rising just thinking of your credit card bill after some bad mental accounting?)
Another Behavior Economics concept that impacts our financial health is “Herd Behavior“. This is when you make a financial decision based on what others are doing rather than aligning your decisions with your personal goals, circumstances and needs.
This is everyone rushing to buy AMC stock because Twitter told them to or spending way too much money on the “must-have” toy for their child, even if they can’t really afford it.
It can feel smarter to follow the crowd, but taking the time to learn and decide for yourself will always lead to better outcomes.
Take time to reflect on your psychological influences when it comes to making financial decisions. Learn how to recognize when you are being swayed by what others are doing or by how you are feeling in that moment.
Check Your Personal Financial Bias
The fourth factor that impacts your financial health is your personal bias. These are your default choices based on past experiences or hearsay, and not based on facts. Personal bias can be challenging to identify and overcome. Finances are deeply personal and we want to believe we have it all figured out and under control.
Familiarity bias can increase risks and limit opportunities to improve your personal net worth. This tendency towards the familiar might feel safe by sticking with what worked in the past, but can create financial instability.
This behavior is best reflected in your daily routines that go unchecked. Auto-pilot may seem to save time in the short-term, but can definitely steer you off course in the long run.
Confirmation bias is another tendency to look out for. Basically you seek out resources and information that support your beliefs, what you want to be true – whether or not it is. Take time to look at the evidence and information from different sources when making important financial decisions.
A great example would be when you ask your friends for advice, knowing that they will most likely give you the answer you want. They just want you to be happy.
Building healthy financial habits takes both planning and practice. By understanding the root cause of your financial stress, you will be able to develop an action plan focused on your specific needs and goals.
Financial solutions are not a one size fits all proposition.
In order to last, a solution needs to be tailored to target your specific issues.
A quick review:
- You can only reduce debt stress once you know its root cause.
- Socioeconomic characteristics, financial learning experiences, psychological influences, and personal biases all influence your financial stability and decision-making ability.
- Financial solutions are never one size fits all!
Ready to Take the Next Step?
Sometimes it can be incredibly challenging to stay focused and committed to building a life you love. If you are feeling overwhelmed and looking for support, check out our Individual Financial Coaching program and schedule your free 15-minute session today!