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How to Handle Financial Stress

Mar 18, 2020 3 min Sheila Olson

Key Takeaways

  • No idea where your money is going? Use apps to get a clear picture.
  • Too busy to pay bills? Automate your finances to help avoid fees.
  • Keep it simple—consider consolidating your bank and investment accounts.

 

Ever have that uneasy feeling that you should be doing more to manage your finances? That you aren't on top of your spending, savings, and investments like you should be?

You're not alone. The American Psychological Association (APA) reports that money is the leading cause of stress for American adults. In fact, one in four are stressed about money most or all of the time--to the point they prefer to bury their heads in the sand and refuse to think about it at all. There's even a term for it: financial avoidance. The cure for financial stress, according to the APA, involves simplification, making a plan that will improve your situation and better manage your money.

 

 

If you're suffering from financial avoidance — or just want an easier way to make better financial decisions — check out these tips to help you simplify your financial life.

 

Implement the 50/20/30 rule

If a detailed budget is more than you can bear right now, put the 50/20/30 rule into place. Quite simply, aim for spending 50% of your income on essentials, 20% on savings and investment, and 30% on personal expenses.

Essentials are things you have to pay every month, like housing, transportation, utilities, food and insurance.. Keep in mind that, it's less about actual costs than proportions. Some people may prefer to spend more on housing and drive an inexpensive car, for example, but it all works as long as the sum of those expenses doesn't exceed 50% of your income.

The 20% savings category isn't just for the money you tuck away for a rainy day; it also includes extra payments to pay down debt as well as money to fund your retirement.

Things get more interesting in the personal category, because it includes things like travel and entertainment as well as discretionary items like your cell phone plan, your cable package and other expenses that are more of a personal choice, not a necessity for living.

In the end, you'll be able to tweak the numbers a bit here and there, especially as your financial goals change, but keeping the ratios intact is a good foundation for simplifying your budget.

 

Take advantage of auto-pay

Auto-pay can be a win-win--you avoid late fees for accidentally missing a payment, and you save yourself time and aggravation paying your bills every month. You may even get a credit or discount on your bill if you go paperless and sign up for automatic payments.

And while you're automating your bill payments, why not think about automating your savings or investment account deposits, too? It's a great way to make sure you actually save the money and hit your investment goals as opposed to spending it on unconsidered purchases.

 

Look into consolidating bank, investment and insurance accounts

When your money is spread out at several institutions, it can be difficult to get a clear picture of your finances. It's also not the most convenient way to manage your accounts. Most people don't need more than one checking and one savings account or more than one or two credit cards — and fewer statements means less time spent reviewing and reconciling each month.

There are a lot of free and low-cost money management tools and apps that take the work out of budgeting, monitoring your finances, and saving and investing your money.

The same is true of investment accounts. Keeping all your investment accounts with one custodian, with one account number for your personal investments and one for your retirement accounts can make it easier to manage your finances. If you have several 401(k) accounts from past jobs, consider rolling them into one self-directed IRA. This should help lower your account fees and reduce your paperwork.

It goes without saying that having all your insurance policies with one company can make good sense. In many cases, you may be eligible for a multiple policy discount, and you may even be able to bundle premium payments, further simplifying your life.

 

Consider funds over individual stocks

Unless day trading is your job, you probably don't have the time to effectively monitor and manage your individual stock purchases. A mutual fund or an ETF that tracks a major index like the Nasdaq or S&P can be a better option — only about 14% of actively managed funds beat their index, and they usually have much higher ownership costs besides.

Another advantage happens at tax time: because the documentation burden is much higher for individually traded stocks, your tax preparation costs may be higher than with funds.

 

Take advantage of technology

There are a lot of free and low-cost money management tools and apps that take the work out of budgeting, monitoring your finances, and saving and investing your money.

Many of these apps are free and can do things like syncing your bank and credit card accounts, as well as your monthly bills, and can help you establish a budget based on the things you have to pay each month. You have a complete financial snapshot at your fingertips. Some apps may also track investments and flag questionable account fees, and include credit score monitoring.

Need to get serious about savings? Digit is a good option for passive saving — it analyzes your spending habits and every few days nabs a few dollars (usually $5-$20) from your checking account and deposits it in a savings account. You can change how aggressive you want the app to be just by typing "save more" or "save less" in a chat box.

If you're struggling to pay down debt, You Need a Budget, or YNAB to its enthusiasts is your accountability partner.

 

Go old-school and use cash

Eliminate tracking receipts and reconciling accounts by using cash as much as possible for smaller purchases, and save your credit card for large purchases and those where you want purchase protection. As an added incentive to skip the plastic, people who pay with cash tend to spend less than those who use credit cards.

 

Cut out subscriptions and services you don't really use

How many entertainment subscriptions do you have right now? Do you really need all those premium TV channels? How many do you actually use on a regular basis? And how much are you paying for duplicate content?

Take a close look at your monthly subscriptions — gym memberships, wine clubs, subscription boxes, magazines—to make sure you're getting full value from them. If you're not, cancel them.

 

What you can do next

Measure your progress and implement a plan for financial security with the help of the above-mentioned tips. Even if you're not suffering from financial avoidance, simplifying your finances makes it easier to develop good habits and improve your financial picture. As Peter Drucker famously said, "If you can't measure it, you can't improve it."

 

Consult your financial professional regarding your circumstances.

 

 

Footnotes

Sheila Olson is a Charlotte-based freelance writer specializing in investing, personal finance, entrepreneurship, and retirement planning. She is a regular contributor at Investopedia and the Motley Fool and writes frequently for the banking and consumer credit industry.

https://www.apa.org/helpcenter/financial-avoidance Opens in new window

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