Taking the Stress out of Finances
Americans are more scared of talking about money than dying. That was the conclusion of a 2014 Wells Fargo study that found 44% of Americans pointed to personal finances as the most difficult conversation anyone can have. Naturally, this attitude presents a problem when a majority of employees surveyed by PwC’s 2020 Employee Financial Wellness Survey listed finances as their number one stressor.
The COVID-19 pandemic has only exacerbated this issue with the unemployment rate quadrupling from a modest 3.8% in February to nearly 15% by May 2020. Even those of us who haven’t lost our jobs are feeling the pinch of these unprecedented economic conditions. Stressing over money can become a self-fulfilling, viscous cycle, affecting a person’s mental and physical health. Powerful feedback loops exist between your financial, physical and mental health. Ignoring your financial challenges will likely lead to serious health consequences over time.
So, if we’re in agreement that something needs to change, let’s rip the bandage off, shall we?
Become Aware of Your Money
“Know your numbers” is a popular slogan used by health care companies for understanding your physical health metrics (BMI, cholesterol, blood sugar, etc.) This couldn’t be more applicable to your money. In order to develop a healthy relationship with our money, we need to understand exactly how (and when) we’re receiving it and where it’s going. This was unsurprisingly the first conversation my wife and I had with our financial planner six years ago. (I was lucky to have a good friend help us pro bono.) In the spirit of transparency and combating the stigma, I will shamelessly admit that as a 27-year-old I dreaded the idea of creating and sticking to a budget. In fact, any time my wife brought it up, I quickly changed the subject or tried to downplay the benefits. I was scared that a budget would somehow change reality, cause fights or simply be too complicated to be worth the trouble. I was wrong. As it turns out, being open, honest and accountable with your finances only strengthens your relationship.
Whether you’re deep in debt or swimming in riches, creating a budget is necessary for your financial well-being. The components of your budget (various sources of income and expenses) will come together to form a clear picture of your financial identity. You may not like this picture, but the numbers won’t lie. No amount of number crunching will change reality, just ask Michael Scott from “The Office.” As humans, we naturally seek to preserve our self-image and put the blinders on when something (or someone) disagrees. Whether it’s death by a thousand Uber charges, food delivery fees or expensive cocktails, a budget will force a level of awareness of your unique financial blind spots. You’ll become aware of opportunities and restrictions, as you work toward making money a subject of pride – not shame – in your life.
We wouldn’t be fully aware of our finances without knowing our credit score and understanding how to improve it. There are many benefits to having a good credit score, including the ability to borrow money, rent a home or apartment and even secure a new job. You and I understand that you’re much more than a number, but lenders won’t. Nothing is more frustrating than having the money to pay your bills on time but letting due dates fall through the cracks. If you know your credit score, and want to improve it, take a look at these 12 steps to repair your credit and increase your score.
Becoming financially self-aware will put you in a position of power when it comes to your money.
Prioritize Expenses and Savings
In order to achieve any financial goals, you’ll need a baseline strategy to implement. Having a plan will create the structure your money desperately needs to grow (with interest!). I even found this article on prioritizing your financial goals and obligations to get you started. You’ll find varying opinions and advice regarding prioritization out there, but all the good ones acknowledge the importance of an emergency fund, saving for retirement and paying off any debt first. Each one of us is in a different situation and must make our own financial rules and adjustments. Your financial priorities will change throughout life, especially if you plan to get married or have children. So, it’s important to revisit your method and adjust it accordingly.
Set Goals and Take Action
Now that we fully understand what’s happening with our money, we get to decide what we want to do with it. This is the exciting part! Creating realistic goals with regular action items will give us a sense of control and fulfillment. From a psychological perspective, it is recommended to start with small goals (both in timeframe and effort required) as doing so increases your chance of success and likelihood of attempting and completing larger ones. Your financial goals should reflect your lifestyle (or one within reach) and what matters to you. Nothing will demotivate you more than setting unrealistic goals that don’t make sense for your life. In addition to starting small, Principal Financial recommends prioritizing goals into categories of critical, need and want. Whether you’re saving for a down payment on a house, paying off student loans or funding your start-up business, setting financial goals will help you get there.
If you’re interested in leveraging the latest technology on your financial wellness journey, check out Our Favorite Tools to Stay on Top of Your Financial Life.
Senior Data Analyst, Marketing, Daniel Beringer is a husband and father of two young boys and one anxious rescue dog. He enjoys discovering new recipes, binge-worthy TV, being physically active, talking about feelings and playing poker in his free time.