8 Tips for Finding Financial Peace
Occasional financial stress is common, but if financial worries are interfering with your sleep and daily life, you may be experiencing financial anxiety. Financial anxiety impacts individuals of all ages and income brackets. Constant worry about money, debt, job security and the future can significantly impact your mental, emotional and even physical well-being, which is why it’s important to take steps to improve your financial confidence and lower your anxiety. The following tips can help.
Tip #1 – Understand your stressors.
The first step in dealing with financial anxiety is to identify the exact cause of your stress. Perhaps you’re anxious about day-to-day financial issues, such as excessive debt, insufficient savings to cover an emergency, large upcoming expenses or unexpected emergencies. Or you may be worried about big-picture items, such as retirement and/or college savings, investment performance, a fear of losing your job or the pressure of maintaining a certain lifestyle.
Once you identify your particular triggers, you can start to anticipate when anxiety will strike and take specific steps to address those financial issues.
Tip #2 – Develop a financial plan.
One of the best ways of overcoming financial anxiety is by establishing (and following!) a comprehensive financial plan, because it puts you in control of your finances. Your plan should account for all aspects of your financial life and address the particular challenges/stressors keeping you up at night.
A solid financial plan can help you gain the confidence that comes from knowing you have accounted for the major factors that may impact your financial life and that you’re prepared to handle whatever the future may have in store. Ultimately, a financial plan can help ease your financial anxiety by allowing you to feel more secure in your financial future.
Tip #3 – Manage your debt.
Excessive debt can quickly spiral out of control, leading to significant anxiety. Fortunately, with focus and determination, it’s possible to tackle your debt. Two effective strategies include:
- The snowball method – This method involves paying off your smallest debt balance as quickly as possible, then moving on to the next-smallest debt. The benefit of this approach is it can help you gain a sense of accomplishment as you knock out one loan after another.
- The avalanche method – Using this method, you begin paying on whatever loan has the highest interest rate. Once it’s paid off, you move on to the loan with the next-highest interest rate until all loans are paid off. This approach allows you to pick up speed as you go, because each payment saves you more money than the one before.
Tip #4 – Create a budget.
Budgeting is a powerful tool that can help you take charge of your finances and feel more confident about your spending and saving habits. Start by taking an objective look at your savings, spending, investments and debt. Be honest with yourself about where you stand today versus where you want to be.
- Track your spending for 30 days to gain an understanding of where your money goes.
- Make a list of all debts, including their outstanding balances and interest rates.
- Make a list of all your assets, including emergency savings, investment accounts, checking and savings accounts, retirement accounts, etc.
- Make a list of your long- and short-term goals to determine whether you’re making progress toward achieving them, and identify areas for improvement.
It may be helpful to view your budget in terms of your priorities and values. What’s most important to you? Spending time with family? Pursuing a hobby? Saving for a down payment on a home? Focusing on achieving what’s most important to you can help ease your anxiety by allowing you to live more purposefully.
Tip #5 – Build up your short-term savings.
If your anxiety stems from a fear of the unexpected, it may be time to focus on building a source of emergency savings. Common wisdom advises that you should have at least three to six months of living expenses saved in a short-term, liquid emergency fund. However, some people feel the need to save even more.
If you’re worried about market volatility or significant emergency expenses, it may make sense to maintain three to five years of living expenses in a short-term, semiliquid investment account. Having a short-term allocation to bonds can help you avoid short-term market volatility and provide you with the peace of mind of knowing you’re able to cover any unexpected expenses that may arise.
Tip #6 – Establish an estate plan.
If you worry about what would happen to your loved ones should you die unexpectedly, it may be time to establish or update your estate plan. Not only can an estate plan help ensure assets are passed along according to your wishes but it can also detail who will care for your child(ren) should something unexpected happen to you.
Consider establishing the following:
- Will –A will is the main estate planning document everyone should have in place. Not only does a will distribute assets according to your wishes but it can also help minimize estate taxes and legal challenges to your estate.
- Guardianship designations –While many wills include guardianship designations, it’s an important enough element to call out separately. If you don’t formally designate who will care for your child(ren) should something happen to you, a court may give custody to a family member you wouldn’t have chosen.
- Living trust – Establishing a living trust can be an effective way to avoid probate, which can be an expensive and time-consuming process. A trust can also provide significant tax savings for your heirs.
- Durable power of attorney –A durable power of attorney is a legal document that designates an individual to act on your behalf should you become incapacitated and unable to make decisions on your own.
- Healthcare power of attorney –Similar to a durable power of attorney, a healthcare power of attorney designates an individual to make medical decisions on your behalf should you become incapacitated.
- Letter of intent –While not a legally binding document, a letter of intent can be used to inform your executor, beneficiary or the court of your intentions following your death. People sometimes use these letters to express their funeral wishes or to designate how a special asset should be handled.
Tip #7 – Ensure you’re properly insured.
Having proper insurance in place can go a long way toward helping you sleep better at night. Work with a qualified wealth advisor to review your existing policies to identify any gaps in coverage.
Tip #8 – Work with a wealth advisor.
Speaking of qualified wealth advisors, one of the best ways to ease your financial anxiety and feel more confident in your financial future is by working with an experienced financial professional. A wealth advisor can help you identify and overcome obstacles and challenges that may be contributing to your financial anxiety. Seek an advisor who provides comprehensive financial planning that incorporates all aspects of your financial life into a single plan to guide your decision-making.
Wondering where to find such an advisor? Creative Planning has you covered. Our experienced wealth managers are here to help ease your financial anxiety and provide you with the confidence that comes from knowing you’re taking steps toward a more secure financial future. Your wealth manager is supported by an in-house team of investment advisors, CPAs, lawyers, traders and insurance specialists who work together to help ensure every aspect of your financial life is well cared for.
To learn more, schedule a call with a member of our team.