6 Steps to Improve Your Financial Peace of Mind
- December 8, 2020
- 5 min read
- 59 reads
Peace of mind may seem hard to come by nowadays.
No matter where you live, work, or get your news, there’s no escaping the new normal created by the COVID-19 pandemic. For many people, the need for security has never been greater. In their personal lives. In their professional lives. In their finances.
Still, there are measures you can take to protect what matters most and alleviate your fears. If you’ve been looking for them, look no further. Here are six steps you can take right now to improve your financial peace of mind.
1. Pinpoint your priorities
You probably can’t afford everything you want. (If you could, would you be reading this?)
The essentials you need to live your life are non-negotiable. But if you don’t have a clear picture of what this does and doesn’t include, uncertainty will loom. Accomplishing this can be as simple as writing them down. And after you highlight the “must-haves” in your life, you will find it becomes much easier to cut back on the “nice-to-haves” that are draining you financially.
For example, homeownership is a milestone that feels out-of-reach for many due to down payment requirements. Make it a habit to highlight areas where you can reel in your spending, like late-night take-out orders and online shopping splurges, and stash it instead.
2. Track your expenses
Once you pinpoint your priorities, don’t stop there. Zero in on what they look like in action so you can monitor your progress by tracking your expenses. This will help you commit to saving for your most important financial goals.
You can use financial software, apps, and tools to track your expenses, but you don’t have to — especially if you find it to makes the task more overwhelming. A simple spreadsheet will do the trick, either on your computer or done by hand. In fact, any method you use is acceptable as long as you use it faithfully.
Stress arises from the unknown and not knowing how you spend your money each month is no exception. Having a clear understanding of how you’re spending your money will keep on track to achieve your financial goals.
3. Establish a strong emergency fund
Challenges in life have a way of showing up when least expected. Job losses, unexpected medical bills, major household repairs — these are just a few of the events that can deplete your savings and disturb your financial peace of mind.
Here lies the importance of having an emergency fund you can count on.
Most financial experts say that one non-negotiable component of financial wellness is having an emergency fund equal to three to six months of living expenses. That may sound like a huge mountain to climb right now, but take it one step at a time. Figure out what you can afford to contribute to your fund each month and forecast how long it will take you to get there. You can even automate your savings with an app like Digit.
Even if it’s not immediate, knowing that you have an emergency fund in the works will help provide a greater sense of security.
4. Protect your paycheck
How devastating would it be for you financially if you were to go without your next paycheck? The Federal Reserve reports that 39% of Americans don’t have enough money on hand to cover an unexpected $400 expense. Losing your job and source of income is among of the most stress-inducing fears you can have.
Getting downsized or having your company go out of business aren’t the only ways you can lose your paycheck. A major injury or illness can also be the catalyst for not being able to work. And contrary to popular belief, it can happen to you. According to the Council for Disability Awareness, approximately one-in-four of today’s 20 year-olds will suffer a disabling event before they retire.
So, how can you protect the paycheck you rely on to meet your financial obligations? If your employer offers disability insurance as a benefit, enroll when you’re eligible. If they don’t, purchase a long term disability policy as soon as you can. The peace of mind knowing that your paycheck will continue if you can’t work is beyond compare.
5. Set your sights on something fun
As a kid, vegetables come before dessert. As an adult, your financial needs come before your financial wants. You have to establish your emergency savings fund and other must-haves before you can start saving for the fun stuff. But it’s well worth the wait.
Whether you wish to visit an exciting destination, buy a special gift for a loved one, or upgrade your means of transportation, it’s important to give yourself something to look forward to. Putting a reasonable amount of money aside each paycheck for something fun can be fulfilling when you look at your statements each month.
Of course, paying the bills, saving for retirement, providing for your family, and other necessities still come first. It doesn’t hurt to set your sights on something fun as long it’s realistic and responsible though.
6. Cut up the cards
There aren’t many things that can challenge your financial peace of mind more than watching credit card balances balloon. Debt can be disheartening in all forms, but credit card debt is among the most detrimental. Paying exorbitant interest rates on ever-escalating balances causes many people to lose sleep night after night. Fortunately, there is a better way.
If you find yourself suffering from excessive credit card debt, cut your cards up and start using a debit card as your new form of plastic. Yes, it’s going to take time to pay off your credit card balances, but you’ve got to stop the bleeding eventually. The sooner you do so, the better.
These seven steps are tangible measures you can start right now to improve your financial peace of mind. Some are one-and-done efforts. Others require you to form healthy habits that stand the test of time. All are well within your control.
Find those that apply to you and take back financial peace of mind today. Your future self will thank you.