Have you ever been afraid to log into your bank account or check your credit card balances? If you’re losing sleep over your personal finances, you’re not alone. According to a Bankrate survey, 36 percent of Americans are losing sleep over money troubles.
While money anxiety can be more common than we realize, it’s important to address it sooner rather than later. Ignoring your finances will hurt you in the long run, even if it feels better to bury your head in the sand right now. Money troubles never go away unless you take charge of your situation and address them head-on.
The good news is that there are steps you can take to improve your finances right now. Make a commitment to yourself that you’ll get over your fear of personal finance and take charge of your money. Only when you make your finances a priority will you be able to conquer your money fears.
Acknowledge Your Fear of Personal Finances
Many people who are afraid of their personal finances don’t realize it. They lie to themselves and say they only live once and shouldn’t have to worry about money. Others think that if they don’t know the state of their personal finances, it means everything is just fine. If something is wrong, they just avoid it.
This type of thinking is keeping you poor and causing you sleepless nights. Before you can make a plan on how to handle your money, you have to acknowledge your fear of your personal finances. Once you realize that your fear is holding you back, you can move forward with your life and with finding a solution to your money problems and anxiety.
You’re not destined to live in fear of checking your credit card balance or having a check bounce. Having money problems does not make you a bad person.
You’re not your credit score or your debt. However, getting a handle on your money and making a plan for the future will change your life for the better.
Identify the Cause of Your Money Anxiety
Knowing the source of your money anxiety is a great first step in addressing the problem. Are you worried because you’re buried under a mountain of debt? Maybe you don’t have enough saved for retirement? Whatever the cause of your anxiety, money stress can feel suffocating and hopeless.
While it can be painful to take an inventory of your personal finances, it’s important to know the exact issue that’s keeping you up at night. Take stock and write down the two to three big money problems that are causing you heartburn.
Don’t give into any guilt trips or beat yourself up over past transgressions. The only point of this exercise is to get a clear picture of what’s causing you anxiety.
Once you have a complete picture of the cause of your money anxiety, you can make a plan to fix your finances. The first step is realizing you have a problem and pinpointing the reason for your money fears.
Steps to Overcoming Your Money Fears
Overcoming your money fears may feel impossible now but know that there is a solution. Believe it or not, the unknown is half the reason for your money anxiety. Once you know what the problem is, you can start working on a solution.
When you have a good idea of what’s causing you to lose sleep at night, you can start formulating a plan. Will it be easy? Probably not. Will it mean you’ll have to make some sacrifices? More than likely. However, addressing your money problems head-on will help you deal with your anxiety.
It’s important to realize that nothing will be solved overnight. You have to have patience, formulate a plan, and most importantly - stick with it! Keep in mind the big picture and know that you’re taking steps in the right direction. Slip ups will happen from time to time but make sure to get back on track and keep pushing through so you can reach your goal.
Create a full money picture
Even though this step can feel overwhelming, it’s critical to your success. You’ll need to gather all of your personal finance information - loan balances, credit card balances, medical debt, student loan debt, etc. In addition, you’ll need to pull together all of your assets such as checking and savings account balances, property values, investments, etc.
Once you have a full picture of your debt vs. your assets, you can then calculate your net worth. Just take your debt and subtract it from your assets to get your total net worth number.
When you look at that number, it could be negative. That’s ok for now. As you pay off your debt, your net worth will transition from a negative to a positive number.
There are different options out there for tracking your net worth but nothing beats a plain old spreadsheet. It’s easy, it’s free, and updating it regularly means that you’ll keep a close eye on your personal finances. Nothing’s more motivating to paying down your debt as watching your loan balances go down month after month and year after year.
If there’s more than one person in your household, make sure to include them in the process. Even if you don’t share finances, they can help you by cheering you on, holding you accountable, and offering motivation when you’re ready to quit. Don’t underestimate the power of having someone else to share your money burdens.
If you know someone else who’s also trying to get a hold of their personal finances, you can reach out to them and see if they’d be interested in being your accountability buddy. Just like with weight loss or working out, having someone else who knows what you’re going through can be a great asset.
Draft a budget
Budgets get a bad reputation. In fact, hearing the word “budget” can make many people shudder. However, the word budget is very misunderstood. It just means a spending plan for your money.
It’s not meant to be restrictive or make you feel like you can’t have fun. It simply means you tell your money where to go rather than letting expenses control you.
The easiest way to draft a budget is to review your spending over the last few weeks or months (months is better!) to get an idea of where your money goes. Based on your spending, create a loose budget for all the different areas where you spend money: mortgage, car payment, utility bills, gas, food, debt repayment, etc.
This is just a rough outline of your current spending budget. It does not mean it’s your final budget. Keep in mind that you’ll likely have to keep adjusting your different budget categories to find a good balance. No one gets everything right the first time so don’t beat yourself up over it.
Once you have a draft budget, this will give you a good idea of where your money is going. It will show you how much you’re spending on gas, groceries, dinners out, and so on.
This gives you a chance to figure out if your spending aligns with your priorities. If you don’t have a full money picture and a spending plan, it’s difficult to know if you’re spending money on what matters most to you.
When you put together your initial budget, you’ll likely notice a few areas where you’re spending money (or too much money) that don’t align with your priorities. This is an opportunity for you to cut back on spending in those areas so you can put the money toward others that matter more.
For example, if you’re spending too much money on groceries, you can make a plan to cut back and put the excess money toward debt repayment or savings.
Start an emergency fund
Emergencies will happen, it’s just a fact. Whether you’re prepared or not can mean the difference between anxiety or just a bump in the road. This is where an emergency fund comes into play.
A 2016 Northwestern Mutual study found that 55 percent of Americans’ financial anxieties stem from unexpected expenses. Having some money in the bank earmarked for “stuff happens” can really make a difference when it matters.
But what exactly is an emergency fund and what constitutes an emergency? Simply put, an emergency fund is money set aside (preferably in a separate bank account) to handle unexpected expenses.
A true emergency is something you couldn’t have planned. For example, if your dog starts to vomit unexpectedly at 9 p.m. on Saturday necessitating a visit to the emergency vet - that’s an emergency.
Having the money set aside will help you pay for it without going into debt. Wanting to buy the newest iPhone when it comes out but not having the money in your regular bank account is not an emergency.
Building a good emergency fund can take a few months but having one in place can be amazing for your mental health. It means knowing in the back of your mind that you can cover unexpected expenses when they happen.
The easiest way to start an emergency fund is to open a separate account. Keeping the funds separate means that you know the only purpose they have is for a true emergency. You can start doing regular transfers to your account to build it up.
How much should you have in your fund? Ideally, you should have three to six months’ worth of expenses (not income) saved in an emergency fund. If that feels overwhelming, don’t panic. It will take you some time to get there but in the meantime, you can set some more achievable goals to get you moving along.
Initially, you should aim to save $500 in your emergency fund to cover some unexpected expenses. If you’re able to set aside just $50/week, you can save that in 10 weeks. If you can bump up your savings rate to $100/week, it’ll only take you five weeks.
The next step is to save $1,000. That’s a good emergency fund for small to mid-size emergencies and will help you stay out of debt.
Once you have $1,000, you can start building toward having one month of living expenses saved up and so on. If you have to dip into your account to pay for an emergency, make sure to build it back up to its previous balance as quickly as you can.
Make a plan to get out of debt
Getting out of debt doesn’t just happen - it requires a plan. Paying off debt can help alleviate money anxiety and let you sleep well at night. Not having debt hanging over your head means you can use that money for something else.
In fact, according to the 2018 Northwestern Mutual Study, 42 percent of Americans contribute their economic anxiety to debt. There’s nothing more freeing than knowing you don’t owe money to anyone.
The best way to pay off debt is to make extra payments. Organize all of your debt balances in a spreadsheet, including remaining balance, monthly payment amount, interest rate, and loan term. This will help you decide which debt to tackle first.
Take a look at that budget you drafted and try to identify three to five areas where you can cut back your spending. For example, you can cut back your grocery spending, your entertainment budget, and gas.
You can also look at selling some stuff around your house or picking up a side hustle. All the money you save and make can go toward paying off your debt.
Make sure to track your progress every month as you make extra payments. Pick just one loan to focus on paying off and throw extra money toward it until it’s all gone. Seeing the loan balance go down will give you the motivation to keep going.
Once you make the final payment, take the amount you were paying toward this loan and apply it to the next balance on your list. Keep going until all of your debt has been successfully paid off.
Celebrate the successes
Getting a handle on your personal finances and overcoming your fears won’t happen overnight. It has taken you years to acquire your current money beliefs so it’s only natural that it will take a while to break the bad habits.
Give yourself grace when you make a mistake because it will happen. Realize that just because you got off track, it doesn’t mean that you’ve failed. Get back on track and keep going.
Make sure to celebrate all successes, big and small. They will help you keep going when you feel like giving up.
Come up with some non-monetary rewards you enjoy that can help you celebrate debt payoff milestones. Having someone who can keep you motivated, cheer you on, and celebrate with you can make a big difference in the long run as well.
Knowledge as a tool
When it comes to overcoming your fears of your personal finances, it’s important to realize that knowledge is a tool. Staying in the dark about your money makes you powerless to take charge of your life. Knowledge gives you the power to change your relationship with money and get a handle of your finances.
Don’t let your fear of the unknown take away your right to be in charge of your money. You tell your money where to go and not the other way around.
The more you know, the better you can plan for the future. If you’re still unsure of what to do, enlist the help of a trusted professional who can help guide you along the way.
You don’t have to do everything alone. A trusted financial advisor can help you make a plan for your money and get you back on track. The more you know, the more your fear will fade. We’re only scared of what we don’t know.
I hope this helps relieve some anxiety and shows you how to create a plan. Best of luck on your journey. I know you can do it!
This is a post from Clint Haynes, a Certified Financial Planner® and Financial Advisor in Kansas City, Missouri. He is also the founder and owner of NextGen Wealth. You can learn more about Clint at the website NextGen Wealth.