MAKING CENTS: How to deal with financial stress (part 2)

As promised in last week’s article I want to provide some solutions for those who are feeling anxious and stressed about their finances and I’m going to focus on 9 different ways you can get your financial life back under control and the first is focusing on your:

Three Biggest Money Challenges

I want you to write down what you feel your 3 biggest money challenges are.

The list could be a long one, but I’d say keep it to a maximum of three, so you don’t feel overwhelmed.

And on that list you might have (a) not being able to save enough or (b) worrying about paying your bills or (c) feeling out of control about how you manage your money each month or (d) worrying about how much you partner spends or (e) being anxious that if you lost your job you’d run out of money before you were able to find another and so on.

There can be any number of reasons which causes that knot in your stomach when you think about them and regardless of whether they seem to be things that are small and insignificant write them down alongside the bigger ticket items.

Next you need to:

Take Stock

Before you can put a plan in place you need to know what you are up against and that means assessing exactly where you are.

It means going through your bank statements and knowing how much you owe, what interest rate is being charged, how many months you’re in arrears, what’s in your retirement account etc. etc. all of those areas that are most important to you.

And that might be a challenge for some because up until now they’ve been so anxious about money, it’s very difficult for them to look at the numbers, even open envelopes etc. but you’ve got to, you just have to if you want to break this cycle of anxiety.

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Next you need to:

Test Your Reality

When I work with people who are anxious about their finances, I want to put their theories about why they are so anxious to the test to see if they are founded in reality or not.

And one gentleman I worked with last year felt he wasn’t saving enough each month and thought he should have more in his retirement account than he did. So, I wanted to see if his perception was true.

So, we started to put numbers into an excel doc and assess where he was at with his mortgage, his savings, his pension fund, his monthly spending, his debt levels etc. and we quickly discovered that his finances were nowhere near as bad as he thought they were.

I put his numbers alongside what he should have accumulated based on his income and age and he was actually ahead in every category. You see he didn’t know what numbers he needed to be referencing his against and just assumed, incorrectly, that he was behind. He was relieved to see he was in a good place and it all now made sense to him especially when someone showed him the logic behind his numbers.

So, our perceptions and our realities can be two different things which is why I think it’s useful to identify how people are doing in different categories just like we might do with our health.

Okay, once you’ve tested your reality the next step is to:

Create a Plan

I’m not sure how you can achieve any of your financial goals or reduce stress levels without having a plan in place. Most people recognize the importance of having a plan, even the most basic of ones, but the majority just wing it and make it up as they go along and they are the very ones who are/or will become seriously stressed.

Those with a plan have much lower stress levels. It’s like they have a GPS system and if they follow the instructions they’ll arrive at their destination. People who don’t, are going around in circles with the map out, rolling down the window asking for instructions from people who are as lost as they are.

And any plan you create when you begin to focus on the things that matter to you most and whether that is paying off debt, saving for a deposit, building up your emergency fund, investing more into your pension are all predicated on the next stage and that is to,

Create a Spending Plan

Making a monthly spending plan is the cornerstone to your finances and trust me when I say this.

And it doesn’t have to be very complicated. List your fixed and variable expenses and subtract them from your income now you know where the blockage is and what changes you need to make.

And you need to track your expenses on an on-going basis and people who do, tell me how it helps reduce their stress levels because they know exactly where they are going to spend their money and how much and on what before the month even begins, rather than having the monthly postmortem of where it all went if they didn’t.

And poor financial management can easily lead to overspending but having a budget in place can create the discipline you need and it’s not as restrictive as you think.

Commit to Action

Now you know what you have to work with and what needs to be done, it’s important you follow though and take action.

And it needn’t be massive immediate action either. Small steps are good but be realistic and determine what you can expect to do each month based on what you have at your disposal and just commit to following through each month.

And there will be times when your resolve will be put to the test and if that happens remind yourself how much you stand to gain if you persevere. So, stay patient and reward yourself with the progress you’re making.

Get Help

And all this advice is fine and might make sense, but when you’re stressed it can be difficult if not impossible to handle everything on your own, which is why I’d urge you to look for help.

Some people I’ve encountered tell me how their financial problems got bigger as they tried to solve them themselves, and what started off small, gradually got bigger and bigger.

Yes, you might feel embarrassment or even shame about your situation. You might feel your anxiety is incredibly trivial or beyond repair, so you just bottle everything up and try go it alone.

But, bottling things up will only make your financial situation worse. What you’re going through isn’t unique to you, which is why you must seek out a qualified financial professional, someone you can lean on, someone who can put a plan in place for you and someone you can call when things are proving difficult.

Summary

If you want to get rid of or reduce financial stress, you need to do things differently than perhaps the way you’ve been doing things until now. And you need to change your mindset as well. Easier said than done, but you’ve got to know and recognize the triggers that are leading to your stress.

And that could be things like limiting your exposure to social media. Seeing what everyone else has can make you feel like a failure. People have new cars, wearing great clothes, retiring early, going on super holidays, buying big houses and you begin to wonder what it is you’re doing wrong.

And perhaps you’re doing nothing wrong. When I see someone with a new car that costs €50,000, I know they either have €50,000 less in their account or they are €50,000 more in debt or a combination of both.

What anyone else has shouldn’t be the cause of your stress. Remember wealth and happiness and net worth isn’t what you see, it’s what you don’t see.

And I’ll finish up by saying, focus on the can rather than the can’t.

And remember for what it’s worth, you’re not alone with your struggle. There are many people experiencing what you are going through and don’t forget there are thousands who’ve come out the other side and beaten their financial demons, so it can be done.

It just requires some hard work on your part and getting help if you need it and putting a plan in place and implementing it.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey