Life happens and, sometimes, it can be incredibly worrisome from a financial standpoint. You’ve struggled through a divorce. Perhaps you’ve faced a life-threatening illness. And, you look at your bank account and wonder. What is going to happen now?
As much as 66 percent of Americans responding to a study from the American Psychiatric Association report they have extreme or are somewhat anxious about their financial health right now. This has risen from 57 percent in 2017. This financial stress impacts overall mental health, quality of life, and even physical health.
But, there’s plenty you can do about it. Here are 10 steps you can take from the very beginning to rebuild your financial health and achieve the financial goals you have. Take a deep breath, create a plan, get some help, and overcome your biggest financial worries.
Gather information about your existing expenses, income, and debts. A simple spreadsheet or a piece of paper is all you need. If you are going through an event that’s still unfolding – such as medical bills pouring in or divorce decrees that are pending – use the current figures you have. Look into all of your assets to determine worth. This information will ultimately help you determine the next steps.
View budgets as a flexible, moldable tool capable of helping you to reach your goals. Base your budget on reality. If you don’t have enough coming in, you’ll need to find ways to earn more or cut back. But, you should have slots in your budget for spending money and savings. These are two areas commonly the downfall of those struggling to get back up. If you don’t have a plan for everything, you will not be able to follow a budget.
Your emergency fund is money you do not touch unless you simply have to do so. Emergencies are things like not being able to work because your car broke down. They do not account for purchases of unnecessary items, gifts, Christmas time, or other expenses. Initially, work to put $1,000 aside. Then, work to build this up to 2 to 3 months’ worth of salary for you. Make this money as untouchable as you can, such as in a bank account.
It’s a harsh reality but one that can transform your life. You have to pay bills to keep a roof over your family’s head. But, you don’t have to go out to eat to feed them. Reducing your spending is perhaps the hardest part of rebuilding. You have to make a conscious effort with every dollar you spend. A few rules:
Consult with your partner for any purchase over $100.
Don’t use credit cards. If you don’t have cash, don’t buy it.
Wait 24 hours before making major purchases to determine if it is really necessary.
Go through your utilities. Look for areas to cut costs. Discuss any cost you have with the person you pay. Is there a way to reduce it?
It’s a harsh reality for some, but increasing income is often necessary to rebuild yourself. But, today, unlike ever before, there are plenty of ways to do so. Work from home. Offer consulting services with your skills and background. Do some type of freelance work. Take on a part-time job. You may not want to give up the extra time right now, but doing so can help you grow financial health in the long term.
Debt can crush even the best dreams. But, don’t view debt as a simple balance you need to pay down. Look for ways to keep it more affordable:
Consider refinancing a home loan to get cash out to pay down your unsecured debt (talk to your advisor about the benefits and risks first). Call your credit card lenders. Ask for a lower rate. Settle your debt for less than owed.
Simply, find ways to keep your costs down. Once you know the amount of debt you have, make it your mission to pay less.
Financial planners are not just for those who are wealthy. People who need help getting back on track financially need to turn to this type of professional as soon as possible. When you do, you gain insight into more options. You learn what you can and should do to achieve your goals. Suddenly, you have a plan, you know how to make it work, and it really feels good. You can easily benefit from speaking to a financial planner right now.
Financial anxiety impacts quality of life. It creates a significant amount of stress for everyone. It feels impossible, but it becomes essential for you to talk to a professional, go out with friends, or spend some time meditating. Ease your anxiety and create a plan with a more clear, level head.
As you begin to see your plan come together, keep working at it. Remember, it’s flexible. You’ll want to set some basic goals for yourself including short-term, mid-term, and long-term goals. This could be to pay down debt, but also to build your savings. You may want to open an investment account, for example, once you reach a specific savings goal. Your advisor can help you to make this decision.
This is the last step, but it needs to happen as soon as possible. Your goal is to build your financial future. To do this, you simply have to start investing now. This allows compound interest to work for you. Talk to your financial planner about investment strategies based on your financial health, age, and goals. And, start planning for retirement.
Everyone needs a bit of help getting their finances in order. Don’t make the mistake of not taking the first step. You can rebuild after a life-changing event, no matter how hard it is, if you create a cohesive plan and work consistently towards the goal.
Douglas Finley, MS, CFP, AEP, CDFA founded Finley Wealth Advisors in February of 2006, as a Fiduciary Fee-Only Registered Investment Advisor, with the goal of creating a firm that eliminated the conflicts of interest inherent in the financial planner – advisor/client relationship. The firm specializes in wealth management for the middle-class millionaire.
Divorce and Social Security Benefits