Does Money Stress You Out? Take This Time To Learn About Your Finances

Contributing writer By Alyssa Shaffer
Contributing writer
Alyssa Shaffer is a writer and editor who specializes in health, nutrition and fitness; she is the author of four best-selling books on these topics. She is the former executive editor of Muscle & Fitness Hers and fitness director for Fitness magazine and has written for dozens of consumer print magazines and websites. Shaffer received her degree from the University of Michigan.
Unrecognizable male using credit card and laptop to pay for online purchases while sitting at table at home

Image by Sofie Delauw / Stocksy

Americans are worried about money (especially now, and rightfully so.) According to the American Psychological Association (APA), about a third of us say unexpected expenses make us anxious; 3 in 10 also get stressed thinking about saving for retirement. When the survey was conducted, 25% said they were concerned about their ability to pay for essentials like food, clothing, and shelter (probably higher percentage now). Not only that, but Americans' debt hit a new high of $13.86 trillion in 2018, $1.2 trillion higher than the previous peak of $12.68 trillion set in 2008, according to the Federal Reserve Bank of New York. Fewer people say they carry no debt compared to the previous year, with the average personal debt (exclusive of home mortgages) exceeding $38,000, according to Northwestern Mutual. So it's not surprising that about 65% of us report losing sleep over money worries, according to a creditcards.com poll. But with some simple planning, experts say you can gain control of your finances—and reduce those dollar dilemmas. Here's how:

1. Figure out where your money is going.

Knowing where your dollars are spent is the first step toward being able to take realistic measures to dial things back. "Many of us have no idea what we're spending our money on," notes Tara Murphy, a consumer savings expert and former editor-in-chief of thestreet.com. Start by gathering up all of your bills and credit statements, and begin to break down your spending into various categories, such as meals and entertainment, shopping, groceries, home, etc. You can also begin tracking expenses or use a financial-planning app. Keep it up for about a month. "You might be surprised at how much you are actually spending in different areas," says Murphy.

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2. Set your priorities.

There are some basic rules when it comes to determining where money is going. "Consumer debt, like credit cards, shouldn't exceed 20% of your net income [after taxes]," says certified financial planner Marc Lowlicht, CEO of OPES Private Wealth Management in East Hampton, New York. Monthly housing costs (including principal interest, taxes, association fees, and homeowners insurance) shouldn't exceed 28% of gross income. And your total monthly payments on all debt shouldn't exceed 36% of gross monthly income, he advises.

3. Pay down what you can.

Those monthly carrying charges on your credit card are slowly eating away at your finances. The Federal Reserve reported that total credit card balances have increased to $868 billion. The average American has a credit card balance of $6,375, according to credit reporting agency Experian. The average U.S. household pays a total of $1,292 a year in interest charges, according to CNBC.com, which notes that 43% of Americans carry a credit card balance for more than two years. "If you only pay the minimum balance on your credit card, you will never make a dent," says Murphy. That's especially true when interest rates are on the rise.

Pay off what you can, and be sure to reach out and talk to your credit card companies if you are having a problem, she adds. "They want to keep your business, so they will try to do what they can to work with you." And don't be afraid to transfer balances from your higher-rate cards to your lower-rate ones. If you have a few different debts, make sure that you pay the minimum on all of them. But it can also help to determine whether you want to pay those with the highest rates first (known as the "avalanche method") in order to pay down the debts that cost you the most in interest, or if you want to try the "snowball" effect, where you knock out smaller debts before larger ones as a way to gain momentum and to help keep you feeling motivated.

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4. Build up your piggy bank.

At the same time that you are trying to get out of the red, do what you can to get more green. Ideally, you'll want to have a nest egg of 6 to 12 months in savings as an emergency fund. "Starting out small—even just $50 a month in savings—can help you build up a cushion," says Murphy. "Having that savings goes a long way toward giving you some extra peace of mind." (Perhaps saving right now isn't possible, but when you get to a place where it is, start small and build up.)

5. Plan your purchases.

"A lot of our anxiety comes from not being able to keep up with monthly payments—that push-pull that comes from wanting something but also having to find the means to make it work," says Murphy. Thinking about how you will fund big purchases in advance will keep you on track so your financial anxieties don't get out of control. "You can have anything you want, as long as you have a realistic plan to pay for it," adds Murphy. "That alone will alleviate a huge amount of stress."

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6. Be careful about consolidation.

If you've gotten into a serious financial hole, you may be tempted to sign up for a debt-settlement program. This is typically offered by for-profit companies, who will negotiate with your creditors on your behalf so you can pay a lump-sum settlement that is less than the full amount you owe. The program will usually ask you to set aside a specific amount of savings each week into an escrow-like account that will help you pay off these settlements. But keep in mind that these programs do carry with them a few risks. For one, they can adversely affect your credit rating, says Murphy. "If you need to purchase something where credit comes into play, like loans for a car or for school or a home, you may have a problem," she notes.

7. Be a smarter investor.

If your financial plans involve investing in things like the stock market or individual funds, know what you are getting into upfront. It can help to sit down with an expert who understands asset allocation and will work with you to create a portfolio that matches your planning, suggests Lowlicht. "People start to panic if the market is down or things aren't going the way they expect, but if you have a plan in place, you'll be able to weather most storms," he shares. Furthermore, be sure to keep updating the plan as your needs change, whether you are getting married, having children, or switching jobs. At a minimum, Lowlicht continues, take a look at your investments on an annual basis to make sure that they are in line with your overall needs.

Adapted from From How To Beat Stress: The Scientific Guide to Being Happy by Alyssa Shaffer, published March 24, 2020, by Centennial Books. 

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