This week I’m happy to bring our first guest post! There is a lot of anxiety surrounding money always, but especially during this trying time. So, Mia Jones is here to talk about that financial anxiety and concrete steps you can take with your money to alleviate that anxiety. If you are currently in need due to the COVID-19 pandemic, please check out my Financial Hardship resources page for places that you can get the help you need. Now, without further ado, here is our first Guest Post from Mia Jones!
Are you stressed about your finances? Check how to deal with it.
Are you anxious and stressed about your finances? If so, you’re not alone. We all make mistakes and learn from them.
Most of us, irrespective of our age and income, are stressed about managing finances. In the current social isolation and self-quarantine scenario, our relationship with finance is facing new challenges almost every single day.
Many incur debts due to a lack of financial understanding, a fear to check account balances or through emergencies that are no fault of their own. That debt can easily become the focal point of financial anxiety. Then, avoiding planning a budget, prevents you from knowing where your money is going only making the problem worse.
However, do not panic. I know it’s a bit tough at this difficult time but, you will be much more effective if you are able to take a deep breath and calm yourself before looking at your finances. Managing finances is something we all can do. Let us discuss how to deal with financial anxiety and stress to stay healthy and manage finances effectively. Let us focus on some common issues and discuss them.
Repay your debts to save dollars
Debts! The name is enough to give stress, especially if you have credit card debt and payday loans (due to high interest rates). If you can’t pay your bills every month, the interest gets accrued and the outstanding balance keeps on increasing. So, what will you do about it? Charge your cards for an amount that you can repay comfortably at every billing cycle to avoid accumulating debt.
What if you are already facing debt problems? If so, talk to your creditor for alternative payment options. Depending on your financial situation, you can opt for consolidation or settlement.
You can also take professional help and enroll in a credit card consolidation program or settlement program to repay debts with complete professional help.
Choose a strategy that suits you the best and act fast. Don’t let your current debt be the major source of your future financial problems.
Plan a realistic budget to worry less
I feel no financial discussion is complete without talking about the budget. So, let’s start with it. Plan a realistic budget. By realistic, I mean that’s practical, which you can follow with ease. If you’re planning a budget for the first time, here are a few tips for you. You can use a spreadsheet or a pen and notebook for the purpose.
- Record all sources of your income
- Track your past 1-3 months’ worth of expenses
- Set realistic goals that you can achieve
- It will take a few months to make your budget successful
- Divide your income among different categories
- Distinguish your needs from your wants
- Make ‘savings’ one of your categories
- Automate your savings and plan your daily necessities with the remaining amount
- Try to save as well as increase your income
Also, after planning a budget, monitor it every month and make modifications to it, if required; especially when there’s life-changing events like marriage, childbirth, etc. If required, you can use budget apps to monitor your budget weekly. It will help you stay on track and make your budget successful.
Build an emergency fund of 6 months’ worth of living expenses
The financial experts always advise on having an emergency fund and save about 3-6 months of your basic living expenses. Keeping in mind the difficult time we’re going through; it is better to save at least 6 months of your basic living expenses. The more you save, the better for you. Many people have already faced job loss and pay cuts. So, you need to shield yourself from any financial emergency.
Having an adequate emergency fund will also help you feel less anxious since you know that you can tackle emergency expenses if any.
Do not use this fund unless it’s a real emergency like a job loss or for medical treatment. And, after using it, try to save that amount in your fund again as soon as possible.
If you don’t have such a fund, try saving a little amount every month. And, when you get a bonus or earn from your part-time job, deposit the amount into your emergency fund. Thus, the fund will grow with time.
Have a sinking fund to manage unexpected expenses
Along with an emergency fund, you should have sinking funds too. You can call it additional equipment to fight emergencies. Such a fund can help you keep your emergency fund intact.
Then what is a sinking fund for? Well, you can use such a fund to pay for a vacation, car repairs, etc.
If you want, you can have various sinking funds for different purposes such as car repairs, home repairs, along with expected costs like car insurance, life insurance, and so on. A sinking fund can take care of your annual expenses along with unexpected expenses if any.
It can act as a great safety net and help you avoid debt to some extent. Thus, you can also make your budget successful.
Every month devote a certain amount in your budget towards the sinking funds. Doing so, you won’t be anxious about your annual expenses or saving for vacation. The amount will be saved every month.
Do not delay your retirement savings
The experts say that you should start saving for your retirement from the time you start earning. The earlier the better, even if that’s a small amount initially. Doing so, you can take advantage of compound interest and don’t have to worry about your golden days. And once you start earning a enough to live comfortably, deposit more towards securing your retirement days.
First, contribute to a workplace retirement plan like 401(k) and take advantage of the employer contributions. If you don’t have a retirement plan at work, consider opening an IRA.
And, what if you’re self-employed? You can choose among SIMPLE IRA, SEP IRA, or Solo 401(k). If you can’t decide on your own, take advice from a knowledgeable person. Know about the pros and cons of the retirement plans and choose one that is best for your financial situation.
Also, you should calculate how much you’d require after retirement to continue with your present lifestyle. Make sure you consider inflation while doing the calculations.
Have adequate insurance coverage for a stress-free life
Yes, this is a must. Your anxiety will reduce to a great extent if you have adequate insurance coverage. Talk to an agent to know what and how much coverage you need. Depending on the state you live, your home insurance requirement will vary.
You also need to have life insurance if you’re worried about your dependent members.
Car insurance is a legal must if you own a car. You will have to be sure that you have adequate coverage and a deductible that you can afford.
Perhaps one of the most important insurance policies is health insurance. Shop for policies, read carefully, compare the terms and conditions, and choose one that is most suitable for you and your family.
Finally, the last type of insurance I will mention here is disability insurance. It can be a bit more expensive, but that is because you are more likely to need it. Take a look at the plans available to you to see if you can fit this into your portfolio.
You can opt for multiple insurance policies from one insurer to save on the cost of insurance premium significantly. For all of these plans shop around through a service like Policygenius to find the best plan to suit your needs.
Start a 529 plan for your kid’s education
If you’re worried about your child’s education, starting a 529 college savings plan is a smart way to save and has some distinct advantages. You can say it’s an investment account. Your contributions in that account are invested in a variety of mutual funds or automated investment portfolios.
It has tax benefits too. In most states, if you invest in your home state’s plan, you get a tax deduction. Moreover, it’s tax-free investment growth. For example, if you use Indiana’s 529 plan, you can get about 20% tax credit up to $5,000 every year, depending on your contribution. It’s important to know that you do not have to invest in your home state’s plan, so be sure to shop around for your best option to fit your needs.
For qualified withdrawals, it is excluded from the federal income tax, if the parent or the student is the account owner. For non-qualified withdrawal, you’d have to pay income tax along with a 10% penalty on the earnings portion of your 529 plan distribution.
One note about using 529 plans, I do not recommend saving in a 529 plan over saving for your retirement. Having to take out student loans is not ideal, but your child(ren) have a lot more time on their side to recover from the lack of savings than you will from not having enough money in your retirement funds. Even a small amount to help your child(ren) out will help as well, so do not stress if you cannot fully fund their high education.
Lastly, I would like to mention that focusing on positives and on good aspects of your finances to overcome your financial stress and anxiety. This could be something small like the last fun experience that you were able to purchase with your savings. You are bound to feel stressed if you focus only on negative things. By thinking positively, you can keep your stress levels low and thus make the right decisions to manage your finances in a better way.
About the Author: Mia Jones is in freelance writing since the last few years and she mostly covers various fields of personal finance, Frugality, Minimalism, etc. While she is not writing, she spends most of her time exploring new places, people, and their culture. Get in touch with her on twitter at @MiaJone96792889