Financial concerns can be a major source of stress, to the point that it affects your mental health.
In many cases, there are genuine reasons for worry. It can be a challenge to do all you need to with your funds if you're not making a living wage, if you're trying to parent children by yourself, or if you're a victim of the wage gap between men and women and earning less than your worth.
Still, while there are systemic issues that contribute to financial stressors, many people can take control of their finances. By following these four steps, you can make managing money more effortless, which could potentially help alleviate some anxiety and improve your overall mental state.
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1. Create a budget
Many people find making a budget to be a stressful project in and of itself, but the reality is that creating a spending plan is essential to take control of your finances and stop worrying so much about money.
Unless you have a lot more income than you need, which isn't the case for most people, you must make choices about where your money goes. A budget allows you to be thoughtful about those choices so you use your hard-earned dollars for the things that matter most. If you don't budget and make decisions on the fly, you could end up with spending patterns not aligned with your values.
The good news is that there are different budgeting methods. If you really dislike making a detailed budget, use a 50/30/20 budget. Devote 20% to savings; 50% to fixed expenses; and 30% to discretionary costs. If you want more control and don't mind a little more effort, give every dollar a job so you know exactly where your income will go.
2. Set detailed financial goals
Setting financial goals is another necessary step to take control of your finances. You should have long-term goals, like saving for retirement, as well as shorter-time ones like saving for a new car, vacation, or home down payment.
It's best to be detailed about your goals.
If you set a timeline for when to achieve them and know the exact dollar amount you'll need, you can determine how much to contribute each month to accomplish each goal on schedule. This enables you to work that amount into your budget so you'll have the cash for it.
3. Automate your saving and investing
Once you have a budget and financial goals, you'll know what you should be doing with your money. You can execute your plan effortlessly by automating it.
If you've decided to put $500 a month into a retirement plan, $100 a month into various short-term savings accounts, and $100 a month extra toward your credit cards, you'd want to set up automatic transfers of your money into your 401(k) or brokerage account, your savings accounts, and your creditors.
Once you've automated the process of delivering your money to the correct places, you never have to think again about where a particular dollar should go or whether you can spend it.
4. Stick with a simple investment approach
Finally, investing is important to build wealth because it can help you earn the returns you need to truly take advantage of compound growth. But it can be stressful to figure out what to invest in.
If you love researching different companies and want the best chance at large returns, you should likely buy individual stocks. But if that's not your passion, you can still invest without any financial stress or even much effort. Just put your money into an index fund such as an S&P 500 fund or a total market fund. These funds give you broad exposure to the market, offering generous average annual returns with little risk.
By taking these four steps, managing your money should become effortless. And hopefully removing the burden of a stressful financial life can improve your overall mental health for the foreseeable future.
