Money causes stress and worry for most people, but with just a few simple changes you can easily improve your peace of mind and reduce money-related stress. Here are 7 specific suggestions.
1. Determine Your Priorities
We all have different priorities in life, and your priorities should impact your finances. Most of us can’t afford everything, but we can afford the things that are most important to us, if we’re willing to cut back in areas that may not matter as much.
What are your priorities? Do you value traveling and time with family or friends more than anything else? Are you 100% focused on saving for retirement? Do you have a hobby that you want to be able to fund?
It’s not so important what your priorities are, but it is important that you identify them. If needed, change your saving and spending habits so you can spend less on things that don’t matter to you so you’ll have more for the things that mean the most.
Knowing your priorities can help you to establish financial peace of mind because you’ll know that you’re committed to saving in other areas in order to have enough money for your priorities.
2. Establish an Emergency Fund
The first piece of financial advice from most experts is to establish an emergency fund that has enough money to cover your living expenses for at least a few months.
This is important because unexpected things happen all of the time. The loss of a job, unexpected medical bills for your or a family member, or any number of other things can totally derail your finances if you’re not prepared.
If you don’t already have an emergency fund, take action to set one up and start saving as soon as possible. A sufficient emergency fund can help you to feel more secure, and to avoid debt when something inevitably comes up.
As you’re working to build up your savings and investments, be sure to diversify and avoid excessive risk from having all of your assets in the same investment or same investment class.
Diversification can sound intimidating if you’re new to investing, but it’s really not very complicated. Most people have their money in cash (like savings accounts and checking accounts) or traditional investments like the stock market. There are many different alternative investments that make it easy to get some diversification in your portfolio. Technology, and some law changes, have made it easier for average investors to get involved with investments like real estate, art, royalties, and more.
4. Know Where Your Money is Going
Do you track your expenses? If not, how do you know where your money is really going?
If you want to reduce stress and gain peace of mind, you should be sure that you know how you’re spending money. Thankfully, it doesn’t have to be complicated. You can use an app, a simple spreadsheet, or even a piece of paper to record all of your expenses. If you’re using an app or a spreadsheet and you’re categorizing the expenses, you can easily view how much you are spending in each category.
In many cases, stress and worry come as a result of not being informed. And once you know how you’re spending your money, you can make changes as needed.
5. Save for Big Goals
Do you feel guilty about spending money on a vacation?
Would you be stressed if you needed to buy a new car?
One way to have more peace of mind with these types of expenses is to save ahead, and designate your money for specific goals (also known as sinking funds).
I used to feel bad about taking money out of a savings account for a vacation, even though I knew that it was a perfectly reasonable way to spend some of the money that I saved. Those feelings changed after my wife and I set up a separate savings account for vacations and travel. Now, taking money out of this account doesn’t feel like I’m dipping into my savings, because it’s separate from other savings and has been earmarked for this purpose.
The same thing can be applied to saving for a car, a wedding, a boat, a vacation home, or whatever you want to save for.
When it comes to travel, my wife and I take advantage of free money offers like bank account bonuses and credit card rewards to pad our travel savings account throughout the year. It becomes a fun game to see how much we can save for a nice vacation just from these easy money methods.
6. Pay Attention to Liquidity
When it comes to personal finance and building wealth, net worth is the metric that tends to get the most attention. While having a high net worth can help you to feel more secure, there are many types of assets and investments that aren’t easy to access.
Instead of simply tracking your net worth, you should also consider your liquid net worth. Your liquid net worth only counts liquid assets that can be converted into cash quickly if needed. In case of an emergency, not all investments are the same.
While it’s great to work on building up your retirement savings in tax-advantaged accounts like a 401k or IRA, you should also work to build up assets outside of those accounts. If you need to access the money from retirement accounts, you could be faced with costly penalties.
7. Track Your Upcoming Bills in One Place
How do you keep track of your upcoming bills? If you’re like most people, there is no real system, which leads to stress.
You can improve your financial peace of mind by organizing all of your upcoming bills in one place. It could be a calendar, or you could use an app like Mint so you’ll also know who you owe, how much you owe, and when it’s due.