Many pinch points can create financial stress – like debts, tight budgets and major life events such as kids, marriage or retirement. It can also add to your stress when you see neighbours with the latest cars, and their children with the latest toys, and wonder why you’re not able to keep up (not always easy to admit those feelings to yourself). Of course, the reality is that there’s no way of knowing how they are affording those things, and many will actually be in worse financial shape than you are.
Whatever the causes, financial stress is one of the largest stressors on relationships, and when you’re stressed it affects many other aspects of your life.
Recognising issues such as outgoings exceeding income, and an inability to afford extras such as nights out, is an important part of realising you’re financially stressed. A good place to start is thinking about what you feel about some areas of your own finances – are you feeling disengaged or nervous about any of them? If so, you have financial stress that needs to be resolved.
We’ve put together ten steps that you might find helpful when taking control of finances.
A partner or family member can be a good starting point – and it’s especially important to be on the same page as your partner. That means you’ll be ready to start taking appropriate steps. Professional advice is also important for some issues. Factors behind stress can be complex, and a professional can often spot solutions that may be harder to find on your own.
A budget allows you to decide when and how you are going to spend your money. Either start from scratch, or review an existing one if you’ve done it before. Elements such as cashflow and household spending are key when you are trying to work out how much you have to spare. Monitor ongoing spending against your budget, so you are better placed to understand future expenses. Review debt repayments – and when possible, repay debt earlier than you actually have to, which saves a significant amount in interest payments and leaves you with more future cashflow.
- Save and invest
When you know your own financial position well, plan to spend 90% of your after-tax income, so you can save and invest the remaining 10%. The 90% includes your mortgage and super – the 10% should be on top.
- Prepare for emergencies
Start building up an emergency fund: money you have to set aside to cover unexpected expenses and financial emergencies. If you know you can tap into your emergency fund to cover things like car repairs, a lot of the stress will go away.
Keep all finance-related paperwork in a proper filing system – that means everything from current account statements through to superannuation statements, estate planning documents and previous years’ tax returns. Essentially, if it involves money, you should know where to find it.
- Change your mindset
You might think that having more money solves financial stress. It doesn’t necessarily – in fact often the more money you have, the higher the financial stress. The real key to dealing with financial stress is to change your behaviour towards money. Spend smarter, invest more, and save some.
- Create a safety net
That means buying the right insurance for general items such as car and home and for personal factors such as life insurance and income protection.
- Plan for your retirement
Ignoring it won’t make it go away, and starting to be proactive sooner rather than later will not only reassure you that things are in hand but also give you time to benefit from compound investment growth.
- Get your estate in order
Like retirement, this is an issue that benefits from a little bit more thought sooner rather than later. Completing or reviewing your Will means you can be sure that if the worst happens, events will go the way you want them to go. You might also want to think about powers of attorney and guardianship.
- Set financial goals
Goals provide a sense of purpose and are the foundation for achievement. Financial goals often relate to the causes of stress e.g. being debt free, living the retirement you want, protecting income if the unexpected happens. By having clearly defined financial goals and a plan to achieve them, you are more likely to have financial peace of mind.
Every stage of life has its own financial pressures, so dealing with financial stress is a moving target. However, the steps above will help to reduce stress.
If you need more expert input, talk to our Wealth Management division, Accru Middletons Securities. We are experts in helping people with financial stress and can give you some practical steps to help you see a better way forward.