From managing debt to navigating the ever-rising cost of living, it’s no secret that finances are a focal point of most Americans’ lives. There is a reason, after all, that an entire industry exists to help families manage their money well, from paying down debt to investing wisely. The adage that “money makes the world go around” has never been truer.
If finances have ever kept you up at night, you’re not alone. A 2015 study conducted by the American Psychological Association found that nearly three-quarters of Americans reported feeling some form of financial stress in a given thirty-day period. This is likely due to the sheer number of Americans who are in debt. According to a report by Lending Tree, in 2018, the average household with at least one type of debt owed approximately $144,000 – a number that, across the board, roughly equals the total amount of money in circulation throughout American banks.
However, despite the numbers, managing your finances does not have to cost you sleep – or years of your life. Here are ten ways to ensure you get the best of your financial anxiety before it gets the best of you.
#1: Devise a Plan
Mapping out long-term financial goals will help you keep your spending and saving on track as it will imbue all of your financial decisions with a greater purpose. Think about how you want to use your money in the future. For example, you may want to retire early, fund your children’s education, pay off your mortgage quickly, or invest in business ventures, Shark-Tank style. No matter what it is, your overarching purpose will keep you focused on the motivations behind all of your financial decisions, small or large.
#2: Confront the B-word
That’s right: The Budget. While creating – and following – a household budget may seem like additional work, it can substantially reduce your financial anxiety by showing you exactly where your money goes. To create an effective budget, be sure to draw up categories for both fixed and discretionary expenses and set aside time each month to review your expenditures in each category. Fixed expenses include items like your mortgage or rent, utility bills, and loan payments. Discretionary expenses involve variable expenses, like groceries, as well as luxuries and entertainment items like vacations and dinners out.
There are ample applications available to help you manage your budget. sites like Every Dollar, You Need a Budget, and Mint.com offer both free and paid services to help you organize your monthly expenses. However, there is no need to fork over funds for budget management software: an old-fashioned spreadsheet or even pen and paper will do. The key is to keep the information in a centralized place so you can review it regularly.
#3: Downsize Your Lifestyle
From your home to your vehicles, wardrobe, electronic devices, hobbies, and self-care routines, your lifestyle should, ideally, be proportional to your income. In other words, beware of living above your means.
If “living large” is costing you, consider cutting back. Can you live on less? Move to a more modest home with a smaller footprint? Drive a used car rather than financing the newest model? Shop secondhand rather than perusing the latest and greatest at high-end stores? Downsizing – or refusing to “level up” simply because everyone else is – can give you peace of mind in knowing you aren’t building an inflated lifestyle that you have to work hard just to sustain.
#4: Slash Spending
When was the last time you purchased something simply because it was on sale? Keep in mind that this is not a win if you didn’t need the item in the first place. Work hard to develop the discipline to say no to the random impulse purchase. Overspending is not only a surefire way to create a household full of items you don’t need, but also a drain on your finances.
To keep your spending in check, create a line item in your budget for discretionary items like trips, clothes, and dinners out. That way, you will be able to comfortably enjoy these small luxuries without blowing your budget.
#5: Plan for a Rainy Day
To prepare for contingencies, build an “emergency” account with three to six months of living expenses. Commit to only using this account for true emergencies. A Black Friday sale is not an emergency, not is a purely cosmetic home renovation project. Sit down with your spouse, partner, or financial advisor to devise a list of the items that constitute true “emergencies” and thus warrant drawing from this account.
#6: Seek Help
You don’t need to navigate your finances alone. Engage an accountant or financial advisor to review your accounts and discuss your financial goals. A professional can help you manage your finances as well as set – and keep – your goals. For instance, a financial advisor can help you determine whether your savings goals are realistic, advise you as to whether you are overspending on items like a mortgage or insurance, and educate you on how to invest more wisely.
Your financial advisor can be a lifelong partner for you, so choose wisely. To ensure you select a professional who is reputable and experienced, ask a friend or colleague for a recommendation.
#7: Find an Accountability Partner
Designate a friend, family member, or colleague to periodically check in on your financial goals. Encourage this person to ask you about your spending and saving patterns and whether you’ve reviewed your budget recently.
Knowing that someone will be checking on you can encourage you to stay on track when you’re tempted to overspend or make another unwise financial decision. This person does not necessarily need to know the intimate details of your finances such as your monthly income or your income-to-debt ratio: He or she need only have a basic understanding of your financial goals and the commitment to periodically check in with you.
#8: Track Your Progress
While it may seem stressful or anxiety-inducing to take a deep-dive into your finances, it’s empowering to take the reins. Don’t bury your head in the sand. Set up a recurring reminder on your calendar to conduct a quarterly financial review. During this review, consider not only your spending and saving patterns in the last few months but also your progress on your long-term financial goals. If it would be helpful, engage a friend or family member to conduct this review with you.
#9: Fund Your 401k
Saving for retirement can be a tremendously effective antidote to financial stress as it is a direct investment in your future. Keep in mind that there is only one way to fund your retirement: By effectively saving throughout your adult life. As such, it is generally wise to place excess funds like bonuses, gifts, or other windfalls into your retirement account.
There are various schools of thought about how much to save each month, but the number will vary based on your particular goals and the quality of life you hope to lead post-retirement. Speak with your financial advisor about a feasible savings goal for you.
#10: Always, Always, Always Focus on the Bigger Picture
Keep in mind that you build financial health and wealth over time. If you have a tough quarter or slip up on your goals, simply consider what went awry and redirect. Over the course of your life, several small, good decisions will add up to long-term success, so celebrate small victories as much as large ones. For instance, getting a small raise warrants just as much celebration as paying off a substantial debt. To keep yourself motivated to continue to make healthy financial habits, recognize what you do well just as much – if not more – than any mistakes you make along the way.
When you are tempted to stress about your finances, remember that you will not achieve your financial goals overnight. Whether you’re paying off debt or building a hefty retirement fund, accept that this will take time – and in the end, your efforts will pay dividends.
Taking the Reins
Financial stress is not all bad. In fact, some anxiety can motivate us to make smart decisions. However, financial stress should not control your life. If it is, seek help. It’s never too early (or too late!) to make positive habit changes.
No matter your particular financial goals, know that financial peace is not about winning the lottery or tripling your income: It’s about developing financial literacy and then taking control. Your circumstances do not necessarily need to change dramatically, but a few simple mindset – and habit – shifts can set you up for long-term financial security. In paving the path to financial freedom, develop awareness, budget wisely, and above all, reassure yourself that this is a long game.