Unexpected situations such as the loss of a job, a costly car or home repair, a decrease in household income, or hefty medical bills can upend your finances – and undermine your financial confidence, too. Even small financial crises can be damaging if you don’t have an emergency fund. According to a survey conducted by PYMNTS and LendingClub, 54 percent of Americans don’t have an emergency fund, including many who earn more than $100,000.
With financial strain comes tremendous stress. Getting your finances in order is about more than paying your bills – it’s about financial freedom and the peace of mind that comes with it. In the article below, I explore eight strategies that can help reduce your financial stress and take back control.
#1 Look at Your Finances Objectively
Sit down with your spouse, partner, friend, or trusted financial advisor and take a hard look at your entire financial picture. Try to take the emotion out of it. Look at all the positive and negative assets you have and develop a comprehensive list.
What positive assets do you have?
- Bank balances
- Cash
- Retirement Accounts
- Investments
- Term Deposits
- Home Equity
- Vehicles (if you own them)
- Electronics
- Jewelry
What negative assets do you have?
- Personal Debts
- Bank Loans
- Car Loans or Leases
- Home Mortgage
- Credit Cards
- Student Loans
- Negative Bank Balances
Be sure to consider all the income you have coming in or to which you are entitled, including any severance packages, Social Security benefits, retirement funds, or government payments. These are resources you can use if needed.
#2 Make Peace with the Present Situation
Now that you have a good understanding of where you are financially, you can begin to put a plan in place to achieve your goals. If you are unhappy with your current financial situation, find a way to accept the current state of things. Doing so will help you move beyond it, rather than ignoring issues and possibly burying yourself in even more debt.
If your finances have changed significantly, you may need to make changes at a similar scale to find some balance. You may want to consider trading in your vehicle for an older – but still reliable – option. You may also explore downsizing your home or moving to a community with lower taxes.
SEE ALSO: Six Money Moves for Women Who Want More Financial Security
#3 Craft a Financial Plan Unique to You
Without a plan, a goal is just a dream – and while dreams are important, they don’t necessarily translate to your reality. Instead, you can take action by making a financial plan. Having a clear set of steps means you’ll be more likely to reach your goal.
Before you draft up a financial plan, think about what you want to achieve and break it down by time frame: short-term, medium-term, and long-term. Savings and debt repayment plans should be included as key components of your plan. If you’re just getting started, here are some potential goals broken out by the time frames we mentioned above.
Short-Term Goals – What Can You Accomplish in the Next Year?
– Pay off all credit card debt
– Establish an emergency fund of at least $1,000
Medium-Term Goals – What Can You Accomplish in the Next Few Years?
– Pay off any vehicle or product loans
– Increase your emergency fund so that it is equivalent to three to six months’ worth of your household income
– Ensure you’re making regular retirement contributions
– Explore insurance options that fit your family and needs
Long-Term Goals – What Can You Accomplish in the Next Few Decades?
– Increase your emergency fund so that it is equivalent to nine to twelve months’ worth of your household income
– Increase your retirement contributions if you can
Once you have your goals determined, set up an action plan to achieve them. As you begin, reducing your spending to a minimum is critical. This will help bolster your efforts to pay off debts and increase your savings.
#4 Reduce Expenses
Just as I mentioned above, getting back on the road to financial empowerment requires effort. You will need to figure out where you are currently spending your money and ask yourself whether each new purchase is a need or a want. Do you truly need that item, even if it’s a great deal? Basic needs are food, shelter, and utilities. Once those are covered, you can turn an eye toward your discretionary spending.
Here are some ways to reduce your expenses:
- Cook your own meals
- Make your own coffee
- Drink filtered tap water
- Spend your leisure time at home or outdoors
- Buy used instead of new when appropriate
- Walk, ride your bike, or take public transportation when possible
Impulse buying and reflex spending can mean lots of unintended expenses for purchases that are unnecessary or not thought through. If you can limit this kind of spending or eliminate it entirely, you can make significant strides toward hitting your savings goals and reducing your debt.
Many people spend money emotionally. Try to take away the temptation by spending more time at home. When you think about it, you’re already paying a good deal to be there, so make the most of it. Have game nights and eat in instead of dining out. Commit to drastically cutting your spending for a week and see how much you can save. Then, do it again the following week. And again. You will be seeing the financial benefits in no time, which will provide motivation to continue.
#5 Develop a Budget – and Follow It
It’s a concept that may sound boring on the surface. In reality, budgets are an amazing tool you can use to take proactive control of your finances. Having an established budget will also help you be accountable for your spending, and it should curb impulse spending significantly.
If you’ve never had a budget before, start with the basics. Whether you want to use a spreadsheet format or simply a piece of paper, determine your monthly income and monthly expenses. Then, add the details but try to keep your budget tight. List out your expenses, starting with the necessities: monthly costs for shelter (mortgage or rent), food, and utilities. With the remaining balance, set aside money for savings, debt repayments, donations, and discretionary spending.
The goal is to have no balance left. That may sound counterintuitive, but by accounting for every single dollar, you’ll limit the chances of spending money unintentionally. Every dollar will have a purpose, and your overall budget will be propelling you toward achieving your financial goals.
Making a budget and following it can be a challenge at the beginning, but it will ultimately reduce your financial stress. Even if money is tight right now, you can figure out how to live within – or even below – your means.
SEE ALSO: The Dirty Dozen
#6 Consider All Available Resources
Personal finances are a difficult and often emotional topic but reaching out for help to navigate your finances isn’t a sign of failure or weakness. It shows that you recognize your situation and want to do something about it. Plus, by reaching out you may gain access to resources that can help ease the financial burden you’ve been shouldering.
Although the COVID-19 pandemic is still economically affecting many individuals and families in the U.S., many of the federal relief programs put in place have now expired. However, there are still some programs that are active and could be helpful, such as federal emergency rental assistance.
Additionally, you can decrease or pause your contributions to your retirement accounts for a short period if needed. That little bit of extra income can make a difference to help you get back on your feet, but this should not be a long-term solution. You could also look into the early release of retirement funds, though you should explore any tax implications before going that route.
If you do receive relief funds, be sure to consult with a trustworthy financial advisor about how to best use those funds. They are often one-time relief funds, and once the money is gone, it’s gone. Be sure it has the maximum positive impact on your financial situation.
#7 Explore the Potential Upside of Bankruptcy
This might be the scariest b-word out there in the world of finance: bankruptcy. Most people are familiar with the downsides of filing for bankruptcy, which often includes the loss of property such as your home, vehicle(s), and other items of value. Bankruptcy will also show up on your credit report, possibly for as long as a decade, affecting your likelihood for loan approval or upping your interest rates if you are approved.
But there are different types of bankruptcy and plenty of complexities in each. In certain situations, it can be the right financial decision. Working with a bankruptcy attorney can ensure you correctly navigate the process.
Before taking this serious move, explore all your alternative options. Consider a debt consolidation loan or look into government-approved credit counselors or debt management plans. Approach your creditors and loan providers to see if they are willing to negotiate repayment terms that are more manageable for your financial situation. Ask your bank about its policy for economic disaster relief.
I can’t stress this enough: Filing for bankruptcy should be a last resort once you’ve exhausted all your other options. If it is the right choice for you, it will provide a clean slate and ease the burden of crushing debt. However, it will come with serious consequences.
#8 Get Started Now
If you are struggling with your finances, there’s no reason to wait to start making these changes. Like so many other endeavors, getting started is the hardest part, but it doesn’t have to be a monumental leap. Start by writing out your list to see your full financial picture, creating your budget, or applying for a debt relief program. Once you start down the path of regaining control of your finances, you’ll feel more empowered to take the next step – and each will be easier than the one before.
Concluding Thoughts on Reducing Your Financial Stress
Just as no two people are exactly the same, there is no one-size-fits-all solution for financial stress. The strategies above can provide a guide for how you can start approaching your money concerns, but if your financial situation is more complicated because you own a business, have additional properties, or are struggling with severe debt, you should consult with a financial advisor to help you develop a plan.
At Flourish Wealth Management, we are committed to empowering women to write their own money stories by taking control of their finances. If you feel like you would benefit from talking with me or a trusted member of my team at Flourish Wealth Management, make that your first step and reach out to us today.
