Understandably, a perfect storm of world events is causing financial stress for the vast majority of Americans. In a recent survey by the American Psychological Association, more than 80% of American adults said they felt increased financial stress due to:
- Higher inflation (87%)
- Ongoing supply chain issues caused by the pandemic (81%)
- Global uncertainty over the war in Ukraine (81%)
In addition, the difficulties related to the pandemic, including health problems, loss of loved ones, difficult work and family situations, isolation and inconvenience, have affected the entire nation and the world. In the US, 63% of those surveyed said that COVID-19 has changed their life forever.
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Table of Contents to show
1. Tips to reduce your financial stress
2. Build – and stick to – a budget
3. Be strategic and create a debt payment plan
4. Prioritize saving money
Tips to reduce your financial stress
The financial toll of stressed employees has hit businesses, too. A survey conducted by PwC reported that 34% of employees in various industries said that money worries in the past year have had a major to severe impact on their mental health; 18% said it hurt their productivity at work; 38% of employees with financial problems said they were looking for a new job; and 37% of them had used payday loans in the last year.
The obvious question in the wake of all this accelerating financial stress is, how can you reduce it?
Build – and stick to – a budget
This is an alarming figure: At the beginning of 2022, nearly two-thirds of the US population was living paycheck to paycheck. Skyrocketing inflation is certainly a factor, but the bottom line for many individuals and families experiencing financial stress is that they either 1) don’t have a budget or 2) if they do, they don’t stick to it. Financial stress is often caused by a disconnect between the money you spend and the money you earn.
Set a budget that fits your monthly income and expenses, the latter including all monthly bills and debts, then use a spending log to learn about your spending habits. All of that information will help you identify ways to reduce your spending, starting by cutting out more non-essential expenses.
Be strategic and create a debt payment plan
Piling up debt or barely making a dent in paying it each month is strangling us financially, reducing disposable income and the amount of money you can save. So develop a workable plan to get rid of your debt.
Rank 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 debts with the highest interest rates, like credit cards, first. Paying off high-interest debt as soon as possible saves you the most money in the long run.
Focus on paying off one debt at a time, putting the extra money you saved from restructuring your budget toward the first debt you’re trying to eliminate. When you focus on paying down one debt at a time, you can pay off the debt more quickly, because more of the money will go directly to the principal balance and less will be spent on interest payments.
Prioritize saving money
Things we can’t control tend to worry us. Knowing what you can control and taking the right steps can reduce your stress. A good example of leveraging 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 accumulate savings, you’ll know the money is there in case you need it.
This is important to understand: Paying off your debt and eventually eliminating it will have 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, you’ll develop a two-pronged savings approach that puts money into an emergency savings account every two weeks and into a long-term savings account, such as an IRA, 401(k) or high yield savings account.
Once you’ve substantially built up your emergency fund, you might consider placing some of it in a certificate of deposit, which provides a guaranteed rate of return that’s typically higher than traditional savings accounts.
Financial stress can seem overwhelming and unmanageable if you don’t have steps in place. Keep it simple, be honest about what’s causing the stress, and stay positive knowing that making small changes here and there can lead to 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 advisor law exam and hosts a financial show on YouTube, Talking Money.
Updated on July 6, 2022 at 14:33
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