The Check Register is so Yesterday
Many people struggle to manage their personal finances simply because they don’t want to face the reality of their financial circumstances. Rather than getting real about what they have and what they need, they allow fear to stop them from taking action and do nothing. But avoiding financial stress does not make it go away; in fact, the longer you ignore it, the more it tends to grow.
In my article How to Face Financial Stress with Courage and Confidence I talked about how financial stress can cause issues with our health and our relationships. In the next article in this series, Why You Need to Start Talking About Money, I explained how you can start to reduce financial stress by opening up and having honest conversations about your finances. In this article, I will give you specific action steps you can take to get real about your personal finances and minimize your financial anxiety over time.
The good news is, if you’re feeling weighed down by financial pressure, you may have more control than you believe. When you’re under stress, it might be difficult to recognize that emotions get in the way of your ability to think clearly about your financial situation. For this reason, it’s important to have a full understanding of the state of your finances.
How to track your spending to reduce financial stress
Start by knowing what you have and what you need. What are your bills and expenses and what is your income?
In the past, you or your parents may have tediously balanced a “check registry” by hand to track household spending. Today, you can turn to simple software that keeps up with spending. An easy way to get started is via online banking tools. You can build categories online with your bank so each visit to the gas pump or card swipe in a restaurant is automatically cataloged into the appropriate designation. This may still leave you wondering where some of your money goes, however. The best way to get a complete picture is by budgeting and tracking every penny you spend. There are many online budgeting programs available, some of which are free and others for a low monthly cost. You can even sync your bank account with them so that transactions are automatically imported. Once you are tracking your spending, you can clearly see which categories need attention to reduce your monthly bills and cut back.
Right now you may feel that you need every dime to make ends meet. But once you’re able to take an objective look at the numbers, chances are you will find plenty of room for change. You may feel like your finances are out of control, but once you take an honest look at the facts, you will likely discover your financial circumstances are much more manageable than your emotions have led you to believe.
Once you are tracking your spending, you can begin to cut back on unnecessary or wasteful purchases and start tackling the biggest financial stressor of all — lack of adequate savings.
How to build an emergency savings fund to reduce financial stress
According to recent studies, 66 percent of adults reported not having a three-month emergency fund saved and less than half of Americans have enough saved to cover a $1,000 personal emergency.1 Unexpected job loss and unplanned unemployment due to illness or injury happen often, so it’s no wonder so many people are on edge about money; they can find themselves in dire circumstances at any moment and that’s a scary thought.
To minimize the vulnerability that stems from living paycheck to paycheck, it’s important to make sure you have 6 to 12 months of expenses set aside in a savings account. If you do not have it yet, build it. If you are having trouble making ends meet, this may seem easier said than done. But paying close attention to your spending habits, sticking to a budget, and automating your savings deposits will allow you to grow your emergency fund more quickly and painlessly than you might think.
Instead of waiting to see what you have “leftover” at the end of the month, consider building your savings as an installment plan. Call it a “savings payment” and automatically transfer a fixed amount to your savings account each month. This is no different than making a car payment or a mortgage payment; it’s not optional and you can’t skip it just because you’d rather spend the money elsewhere.
Once you have 6 to 12 months of expenses in savings, you have choices as to what to do with the “savings payment” each month from that point. But don’t stop at the minimum. This fund becomes the foundation for your financial independence. Whether you decide to keep building your savings or you start investing, it’s your choice — a choice you would not have if you had not committed to a plan.
Tracking your spending and saving your money will do more to reduce your financial stress than anything else. Taking the emotion out of the challenge and creating structure can ease the anxiety caused by not knowing where your money is going or how much you have at any given time.
Seek advice from a trusted source and work with a financial advisor to discuss how proper planning can help you reduce financial stress. Feel free to reach out to my office at 803-985-2447 or at firstname.lastname@example.org to let us help.
Hiram “Chip” Hutchinson, III, is the President of Hutchison Group, Inc. (HG), a fee-based, independent financial services firm assisting clients in and around Rock Hill, South Carolina. Chip drives strategies designed to better enrich the client’s experience, resulting in a deeper client relationship and a broader understanding of client financial needs. HG has been offering personal financial guidance for more than two decades. Learn more about them at hutchisongroup.com.
Content in this material is for general information only and are not intended to provide specific advice or recommendations for any individual.