This post is by our regular contributor, Erin.
Who hasn’t felt stressed about money at some point in their life?
72% of adults feel stressed about their finances at least some of the time, while 26% feel the strain most or all of the time, according to a study by the American Psychological Association.
If you’re reading a personal finance blog, I’m going to guess money is on your mind more often than not. Welcome to the club. ;)
While it’s good to be mindful of your money, being obsessed with it isn’t healthy.
Stress affects us in ways we don’t even notice until it’s too late, and it’s a huge mental burden to carry around.
Tired of constant money woes? It’s time to put financial stress to rest – here are 7 ways to do it.
1) Start Tracking Your Spending
I’m going to go through this step-by-step as much as possible. Many Americans are simply worried about not having enough money saved for X. We’ll get to establishing an emergency fund, but it’s important to talk about tracking your spending first.
I wouldn’t even suggest budgeting without knowing where your money is going. Why? Because without that knowledge, you’re missing a key ingredient in your financial plan.
How can you know if you have money leftover at the end of the month to dedicate to your various financial goals without being aware of where it’s going?
Do you use a credit or debit card for most of your purchases? Then get yourself set up with Personal Capital – it will automate the process for you. You just need to connect your financial accounts there, and it will grab the data and display your recent transactions.
You can then go through and see if your spending is completely out of whack compared to your expectations (prepare to be surprised!). This is one of the most eye-opening things you can do when it comes to being financially prepared.
2) Figure Out a Spending Plan
Most of the time, stress comes from a lack of knowledge or perceived lack of control over your situation. It’s time to conquer that by creating a spending plan.
You are in control of your financial choices. You can choose to buy X and forgo that extra payment on your student loans. You can choose to become a homeowner without having an emergency fund. You can choose to throw caution to the wind and live life to its fullest by spending your life savings.
Or you can choose to be responsible. (It’s not as boring as it sounds, I promise.)
Creating a spending plan for yourself sets you up with a stable foundation. Take the information you learned from tracking your spending and set a realistic goal of how much you want to spend each month in each category. Or do something as simple as the 50/30/20 rule.
Whatever you do, give yourself guidelines to follow, but don’t lock yourself in a prison to the point where you regret it. As you’re going through this, try and focus your spending on your values. Cut out the things that don’t matter to you so you naturally spend less. The goal is to give yourself some breathing room.
3) Establish an Emergency Fund
A Gallup poll found that 60% of Americans were very/moderately worried about not having enough money to pay for medical costs in the event of a serious illness. We covered 10 unexpected expenses you need to watch out for already, but establishing an emergency fund is the best way to deal with this worry.
An emergency fund is reserved for true emergencies, like your car breaking down, a vet visit, a home repair, etc. It’s not used for when you’re “broke” and want new shoes. Typically, the advice given is to save 3 to 6 months of expenses, but you can start small with $500 or $1,000 and come back to it when you’re ready.
Trust me when I say that having an emergency fund is completely worth the sacrifice you may have to make to save. It gives me peace of mind, which translates to not stressing as much when something comes up.
Speaking of saving, we have a list of ideas here that you can use to be smarter with spending!
4) Become a Conscious Consumer
What I mean by this is start questioning your purchases. Start with this list of six questions to ask yourself when you’re contemplating buying something, and then try practicing delayed gratification.
If you’re an impulse shopper, this will greatly help reduce the amount of spending you do. If you’ve been worried about not being able to pay your rent or mortgage, other regular bills, or making the minimum payments on your debt, you need to keep your spending in check.
Think of it this way: if stressing less about money is important to you, you need to do right by yourself and your wallet. The initial pain of forming new and good spending habits is worth it in the long run if you want to keep your sanity.
5) Get Clear on Your Financial Goals
Many people try to do this “money thing” without a plan. That’s setting yourself up for failure immediately.
Take time to think about what’s causing you the most stress. Is it your debt? Is it not having enough money saved? Is it that you think you’re behind with saving for retirement? Do you want to move, but can’t afford it? A combination of some of these?
List out these stressors from biggest to smallest. A lot of times, money isn’t logical – it’s emotional. Some people choose to pay off debt instead of focusing on saving because they want it gone more than anything in the world.
Pick your #1 stressor and focus your efforts on it. Create a plan so that every financial action you take gets you closer to accomplishing the goal. The pieces of the puzzle should start falling into place.
6) Form a Support System
Sadly, sometimes the people we surround ourselves with are the cause of financial stress. Do your friends ask you to hang out at fancy places? Encourage you to go on shopping sprees with them? Tell you to go on vacation with them even though you can’t spare the change?
Evaluate how the people in your life are influencing you financially. Often, having a great support network can help to lessen the financial stress you’re experiencing. When most of the people in your life are on the same financial page as you, it makes things easier.
This is critical if you’re married or in a serious relationship, too. A saver/spender dynamic can be a challenge to conquer, but it’s not impossible. Make sure you’re taking these steps with your significant other!
If your situation is more complicated, something to consider is hiring a fee-only financial advisor to help you straighten things out. Perhaps you’re overwhelmed with all the goals you want to accomplish and have no idea where to start. They can provide a road map for you to follow, which takes a bit of stress off of you!
7) Educate Yourself
At the end of the day, it comes down to educating yourself. As I mentioned before, financial stress is sometimes caused by a lack of knowledge. There are a lot of moving pieces when it comes to money management, but once you start learning, things will become clearer.
Reading blogs and seeing how others deal with their financial situation is a great source of inspiration. Just remember that one size doesn’t fit all! You have to experiment to find a system that works for you.
____________________
There’s no reason to let money control you to the point where you’re worried about it constantly. The best thing you can do is take control of your situation. Educate yourself and take the necessary actions toward leading a better financial life, and your stress will naturally lessen. The hard work is absolutely worth it in the end!
What worries you the most about your financial situation? What steps have you taken to lessen that burden? What advice would you give others who are stressing about money?
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I just moved from a nice apartment to a not-so-nice apartment and it has been a huge stress reliever! My advice to anyone with money stress is to find a way to create more financial margin in your life!
These are all so key Erin. I think so much of it comes down to educating yourself – both of the basics and what your money is actually doing. So much of everything else flows out from those in my opinion. I know that was the case for me – once I started to know what to do and the basics of how to do it my stress levels started to fall back.
Great tips Erin! I’m a firm believer that relieving stress starts with #3 – getting that emergency fund going. Worrying about what financial emergency might come next is a great contributor to stress levels. If you know that at least a $1,000 emergency could be taken care of then it allows you to relax, think clearly and work towards your other goals.
Having an adequate emergency fund is the best way to avoid financial stress. Savings makes extremely stressful things seem like minor inconveniences.
All great tips. I have fellow co-workers who are always stressed about finances. Their main issue is overconsumption which leads to money issues and they don’t want to track spending or budget because they’re probably in denial of their money problems…or because the budget would tell them…hey you can’t spend that much!
Jaime Donovan You’re very right that there’s so much free information to consume, there’s really no excuse to not learn and take advantage of it. And blogs are typically much more fun to read than books you’ll find at the library!
Financegirl 100% with you, Natalie. That’s my plan when my lease is up! Rent is one of our biggest expenses, and cutting that is a great way to get more breathing room in the budget.
FrugalRules Definitely! I’ve been guilty of making financial decisions out of fear, but gaining more control via knowledge helps with that. I’m so thankful to have learned the principles of money management early on because the rest really does follow.
Brian @ Luke1428 Thanks Brian! I completely agree. I don’t know what I’d do without mine. Knowing you can handle most of what life could throw at you in way of expenses does SO much for peace of mind.
Eyesonthedollar That’s for sure! It’s why I made saving my #1 priority as soon as I was able to get a job, and I haven’t looked back since.
Andrew LivingRichCheaply This is sadly the case more often than not. I wish people would realize how much better their lives would be if they could start small and work their way up. It’s one of those things where once you get there, you’ll have wished you started sooner!
This is a great time of year to talk about emergency funds because many people will receive their only windfall of the year. If you bank that refund to establish your emergency fund, it can often smooth out an entire year. Even a moderate emergency fund of 3-4K can get you through some pretty rough patches.
Hannah UnplannedFinance Agreed! Using your tax refund to kickstart your emergency fund is great and can provide the extra push you need to make it happen. I think the barrier is just getting started. People think, “How am I supposed to save $X?” when they need to take it step by step. $1,000 or $10,000 doesn’t happen overnight. It’s a slow and steady buildup, unless you give it a boost with a windfall!
Having an emergency fund really gives me peace of mind. I also really agree with point #5. If there is a particular financial issue that weighs heavily on your mind, tackling that first will feel so good. Figure out what your stressor is and ignore “traditional” advice until you’ve got it handled.
Settle Your Finances Yes – that can be really hard to do in light of math and whatnot, but we all have to do what’s right for us. As long as we’re generally moving in the right direction (debt freedom, more savings, etc.) our strategies can be different!
I really like the term “spending plan” over budget. It seems more proactive and complete. A budget (to me) seems like an outline to live within…a spending plan seems like…well, a plan! :)
My biggest worries used to revolve around spending, our credit cards seemed to always ramp up fast and I had no idea what we were spending our money on. Tracking our expenses and questioning every single purchase was the biggest way that we gained control of our situation and now it’s just second nature and takes no time at all but the stress is definitely significantly less.
DebtChronicles Me too, Travis! That’s why I use it more often. Most people seem to have a negative reaction to budget so I try and stay away from it.
blonde_finance Exactly, Shannon! Questioning purchases is something I just…do. I never buy anything mindlessly, and that’s simply from years of doing it and having it ingrained at an early age. Tracking your spending can be a game changer, too!
I think the biggest source of stress is the emergency scenario I have in my head about a war erupting in the country. A few years ago that would have been a ridiculous notion to nurture but the last few years have shown that no country is safe from political instability and if the security situation depletes to the point of it being a threat to my life, I wonder if I will have enough money to leave the country and resettle myself without becoming a refugee. That stuff scares me. Of course, apart from having an emergency fund, there is little else I can do…
Fehmeen One of my biggest challenges has been irrational thinking as far as emergencies go. I don’t have too many liabilities and my student loan debt is almost gone, but I still think I need a huge emergency fund. I’m trying to get better at not saving out of fear, but it’s hard to do. Having savings is probably the best thing we can do to prepare for the worst, and just entertaining the possibility of “the worst case scenario” helps us prepare. But we can’t let it consume us. =)
I had not heard of the 50/30/20 rule until now. Very interesting, the idea that we must balance our wants and our needs accordingly. It seems a logical spending plan, but I’m not sure I would spend 30% of my income on wants (that’s a lot of wants I think). But I think the idea is stellar.
Enjoyed the read!
Laura Beth @ How To Get Rich Slowly Haha, same here! It’s an interesting concept and guideline to use, though. You can always adjust the percentages based on your usual spending!
I love #7 on the list. I wish I would have educated myself on money when I was in my early 20’s. I can’t dwell on the past, though. I’m also working on padding my emergency fund. That’s something that everyone needs.
Jason @ The Butler Journal It’s definitely not worth dwelling on the past, but hey, you still educated yourself at some point, and that will continue to benefit you forever! Some people never get to that point.
Great post, Erin!
Love the last point you made. Education and knowledge are key to having confidence in any area! Your confidence level can have a direct effect on your stress level. If you are tracking your money and know how to manage it well (through learning), you’re going to be much more confident and much less stressed.