Are you feeling financial stress? It’s rampant these days, with 64% of U.S. consumers saying they currently live paycheck to paycheck. Your financial condition affects more than your bank account; money-related worries can have a significant impact on your overall well-being, including your mental health, sleep, mood and energy level. And, even worse, it can cause damage your physical health as it has been linked to health problems like heart disease, diabetes, migraines and other conditions.
Fortunately, several practices can ease your economic anxiety. Here are five habits that allow you to exert more control over your finances and in the process boost your financial well-being and manage financial stress.
Smart Money Habit 1: Create a budget and stick to it.
This elemental step should be the foundation of how you manage finances. To create a budget, start by listing your income and expenses to determine your resources and the right way to allocate them. Many people find success with a “50/30/20” plan:
- 50% of your income is earmarked for “needs”: These are your essentials – mortgage/rent insurance, utilities, groceries and debts.
- 30% goes to “wants”: This category includes “nice to haves,” like dining out, entertainment, clothing and vacations.
- 20% is directed toward “savings”: Here you want to ensure your plan considers both long-term savings, like retirement, and short-term savings, such as for a vacation or a down payment on a house.
Once you’ve allocated funds to various categories, track spending by monitoring your cash flow throughout the month using a tool like the Valley app.
Smart Money Habit 2: Avoid damaging debt.
Some debt may be inevitable – for example, very few people pay for a house or even a car in cash. And not all debt is bad; what’s important is the type of debt you have and how you’re addressing it.
There are two main kinds of debt: installment debt and revolving debt. With installment debt, you borrow money and then steadily pay it back over time according to a plan – think student loans or mortgages. By contrast, revolving debt, such as what you accrue on credit cards, can keep growing if you don’t pay it off in full each month. Accumulating high-interest debt can quickly spiral out of control, leaving you with big bills and even more stress.
If you do have revolving debt, prioritize paying the debt off as quickly as possible. One method to help you make big gains is called the “avalanche,” where you pay as much as feasible on the bill that has the highest interest rate. You’ll still want to make the minimum payments on each of your accounts, but addressing your most expensive debt first can have a big effect on the interest you eventually pay. Once you’ve knocked out that debt, you can move to the bill with the next highest interest rate and so on.
Smart Money Habit 3: Save money automatically.
Even with the best of intentions, it can be hard to maintain savings discipline, especially if you wait until the end of the month to feed your accounts. The best way to ensure these funds don’t get inadvertently swallowed up by your day-to-day bills is to transfer a set amount automatically to your savings account. In theory, you won’t miss it if you never see it.
As part of this step, take the time to set both long-term and short-term financial goals and figure out what proportion to allocate to each. As an example, you might put a portion in a savings account that’s easy to access as an emergency fund for unexpected expenses; then allocate additional amounts to shorter-term goals like your housing fund; and finally, address long-term needs, such as your eventual retirement.
Smart Money Habit 4: Educate yourself on financial concepts.
Many of us are unfamiliar with basic personal finance approaches, which can make it challenging to make wise financial decisions. After all, if you’re unaware of the various types of available investments, you may miss out on vehicles that could be strong performers for you. For example, a money market savings account or certificate of deposit (CD) account might be ideal options for funds you need in the short term, such as saving for vacation or a home renovation.
You’ll also want to understand the concept of interest rates, which can work both for and against you. It’s favorable in the case of compounding interest in your long-term savings account, but can be detrimental if it’s accruing on a credit card balance that isn’t paid off in full.
The Valley Learning Center is a great place to find ways to start improving your knowledge. A financial advisor can also help assess your financial situation and help you discover financial products that can set you on the path toward your goals.
Smart Money Habit 5: Practice gratitude.
Most people occasionally feel overwhelmed regarding their finances, and it’s definitely easy to look around and fret about what you don’t have, rather than appreciate what you do. Practicing gratitude can help shift your focus away from financial problems and toward what you’re thankful for in your life. Shifting your mindset this way can help you feel more positive and resilient, even when facing monetary challenges.
The best time to start is today
Establishing healthy financial habits is essential to manage financial stress and achieve security and peace of mind. Setting achievable money-related goals and making them part of your routine can help you stay motivated and focused on your financial journey.
For more personal finance insight, visit the Valley Learning Center today.
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