A perfect storm of world events understandably triggers financial stress for the vast majority of Americans. In a recent survey conducted by the American Psychological Association, more than 80% of US adults said they experience increased financial stress due to:
- Higher inflation (87%)
- Ongoing supply chain issues due to the pandemic (81%)
- Global insecurity caused by the war in Ukraine (81%)
Additionally, the hardships associated with the pandemic – including poor health, loss of loved ones, difficult work and family situations, isolation and inconvenience – have hit the entire nation and the world. In the US, 63% of respondents said COVID-19 changed their lives forever.
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Table of Contents show
1. Tips to reduce your financial stress
2. Structure – and stick to – a budget
3. Be strategic and create a debt repayment plan
4. Prioritize saving money
Tips to reduce your financial stress
The financial toll of stressed employees has also had an impact on companies. A survey conducted by PwC found that 34% of employees across multiple industries said money concerns had a major to severe impact on their mental health in the past year; 18% said it affects their productivity at work; 38% of financially stressed employees said they were looking for a new job; and 37% of them had availed payday loans in the past year.
After all this increased financial stress, the obvious question is: how can you reduce it?
Structure – and stick to it – a budget
That’s an alarming number: as of early 2022, nearly two-thirds of the US population were living paycheck to paycheck. Rising inflation is certainly a factor, but the bottom line for many individuals and families experiencing financial stress is that they 1) don’t have a budget, or 2) when they do, they don’t stick to it. Financial stress is often caused by a mismatch between the money you spend and the money that comes in.
Set a budget that fits your monthly income and expenses — the latter includes all your monthly bills and debts — then use an expense tracker to learn more about your spending habits. All of this information will help you find ways to reduce your expenses, starting with eliminating more non-essential expenses.
Be strategic and create a debt-repayment plan
Piling on debt or paying off the debt each month financially suffocates us, reducing disposable income and the amount of money you can save. So come up with a workable plan to get rid of your debt.
Arrange your debts in the order you want to pay them off. Paying off the credit card or loan with the smallest amount first gives you the satisfaction of crossing one off your list and building momentum. Or you could pay off the debts with the highest interest rates first, such as B. Credit cards. Paying off high-interest debt as quickly as possible will save you the most money in the long run.
Focus on paying off one debt at a time, and put any extra money saved from restructuring your budget on the first debt you’re trying to eliminate. If you focus on paying off one debt at a time, you can pay off the debt faster because more money goes directly to the main balance and less is spent paying interest.
Prioritize saving money
The things we cannot control tend to worry us. Knowing what you can control and taking the appropriate action can reduce your stress. A good example of using what you can control is sticking to a consistent savings plan. The act of saving will give you a sense of accomplishment and comfort. As you build savings, you know that money will be set aside in case you need it.
It’s important to understand this: Paying off your debt, and eventually eliminating it, has a direct impact on how much and how well you can save in the short and long term. Everyone needs an emergency fund. Ideally, if you have the money and the discipline, develop a two-pronged savings approach that involves adding money every few weeks to an emergency savings account and to a long-term savings account such as an IRA, 401(k), or high-yield savings account.
Once you’ve essentially built your emergency fund, you might consider putting some of it into a certificate of deposit, which has a guaranteed rate of return that’s generally higher than traditional savings accounts.
Financial stress can seem overwhelming and unmanageable if you don’t take action. Keep it simple, be honest about what’s causing the stress, and stay positive while knowing that small changes here and there can make big differences over time.
About John L Savarino
John L. Savarino is an investment advisor representative for Rooted Wealth Advisors. Savarino passed his Series 65 Uniform Investment Adviser Law exam and hosts a finance show on YouTube, Talking Money.
Updated July 6, 2022 at 2:33 p.m
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