When my father fell ill right after my 15th birthday, my family’s financial picture changed dramatically. With less money available in our household, this became the turning point that transformed my perspective and instantly made me hyper-aware of my spending habits. If I was going to be responsible for college tuition and making the big move from North Carolina to the Big Apple to build my career, I’d need to be more mindful about saving, and more careful with spending. Being mindful, however, quickly turned into being worried. I developed an unhealthy anxiety toward money that would stick with me for the next decade.
Brent Weiss, a certified financial planner and chief evangelist at Facet Wealth explains that this is an all-too-common occurrence. Uncontrollable worry is what happens when an uncomfortable feeling takes control of our brains and instills panic, fear and irrational thoughts. While those who live at or under the poverty line are more likely to develop this type of angst, Weiss says it’s not limited to them. Personal finances tend to be a highly emotional subject for many. “Spending money, whether we can afford to or not, lights up pleasure centers in our brains and can lead to more spending to keep the high going. How we deal with the spending hangover correlates to how likely we are to experience financial anxiety,” he says, explaining that financial anxiety can manifest itself as not being able to enjoy any spending and living an overly restrictive lifestyle. “There is a difference between being frugal and being irrational. That difference is financial anxiety,” he says
So how can we tame this beast? Here are a few effective strategies that worked for me, to bring rational reasoning back into the equation.
Seek the source of your anxiety.
There’s a reason why the saying ‘knowledge is power’ is so ubiquitous. Anxiety festers when we don’t have the answers — and we often don’t have them about our finances. That’s why education can make such a big difference in how we approach money, what emotions we associate with it and how we plan for our future.
If we don’t understand the difference between, for example, 401ks and Roth IRAs and other terminology, it’s important to be proactive and learn all that we can to set ourselves up for success — and a lower heart rate. As Weiss explains, once we establish awareness of where our anxiety is stemming from, then we can take action to move forward. “As with any emotional response or disorder, being aware of the reaction and the cause of the reaction is the first step. For many people, the anxiety stems from a feeling of uncertainty or a lack of understanding,” he says. “Being in debt, and not knowing how to get out of it, is a cause of anxiety. However, knowing what options exist and having a plan for paying down the debt can lead to a feeling of control and empowerment. It all starts with awareness and education.”
Prioritize a household budget.
Once we have a firm grasp on where these unwanted — and often, debilitating — thoughts are stemming from, we can take the steps required to change our standing. Financial expert and certified public accountant Robert Gauvreau highly recommends mapping out a thoughtful, reasonable budget. By allocating our resources line-by-line, based on our income and debt, we quickly nix that fear of the unknown. “Once you have clarity around what money you have coming in, and what you have going out, you will feel a sense of calm just knowing where you are currently at,” he explains.
And while we may have some lofty goals for our finances, Gauvreau says it’s necessary to remain realistic so we don’t set ourselves up for disappointment. It’s best to start by detailing exactly how much we are bringing in from all sources. Then, we should list our weekly, bi-weekly, bi-monthly, monthly and annual obligations, which include but are not limited to rent/mortgage expenses, utilities, vehicle payments, student loans, groceries, phone expenses, television expenses, entertainment costs, and so on. Then the goal is simple: spend less than we have coming in so we can save. “Knowing where you stand will reduce financial anxiety. In fact, having clarity around what you spend money on will help you understand where you can reduce your spending so that you can reallocate that spending to better areas of your life,” he says.
Be smart about rent.
These days, more and more generations are opting to rent over buying. In fact, the age of a first-time buyers for both singles and couples is teetering higher and higher, making it more common for folks to sign a lease rather than a deed. Today, there are more renters than any time since 1965, but that doesn’t mean that it’s inexpensive. It’s important to keep a level-headed approach toward our the amount you allocate to your monthly rent checks, says to Dana Marineau, a vice president and financial advocate for Credit Karma.
Although it may not always seem possible (particularly in high rent urban areas), the United States Census Bureau recommends spending no more than 30 percent of your monthly income on rent. “If your ideal area or apartment puts you over that threshold, ask yourself what you can tolerate and what you could compromise on when it comes to your living situation,” she explains. “Could you live with roommates if it means saving a few hundred dollars a month? What else can you do to make it more affordable?” If we go beyond our means for rent, we leave little wiggle room for unexpected expenses, saving goals and other financial necessities that warrant our attention.
Set up automatic savings.
Gauvreau refers to an economic theory known as the ‘scarcity principle.’ It suggests that if money is available, it will be spent. Why does this matter to those of us with financial anxiety? Many people who suffer from these worries will keep their money in one account so they can see it at all times, and thus, feel as if they have control over it. However, Gauvreau says this is risky — not only because we aren’t investing, but more so, we always feel as if we can take it out. This could lead to missing our ‘rainy day’ goals because we can’t resist a swipe here and there.
To solve this, he suggests setting up an automatic transfer to your savings from every single paycheck. “ Start off with a low amount, and as you continue to earn more money, increase the transfer value to a more significant amount. If it isn’t in your checking account, you can’t spend it,” he explains. “A major mistake that many people make is that they continue to spend more money as they generate more income, resulting in their lifestyle costs increasing, with nothing leftover. Make sure to [increase[ your forced savings [as your earnings increase] and don’t give in to the temptation to increase your lifestyle costs.”
Blame it on Instagram or other social media platforms, but it’s easier than ever to see how our pals are living their lives. And while filters make everything seem rosy, comparison only heightens financial anxiety. As Gauvreau explains, the more we measure how we stack up against our neighbors, our friends-of-friends and even family members, the more pressure we feel to mimic them. In reality, they likely aren’t telling their whole story, anyway. “So many are demonstrating how they have the perfect spouse, perfect children, perfect life, and of course are swimming in financial success! The reality…their marriage isn’t perfect, their children are constantly in trouble, life is full of struggles, and they are part of the 78 percent of workers who live paycheck to paycheck,” he reminds. When we set our financial goals, it’s vital to make them only about our personal experiences, not what we think they should be based on others.
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