A lot of clients are speaking to us about financial stress. And you do not need to be living in a cave to know things are a bit uncertain.
I once read that financial stress can wipe off several IQ points. So not only can you be poorer but you could end up being dumber too. A double whammy.
Seriously, I know that financial stress can lead to anxiety.
We also know constant worrying about money, debt, job security and the future can significantly impact your mental, emotional and even physical well-being.
What’s to be done? Well, if you were to ask the government, they will pledge it as the most important part of their policy and slowly hope it quietly goes away.
So, it’s important to take steps to ensure financial confidence remains or gets better.
Sometimes we do not have day to day financial stress (money issues) but we are concerned about what happens when things go wrong, or we die. These are also financial stress but a different kind.
Here is what you should think about.
1 Understand your stress triggers
What is causing the stress? Anxious about day-to-day financial issues? Unable to plan for emergencies or large upcoming expenses. Or you may be worried about big-picture items, such as retirement and/or college savings, investment performance, a fear of losing your job or the pressure of maintaining a certain lifestyle.
Once you identify your particular triggers, you can start to anticipate when anxiety will strike and take specific steps to address those financial issues.
2 Develop a financial plan
One of the best ways of overcoming financial anxiety is by establishing (and following!) a comprehensive financial plan. Note I did not say budget.
That’s because budgets do not work long term. Never will it come back to reality. Plan and put aside money for important things such as holidays, emergency fund etc and have discipline. Most people panic about finances not because they are not good at it but because there is no plan.
3 Manage your debt.
Most people are panicking now not because income has collapsed or things have gone wrong. People are panicking because they are over leveraged.
And a lot of that debt is not necessarily good debt. A lot is bad debt. Good debt is when you borrow and use that borrowing to buy assets that bring you money. Investment properties, shares etc are examples of good debt.
Bad debt is buying a car because you like the way it makes you feel or you want to show success.
With interest rates rising excessive debt can quickly spiral out of control, leading to serious stress.
If you are in such a position try doing this:
- Snowball it
- Avalanche it
4 Build savings
At this point you are going to call me mad. You think I deserve to be nominated for the madman of the year award.
That’s because you tell me you are under financial stress so no chance of creating any savings.
Well, I am going to tell you that you can. All you do is take 10% of your income and put it away – you then have to live off the remainder. Many will say it cannot be done. But it can. if you are committed you somehow make it work.
5 Establish an estate plan
If you worry about what would happen to loved ones should you die unexpectedly, is probably because you do not have an estate plan.
Unless you are single, have no dependents, have no Super balance, no assets or few belongings and do not care who inherits your smelly socks or alcohol collection you do not need an estate plan. Everyone else does.
But most people who need one, don’t have one.
Everyone should have one in place. Not only does a will distribute assets according to your wishes but it can also help minimize estate taxes and legal challenges to your estate.
- Guardianship designations
You need to work out who will care for minor children
- Power of attorney
You need two – one for financial and one for medical. These documents allows a person you have nominated to make decisions on financial and medical matters on your behalf if you cannot make them.
6 Ensure you’re properly insured.
I have written an article recently about insurance the importance of keeping it and how it reduces stress.
- Income protection – If you cannot work you need insurance so that income keeps flowing so expenses can be paid.
- Trauma – if you have an serious illness this insurance will pay a lump sum so you can reduce loans or know you have significant funds for medical treatment.
- Life – so that your loved ones have financial support when you die
Financial confidence is step 3 & 4 of our 9 step process that allows you to work less, have financial freedom and build wealth. If you would like to discuss this with us, email email@example.com or call 1800 440 316.