7 hidden costs of poor financial health

7 hidden costs of poor financial health

Our decisions about money today have a direct bearing on our entire future, from relationships and health to where we live and our quality of life. Often though, these impacts are complex and hard to see.

The aim of highlighting the hidden costs of poor financial health is not to frighten you. Rather, knowledge is power – you can only avoid hitting the tree if you know it’s there to begin with.

Here are some of the hidden costs of poor financial health:

1. Homelessness

The 2021 Census showed the rate of homelessness is soaring among females – up 10.1 per cent, compared to 1.6 per cent for males.

Women over the age of 55 are now the fastest growing demographic for homelessness in Australia.

Divorce, domestic violence, or the premature death of a partner are often the triggers. Yet poor financial health is a common thread – these women sadly lacked the financial resilience to weather an unexpected crisis.

I once heard about a single nurse – a critical worker and valued member of society – living in her car and eating at soup kitchens, because a serious hand injury meant she couldn’t work to earn an income.

It can happen to anyone.

2. Love is blind

Joint finances are exactly that – joint. So, decisions about them should be joint too.

Yet, many women are left out of financial decisions under the stereotype that money is a man’s world.

The effects can be devastating: the partner who gambles away the couple’s life savings, poor investments that lead to strife, forced home sales, bankruptcy.

Joint visibility means two pairs of eyes to pick up anything that may be amiss. This means double the scrutiny of investments and expenses before they are committed to, and no unwelcome surprises about where money is going.

3. Passing on bad habits

Children learn so much from their parents, including managing money. Research suggests children have already learned the basics of money and its value by age 7.

Consider what example you are setting for your children about money: Are they learning its value and the effort required to earn it? How to budget? How to save? Or do they think it’s someone else’s responsibility or ‘tomorrow’s problem’?

Good money habits will be invaluable to them throughout their adult lives; poor habits could be devastating.

4. Runaway debt

Debt is now all too easy to accumulate – buy now pay later schemes, credit cards, cashless transactions.

Average household debt in Australia is now $261,492 – a 7.3 per cent increase last financial year alone, before most of the recent interest rate rises.

Unmanageable debts could see you lose your home and/or lead to bankruptcy. They also affect your credit rating, now and in future.

Do you know how much debt you currently have? Is it accruing or are you paying it down? Could you consolidate multiple debts to pay less interest? Are credit cards and bills paid on time to avoid interest and late fees?

5. Lost earnings

Many people are unaware they could enjoy more money to play with, without resorting to robbing a bank or taking a second job.

Here are some examples where you may lose earnings:

  • Unclaimed deductions: H&R Block estimates Australians lose $300 million annually – or $237.44 each – by underclaiming tax deductions. Poor record keeping means many people lose track of expenses and/or lack receipts as proof.
  • Loyalty tax: Banks, insurers and utilities typically charge existing customers more than new ones. Ask your incumbent to do better – at least annually – or find greater value elsewhere. (Loyalty tax could also be costing you financial loss from wage stagnation).
  • DIY: Tax and finance are complex. DIY may seem cheaper and easier, but because you simply don’t know what you don’t know, you’re probably missing out on savings, incentives and ways to grow your wealth.
  • Career limitations: Solid savings can assist career development and earnings growth, such as paying for additional training or supporting you while you study or navigate a career change.

Those funds, if invested, had the potential to earn thousands more.

6. Substandard retirement

A comfortable retirement doesn’t come by accident – it takes planning over decades.

This is even more important for women. Statistically, Aussie women live 4.1 years longer than men, yet factors including the gender pay gap mean we have less in super to fund our retirement.

Many women rationalise that “it’s okay, my partner has enough in super for us both”, only to be caught out when the relationship breaks down or their partner’s health deteriorates, draining those funds more rapidly than planned.

7. Physical and mental health

“Financial stress can lead to poor mental health,” said the Black Dog Institute.

“Ongoing stress about money has been linked to physical ill health too, such as migraines, heart disease and sleep problems.”

Such stress has a compounding effect. Poor physical and mental health costs more in medical bills, means more time off work, and impairs your decision-making capabilities, including about money. Long-term, it may make you chronically ill or even push you into an early grave.

Hence maintaining good financial health is an investment in your physical and mental wellbeing too – and vice versa!

Helen Baker, financial adviser

This article was written by Helen Baker, a licensed Australian financial adviser and author of On Your Own Two Feet: The Essential Guide to Financial Independence for all Women.

Helen is among the 1 per cent of financial planners who hold a master’s degree in the field. Proceeds from book sales are donated to charities supporting disadvantaged women and children.

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