Financial Fears Part 2: Take Action

Are your finances causing you worry, stress and strife?  The first step to overcome money anxiety is to recognize and address the precise source of your financial fears.  Once you know why money matters are affecting you the way they are, the next step is to address your financial situation.  The best way to overcome fear is to take action.  Here’s how:

1.  Take stock.

What is your current financial situation?  How much do you make in a month?  How much do you spend?  How much do you save?  If you don’t know, it’s pretty much impossible to manage your finances effectively.  If you haven’t already, clear a few hours to review and analyze your most recent financial statements.  Look at your past few months’ bank statements, credit card bills and your regular recurring bills.  Add up what you’re making, spending and saving.

2.  Identify your financial goals.

What do you want to do with your money?  Get out of debt?  Save for something in particular?  Create financial freedom? Sock away cash for retirement?  Be very specific.  What is most pressing?  What is most important to you?  If you have multiple financial goals, prioritize them.

3.  Establish good financial habits.

(a) clear debt

If you are in debt, Job One is to get out of it.

Pay down your debts as fast as humanly possible.  Until you do, you’re making other people rich — and delaying your own wealth while putting yourself under tremendous stress.  You may have to live a frugal existence in the short term but it will be so worth it to get out of the red.  You’ll be happier, healthier and will feel so darned proud of yourself.

Begin by reviewing your bills:  where can you reduce your spending?  Question any non-essential expenditures.  (No, cable television is not required for your survival). Where are you leaking money?  For one of my clients, it was her friends who insisted on going out to restaurants — and doing so far more frequently than she could afford.  For another client it was the dollar store.  Every week, she was spending $20 – $25 on stuff she really didn’t need but was buying because it was a ‘good deal’.  She didn’t count it as an expense because each item was ‘only $1’.  But her habit was costing her $100 a month…meaning $1200 a year.

Are you paying the minimum price for what you do need to buy?  Do you comparison shop?  Do you buy brand names or generic?  (If you’re concerned about quality, check out unbiased sources like Consumer Reports.  You may find that generic alternatives are superior to the marketed brand name).  Do you use coupons? (Do you know who use coupons?  Rich people.  Studies have shown that coupon use is proportional to income).  What expenses can you share with others?

But cutting expenses in only part of the battle against debt:  How can you generate more income?  How can you use your many talents to make more cash?  What do you have that you can sell, barter or trade for things you need?

Note:  while you are focused on paying down off debt, it’s important to treat yourself well.  There are plenty of free and very low-cost activities to keep you entertained and feeling good about life.  Check your local paper for listings of free events.  Go for hikes with friends.  Explore new neighborhoods.  Visit museums and art galleries on their ‘free nights’.  Utilize your public library.

It’s also helpful to monitor your progress as you pay down your debts.  Keep track and celebrate every month than your debts shrink.  Use techniques like these to keep yourself motivated over the long haul.

If you find yourself feeling down about your finances or throwing yourself a pity party, volunteer for folks who are less fortunate than you.  A few hours at the local food bank or hospice will remind you to be grateful for whatever you’ve got.

(b) automate your savings

As you put your financial house in order, it’s important to establish the habit of regularly paying yourself.  Set up automatic deposits to a savings account that you don’t spend.  It doesn’t matter if you are contributing $1/week or $1000 per month — pick a number and a frequency that feels comfortable to you.  Note:  The key here is to hide this money so you do NOT spend it.  Pretend the account doesn’t exist. Your goal here is to grow your finances, bit by bit over time.

(c) establish a ‘contingency’ fund

Things happen.  Your car needs repair.  Your kid needs braces.  Your tuition gets hiked.  You lose your job.

It’s important to prepare yourself from whatever unexpected ‘contingencies’ may arise.  As you sort out your finances, create a new account for these unexpected expenses.  Like the savings account mentioned above, the idea here is to make regular, automatic deposits into this account at a level that’s comfortable to you — $1, $10 or more a week — until you’ve eventually you’ve socked away enough money to cover your household’s expenses for four – six months.

Like your savings account, this is an account that should not be touched UNLESS necessary.  This is not a source of money to dip into when you fancy a weekend in Vegas or a cute pair of boots.  This is your household’s lifeline and safety raft.  Mess with it at your peril.

(d) automate your bill payments

If you are not using AutoPay to pay your regular, recurring bills you are making more work for yourself while risking late or missed payments and their resulting fees and penalties.  Even on your credit cards, you can arrange to automatically pay off the minimum or full amount each month.

(e) educate yourself about investments

To grow your money, you must learn about finances.  Only you can determine what investments are right for your situation and preferred level of risk.  The more you learn, the less you will fear your finances.

Avoid the temptation to let a random financial person make decisions for you.  Sure, it’s easier to let someone else shuffle your money — and it’s foolish to do so.  Commission-based financial consultants are looking out for their own financial interests, not yours.

Now there are certified financial planners — objective people whom you pay to manage your money.  But they are expensive.  If you have less than $1,000,000 to manage, it’s probably not worth their fees.  (Here’s an article on that topic).

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Activity: Clear two uninterrupted hours.  Review and analyze your most recent financial statements.  Look at your past few months’ bank statements, credit card bills and your regular recurring bills.  Add up what you’re making, spending and saving.

Activity: Based on your analysis of your recent finances, identify your key financial goal(s).  If you have several, prioritize them.

Activity: Take your top financial goal.  How will you reach it?  What needs to happen?

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In the comments section below, we’d love to hear from you. How have you overcome your financial fears?  What actions have helped the most?

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