Few things scare me more than Stephen King, especially his book and movie It. Thanks to them, I will never be able to approach a clown again. There are also scarier things that can haunt us day after day and night after night: our personal finances. Here are some strategies to help you overcome your biggest financial fears so you can start crushing your financial goals:
Fear #1: Losing control of your money
Budgeting can be scary. We don’t like having to track every penny or feel bad about our spending, but we feel bad when we’re broke or living paycheck to paycheck. It’s like looking at the face of failure, then looking at an insurmountable mountain to overcome. Ouch!
Confront this monster in 3 steps:
1) Start with “why?” » Write down why controlling your money is important to you. What will it allow you to accomplish and how will your life change? How would that feel? Establishing a sufficiently solid “why” can give you the courage and motivation to begin the budget journey.
2) List your expenses. I prefer the pen and paper approach as a starting point. If you prefer a spreadsheet, here’s a template you can use. If you prefer something more technological, an application like Simplfi, Mint or Pocketguard could do the trick. The most important thing is to choose the approach that works best for you.
3) Identify opportunities to save. Comparison store for bills like cable, cordless phone, and insurance. Eliminate spending on things you don’t use or don’t fit your purpose. You can check out additional ideas here.
Fear #2: running out of money
Having your checking account at zero is stressful. Then the unexpected happens and you find yourself with a terrible decision to make between deciding which bill will go unpaid or withdrawing your credit card. As we all know, the unexpected tends to happen quite frequently.
Deal with this monster in 3 steps:
1) Build a emergency fund: Open a separate account for your emergency savings. A high yield savings account or money market account is a great place to start. The purpose of this account is for true emergencies, not for occasional travel expenses or gifts.
Make that $2,000 account your #1 priority. Once you’re there, keep building those savings toward 3-6 months of spending while balancing your other financial priorities. You can learn more about creating an emergency fund here.
2) Budget for occasional expenses: If you want to be successful in your budgeting, you will need to set aside money for occasional expenses. For example, if you spend $2,000 a year on travel and $1,000 a year on gifts or birthdays, you can set aside money for those expenses in advance. I’ve found setting up and funding a separate account for every occasional annual expense (eg, travel and vacation) to be extremely helpful.
3) Set your savings to automatic: Set up a direct deposit or an automatic monthly transfer to your separate savings account. Your employer may be able to take money directly from your check and deposit it for you. Alternatively, set up an automatic transfer of your check to a savings account on payday.
Fear #3: Facing a mountain of high-interest debt
Having high interest debt (over 7%) can give you a terrible case of heebie-jeebies. The longer you wait to fix it, the worse the disaster awaits you. Moving now will save you time, money and debilitating stress that can negatively impact your life.
Kill the Debt Monster with these 3 moves:
1) Take inventory: List your debts, including the total balance, interest rate, and minimum payment due.
2) Choose a debt repayment strategy and implement it. The two most popular approaches are the debt snowball and the debt avalanche. The debt snowball works great if you have a lot of debt and need quick wins to boost your confidence. With this strategy, you focus on making extra payments on the lowest debts first and make minimum payments on everything else. As you pay off each balance, you roll the total payment over and add it to the next lowest balance and repeat until you are debt free.
The avalanche of debt focuses on extra payments on the highest interest rate balance and minimum payments on everything else. You then transfer the full payment to the next highest interest rate debt after the previous debt is paid off. This strategy saves you the most time and money and can work well if you have less debt and/or care about the bottom line the most.
3) Take advantage of good credit to refinance: If you have a good credit score, take advantage of it to speed up your debt relief. (If not, follow these tips to improve yours.) You may be able to sign up for a 0% balance transfer, which can lower your interest rates for 12, 18, or even 24 months.
You can also refinance your debts with a personal loan at a reduced rate. Use a site like this to explore what you might qualify for. Just make sure you don’t use them as an excuse to increase your debt even further!
Fear #4: Having to work FOREVER
Follow these steps to prevent this nightmare from happening:
1) Run a retirement estimate. This will allow you to see if you are on the right track. You can use a calculator like this or one of them.
2) Save enough to take advantage of the match from your employer’s pension plan. It’s free money!
3) Automatically increase savings. If you can’t save enough now to close the gap, try using automatic indexing of the contribution rate that may be offered in your employer’s pension plan, or set a reminder in your calendar to manually increase your savings by 1% or more each year (ideally around the time you get a raise) until you reach your target!
Fear #5: Your investments are disappearing FOREVER
Markets have been extremely volatile and the media everywhere is crying recession, disaster or worse. During these times, we tend to feel most in danger and fearful of our investments. In short, the fear factor of investing is high. Take these steps to calm those investment jitters:
1) Don’t panic and make an emotional decision. Instead, gauge your risk tolerance by taking an assessment like this. This will give you an idea of what an appropriate investment mix should look like given your timeline and comfort level with risk taking.
2) Stay focused. The best thing you can do is stay focused and focus on your goals. If you need liquidity in the next 3 to 5 years, build your conservative compartment (in cash, savings or money markets). If your needs are longer term, focus on a well-diversified investment approach aligned with your time frame and risk tolerance.
3) Just keep investing. If you don’t have the time, interest and experience to manage your investments on your own, consider a hands-off approach like a target date fund, asset allocation fund or robo-advisor . If you want to be more active, focus on simple, inexpensive investments like index funds and have a process for rebalancing and checking your investments. You can take advantage of these tips to help you get started.
As you can see, vampires, ghouls, and goblins aren’t the only things that fill a Halloween horror story. Stop bringing these personal finance monsters to life by starting to take action today. If you want additional help getting started, consider consulting a qualified, unbiased financial professional. You might even get access to it for free through an employer-provided financial wellness benefit.
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