Improve Your Finances and Reduce Financial Stress
Managing stress and finances can be a quite the undertaking, but it is also an opportunity to take control of your life and achieve financial stability. By having smart financial strategies in place, you can reduce your anxiety levels and improve your overall well-being.
Start with a Financial Plan (aka a Budget)
Creating a budget can help prevent you from going into debt or spending more than you make. It can also allow you to see where you can cut back so you can still cover essentials like gas and groceries. A budget can be a great guide in helping you plan for upcoming life events much as marriage, school or buying a home.
To create a budget, list out your monthly income, expenses, and debt. One approach to budgeting is using the 50/30/20 plan. It’s a simple version and a great starting point when creating a budget. 50% of your income should go to things you need (i.e., food, utilities, shelter, transportation, insurance, loan payment, childcare or other expenses), 30% goes to things you want (i.e., meals out, monthly subscriptions, entertainment or travel), and 20% goes towards savings and paying debts (i.e., saving for your emergency fund, paying down credit cards or saving for retirement).
Your budget can help you understand the impact your spending choices will have on your ability to meet your longer-term goals and give you financial peace of mind. Use CommunityAmerica’s Monthly Cash Flow Plan if you need help getting started.
Tackling Debts to Build Your Credit
Once you identify how much of your paycheck you can put towards your debt, decide which strategy to use to pay it off. Debt is money owed, and can involve real estate property, auto loans, credit cards and more. Your credit score is strongly tied to your debt history and how timely you are in paying your debts. Remember, your credit score can have a major impact in your life, from getting approved for a loan to renting an apartment or landing a job.
There are several strategies you can use to bring down debt. There’s no right or wrong way, just find a method that works for you.
- The snowball method -- Rank your loan balances from smallest to largest. Pay more than the minimum amount due on the loan with the smallest balance to aggressively pay down your debt. Pay the minimum on the other loans. Once the smallest debt is paid off, take everything you were putting toward it and add it to the payment for the loan with the next lowest balance. Repeat this process until you’ve paid all debts.
- Debt avalanche – Rank your loans interest rates from largest to smallest. Pay more than the minimum on the highest interest rate debt as fast as possible. Pay the minimums on the other debts. Once your largest interest rate is paid off, take everything you were putting toward it to the next highest interest rate loan. Repeat this process until you’ve paid all debts.
- Debt consolidation – Combine all your debts into a single account. You can possibly get a lower interest rate and it will help you focus on debt in one spot.
A key to these strategies is stopping additional charges to your credit card balances or you will never truly pay down the debt. This is why creating a budget is important when paying down your debts and building credit.
Prepare for Financial Stressors
No one knows what the future holds, but you can prepare for the unexpected as much as you can. Financial stressors are usually situational. Life experiences such as death of a loved one, divorce, loss of a job, and medical expenses will cause your finances to take a hit. Even expenses like major car repairs or home appliance replacements can be unexpected and costly. Preparing for what you can’t control by starting an emergency fund. This financial cushion will soften whatever set back you may take on.
It's advised to start with at least three to six months of living expenses. This helps ensure that an unexpected expense won’t result in debt or cause you to cash other investments. Use CommunityAmerica’s Save Money Worksheet to help get you started.
Take Advantage of CommunityAmerica's Free Financial Coaching
Stress is normal and a necessary part of life. When it comes down to it, happiness is how we react to stress. Financial stress can be managed when you have the tools to take control. CommunityAmerica’s certified Financial Well-Being Coaches provide one-on-one money management consulting sessions, regular financial check-ups and a connection to community support services.
When you have smart financial strategies in place, you’re on your way to having stress-free financial peace of mind.