Money is the number one cause of stress in the United States. According to a recent American Psychological Association (APA) study, 72% of Americans felt stressed about money at some point in the previous month.
With the right systems in place, finances can be automated so that you are making decisions for your life out of design, rather than default.
Here are 5 tips to help take stress out of your finances:
1. Understand the difference between healthy tracking and unhealthy tracking.
A term I love is “what gets tracked, gets done”, which can be true in personal life and business. It is very important to understand how much you are spending on a monthly basis, but we find that people spend way too much time and stress tracking every dollar they have ever spent. This potentially leads to spending with regret and never being able to fully enjoy the money that you worked hard for. On the flip side, if there is no tracking at all, you are not going likely to have any idea how much you are spending, which can also be a problem.
We have found that tracking savings and net worth are two of the most efficient metrics to track. We refer to this as the “money temperature”, meaning that whatever does not get saved, gets spent. If you have a sound plan in place to save for your goals, you can spend everything else and this can help eliminate or reduce the stress of worrying about every purchase you ever make. This can also save your time as you can spend your time on what really matters, rather than spending time monitoring dollars you may never get back.
We recommend using “reverse budgeting”, which automates fixed expenses and savings every month in one bank account, and then having another bank account for variable spending so you can spend freely. This strategy alone will help eliminate or reduce the need to track everything.
2. Evaluate how you trade time for money or money for time.
Almost everyday, just about everyone is exchanging time for money, or money for time. They are either spending time to make money, or spending money to free up time. If you are able to deeply look at how you are currently doing this in your life, it will help you calibrate what you are saving and spending to align with your core values and goals. We help clients with a time exercise where they look at the current breakdown of their day currently between sleep, work, and free time. Once we have that determined, we eliminate the work section, and now all of the sudden when they have double or triple the free time, they have goals of traveling or hobbies that they would like to do. This generally leads to conversations around how we can implement these goals in their lives today, as most people that are successful in their careers love what they are doing and may never want to retire in a traditional sense. This helps ensure that they are not too focused on their careers and are enjoying life along the way. And then when it comes to it, retiring to something vs. away from something.
3. Establish a top 5 values list.
This is an exercise that we take clients through where we help them narrow down their core values to the 5 most important. Successful people can find themselves extremely busy and can lose sight of their values and what is most important in their lives. These can be used a guide for decision making, especially when it comes to financial decisions. Most people make financial decisions based on what they think will be the highest rate of return, but that may not matter if it does not align with their core values. This allows us to make sure that money is always supporting their lives, rather than making decisions based on finances only.
4. Talk about money.
We have found that many people avoid talking about money and conversations that should have been had years ago have never been put on the table. These conversations can include: joint or separate bank accounts, getting a pre-nup, philosophy for savings, or philosophy for savings for kids’ education. There is no right or wrong answer to these, but the correct answer is to talk. This will teach them how to prioritize saving vs spending and help ensure that they are taught the values that you used to accumulate your wealth over your life. If there is no talking, this often leads to assuming things that are not true, which can lead to more stress. Not only having these conversations with your spouse, but also having conversations around money with your kids. There is a fine line between helping and enabling, and these conversations can make sure that you are helping, rather than enabling.
5. Hire a financial advisor.
Working with the wrong advisor can bring more stress into your life if they are focused on selling products, rather than giving you advice in your best interest. A good advisor can allow you to focus on your family by helping to free up time through delegation. An advisor should understand your priorities, values, and goals so that when there is competing goals, they can help you navigate decisions that align with what is most important to you. Understanding priorities is one of the most important attribute of an advisor. The right advisor should not waste your time, and do everything they can to take things off your plate. Many advisors will meet just to meet, but a good advisor will focus on taking stress off your plate, and putting time back on.
Finances are the leading cause of stress in America, but with the right systems in place, you can better control your finances, rather than your finances controlling you.
Equilibrium Wealth Advisors is a registered investment advisor. The contents of this article are for educational purposes only and do not represent investment advice.
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