Everything You Need To Know About Financial Trauma.

Estimated reading time: 12 minutes

Do you struggle with salary negotiations? Does the thought of talking about money give you anxiety and make you uncomfortable? Well, you could be experiencing financial trauma. Don’t get me wrong, it is normal to be reluctant to talk about money. However, when there are negative emotions in place, it could be financial trauma. So what is financial trauma, what causes it, what are the signs and how do you deal with it? Well, let’s talk about it today.

What is financial trauma?
Where does financial trauma stem from?
Symptoms of financial trauma
- Being underpaid.
Underspending.
Overspending.
What is the impact of financial trauma?
Key takeaway.

What is financial trauma?

An article in Forbes Women defines financial trauma as when “expenses outweigh income for an extended period of time.” The article says one-third of millennials have experienced it.

Another definition is “Financial trauma is a financial wound or injury that can cause disruptive behaviors with money,” explains Stephanie Genkin, Certified Financial Planner (CFP), Certified Financial Therapist (CFT-1) and founder of My Financial Planner, LLC. “We tend to think of trauma as something extreme, but it’s not limited to dramatic events.”

Dr. Galen Buckwater, a research psychologist studying our relationships to money, defines financial trauma as, “the physical, emotional, and cognitive deficits people experience when they cannot cope with either abrupt financial loss or the chronic stress of having inadequate financial resources.” The key here is that it is chronic, meaning the stress that you experience around your finances occurs over a long period of time.

The simple definition is that financial trauma is the inability to cope with financial deficits over a prolonged period of time.

Where does financial trauma stem from?

Financial trauma can be caused by:

Bankruptcy
Job loss, unemployment
A failing business
A breakup or divorce
Benefits running out
End of alimony or child support
End of assistance or disability coverage
Death of a family member
Inheritance of toxic money beliefs
Chronic debt
The sudden loss of a job
The loss of a home
Unstable income
A chronic inability to pay all of the bills
Low-wage work
Entering the job market during a global pandemic and recession.
Downsizing.
Increase in debt
Lack of resources. Not being able to provide for your family can cause financial trauma. And again a lack of access to health insurance and medical assistance when in need can also trigger financial trauma.
Financial discrimination. This is where, because of marginalization, you fail to obtain gainful employment.

One thing to note is that financial trauma cuts across socioeconomic status. This means that it can affect both the wealthy and the financially challenged.

Symptoms of financial trauma

Being underpaid.

This is especially true if you find you cannot advocate for a pay raise with your employer. And especially if you have been in that organization for a long time. You should get rewarded for your effort and you should not be afraid to ask for that. Your view of money, your background, the fear of rejection are some things that can make you avoid the conversation of getting a raise. There are some signs that show you if you are due for a raise and they are.

When the market rate for your job is higher than what you are being paid, you should consider asking for a raise. Doing market research in this case is key and you should be very objective about it. Especially if you have the skills and experience that warrant that raise. You should also not be afraid to ask for a raise when there is a competing job offer on the table.
When the company is doing well and you can show how you contributed. In this case, you need to have data and facts that you can quantify. Maybe it is a product that you helped develop that has led to revenue growth. Use that. Whatever quantifiable advantage you have, you need to use it to state your case and get a raise.
If the company promotes you and adds more responsibilities, this might be a time for you to ask for that raise. After all, the added responsibilities take up time you could use to do something else.
When you are the only one skilled in a task that is business-critical, it might be time for you to ask for a raise.

How then should you go about asking for a raise?

Collect all the positive performance reviews you have received in the last year or so. These include emails and other documents that show clients or supervisors commending you for a job well done. This is why it is important to do a self-evaluation to track your accomplishments as they happen. This will help you have all the facts ready when you need them. You can only remember details of what you are aware of. Review your work frequently.

Have the data and facts to back up your claim. Having concrete evidence will help you curate a better ask. Some questions that will help you include. How has the company or department directly benefited from your work? Be specific. Was there an increase in efficiency? Or customer retention? Use that to ask. Can you prove your team led to increasing in sales in a particular quarter? Were you part of a major project in your company and what role did you play? What was your contribution to that project? These questions will help you better your Ask.

In what ways will your company benefit in the future? Should your employer give you a raise, how will you benefit the company? Think about your role in that company in the future. Your employer wants to see that you are in it for the long haul. And how will you benefit your boss moving forward? It is great to have past accomplishments. Your employer wants to know how you can benefit him going forward. Have a specific answer.

Have a number. What salary do you expect from your employer? Don’t be afraid to give your employer a number. And again, don’t ask for an exorbitant amount. Be factual. In fact, it is best to look at the industry average and give a number that falls within that range. It shows that you did your research.

Underspending.

This is characterized by extreme frugality. This is when you find yourself unwilling to spend on anything. The root cause is usually fear. And the fear stems from your background. Maybe you came from a family that struggled financially and had to make ends meet. You might find that you struggle to spend because of the fear of going back to that state.

One thing about an under-spender is that they are always unhappy and full of anxiety. It is one thing to be anxious of the future in turbulent times. It is another thing to be anxious because you have a scarcity mentality. A scarcity mentality is where you feel like money will never be enough and so you focus more on keeping it than spending it. Especially when spending it is beneficial to you. When you realize you cannot enjoy your hard-earned money even when you can afford it, then you might be an under-spender. And some signs that you are an under-spender include.

The 6 biggest financial mistakes Christian millennials should avoid now!

You spend on lower-quality items even when you can afford to get higher-quality items. Do you find you struggle to buy that more durable and quality shoe and instead go for something of lower quality although you can afford to get the better quality? Don’t get me wrong, there are situations where going for the lower-quality item makes sense. But when you make it a habit, then you might be an under-spender.
Do you avoid spending on what you deem as unnecessary things? Do you wait until something is really broken before you can fix it? Or do you try to DIY things that you have no business doing? Maybe you avoid going for routine checkups because you feel it is a waste of money. Or maybe you have not come around to doing maintenance on your car or house because you feel it is not broken. This could be a sign of an under-spender. The problem with this is that in the long run, you end up spending more than you would have if you had just done it routinely. What’s the point of losing your teeth because you don’t think a dentist’s visit is worthwhile? Would you rather spend it on getting veneers?
Do you hoard items that are broken because you don’t want to let them go? Maybe you have a store where you keep all the broken items you know you will never use. What’s the point of doing that? Do you feel like you might need them later? Or maybe you feel like when you throw it away you will have thrown away the money you spent.

How then do you overcome the underspending habit caused by financial trauma?

Identify the root of your fear. Being aware of where the fear is coming from is key to overcoming underspending caused by financial trauma. What is your money story? Did you grow up hearing scarcity every time money was mentioned? Maybe you went through a traumatic financial situation, the loss of a job, homelessness, or simply seeing your parents struggle to make ends meet. Regardless, it is important to understand where the fear stemmed from. Once you have identified the root cause, it is important to rewrite that narrative. Recognize all the positive steps you are taking to overcome financial difficulties. And remind yourself that even if the worst happened, you will bounce back since you did it before.

Diversify your income. Having more than one source of income will help ease your anxiety. You will realize that even if one were to fail, you will still have other sources to cushion you. Talk to a professional financial advisor to help you with that. You might even opt for professional wealth management. Don’t be afraid to invest as long as you understand the concept of risk and its nature. Again, it is important to note that just because something happened before does not mean it will happen again. You are wiser now and you have a professional helping you out.

Recognize that money is a tool to help you live a good life. View money as a tool and not the end goal. It is okay for you to spend on yourself and invest on yourself. Take that hobby you have always wanted to do. Network and don’t be afraid to spend if you are going to meet someone. Look good. After all your appearance matters. Fix the car and that home. Go on a vacation. Live life and stop allowing your past to dictate you present and limit your future. Look forward.

Have a budget and stick to it. A budget will give you a snapshot of your financial position. Stick to it and make provisions for enjoying life. Remember this, as long as you have budgeted for it, you can spend it. Don’t be so hard on yourself.

Check out this tool for personal budgeting.

Overspending.

Overspending, on the other hand, is overcompensating for what you lacked as a child. Do you feel the need to always buy the latest gadgets, designer outfits, etc, and overlook your income? You could be an overspender. And just like an under-spender, an overspender’s behavior stems from financial trauma. They might want to buy all these things because they lacked them as a child. Or to try to cover up their perceived insecurities. Signs that you might be an overspender include.

When your budget does not add up, it could be a sign that you are an overspender. A practical example would be spending $200 on clothes, yet your budget was $100. The extra $100 comes from somewhere and you could be taking away from crucial expenses.
When your expenses increase as your income increases, it could be a sign that you are an overspender.
Is your debt more than your income? Then it could mean that you are an over-spender.
You only pay the minimum amount on your loans.
Do you splurge on fun stuff but avoid bills and expenses? This could be a sign of overspending.

How can you overcome overspending caused by financial trauma?

Have a budget and stick to it. Having a budget will help you know what you have and what you can spend after meeting all your obligations. To ensure that you stick to it, you might need to have an accountability partner to help keep you on track.

Check out this tool for personal budgeting.

Set short-term financial goals. Having a goal will give you the structure you need to curb overspending. After all, how will you spend what you don’t have? Having a financial goal will also ensure that you put the excess funds to good use. As you set the financial goal, ensure that you have a big enough why that will help you stay motivated when you are tempted to quit along the way. To learn more about this, check out my blog on how to set financial goals.

Seek professional help. You might need to have a financial coach and/or therapist to help you deal with the financial trauma you have experienced. And again, it is important to identify the root of the problem so that you can rewrite the story you tell yourself. Working with someone will help you learn how to overcome your financial trauma, leading you to make better financial decisions.

What is the impact of financial trauma?

Work impairment: Studies show money trauma can cause cognitive and health symptoms that impair the ability to function well at work, reducing productivity and increasing the likelihood of errors or accidents.
Physical health conditions. Prolonged stress can lead to high blood pressure. This is because of the hormone released that is stress-related.
Family dysfunctions. Because of differing views on money, families can disintegrate. Finances are one of the leading causes of divorce. An over-spender married to an under-spender will have a rough marriage and this can affect their children as well.
Gambling. Sometimes gambling can be because of financial trauma.
Substance abuse.

Key takeaway.

Financial trauma is real and, if not dealt with, it can lead to a lower quality of life. Awareness is essential in this journey of overcoming financial trauma. Eliminating emotional decision-making in financial matters is essential in overcoming financial trauma. The beauty of life is that we can always reinvent ourselves. Leave in the comment below if you have dealt with financial trauma. And how you have dealt with it. Remember, you can always rewrite your story and give it the ending you so desire. And while you have no control over your past, you have control over your future. And remember, God has got your back so you are never alone. Step into that person who is free and whole and live life to the fullest. Your past is behind you. It is time for you to move forward.