Financial stress and pressure are a way of life for so many. Regardless of income level most people struggle with money stress at some point. And to be honest, it makes sense. We live in a low information, high pressure society when it comes to money. Very few are taught good financial management skills but we receive a barrage of messages to buy more and spend more. This often leaves us feeling stressed, overwhelmed, and regretful when it comes to our finances. These three simple steps will help you build financial confidence and clarity and reduce financial stress and overwhelm.
Step 1: Create Clarity
The very first thing we all need to do to reduce financial stress is to understand what we have coming in and where our money is going. This requires tracking and attention to detail.
Keep a running list of all the things you spend cash on, what’s hitting your credit cards, and finally, take a look at what your take home income is. Remember to approach this part of the process like a scientist, judgement free and brutally honest.
Most people notice that they consistently overestimate their take home pay (because… well… you know, taxes). And underestimate spending (because of subscriptions, small purchases, and fluctuating or unexpected bills).
Once you know what’s coming in and where it’s being spent you’ll be prepared to move on to steps 2 & 3 to build your confidence and reduce financial stress.
Step 2: Find What Matters
If you’re like most people you discovered in step 1 that you’ve been spending more than (or as much as) you’re earning and THIS is the source of your financial stress. In today’s hustle culture the go-to answer is usually to work more. But… STOP right there! This is often not the optimal solution to your problem. Working more means trading time for money, missing out on some of life’s great pleasures, and can even add to your expenses (last time I checked childcare, gas, and eating out were all pretty pricey).
Rather than applying a quick fix, band aid solution to a complicated problem it’s important to really understand what matters most to you. It can be helpful to categorize all of your spending using labels like “housing”, “food”, “discretionary”, etc as recommended in most budgeting and financial advising arenas. But I find it most beneficial to categorize by how important each item is or how it aligns to your values. In doing this you are able to easily identify things that can be removed or reduced and you’ll also immediately know if earning additional income is really necessary or worthwhile for you. I created an exclusive method called the EPD Method to make this process simple. You can learn all about it, get your tracking and EPD worksheets, and get even more tips to reduce financial stress in my Take Control of Your Money Course which is one of many free courses found in Inner Circle.
Step 3: Create Alignment
Now that you know what you have coming in, where your money is being spent, and what’s most important to you it’s time to make adjustments. Begin to strategize where you want to be spending your money and where you don’t. Consider whether it’s worth it to you to take on that additional job to earn more or whether you’d rather reduce or eliminate spending in some areas. And while you’re reassessing this is a great time to also think about where you’d like to be putting more of your money. Perhaps you’d like to invest for retirement or a college fund, buy a bigger house, or you’ve been dreaming of a beach vacation. Now that you know where your money is going you can confidently make adjustments and reallocate some of your funds to the things that matter most to you.
Even if you suspect or find that your financial situation is completely untenable, having a deeper understanding of what’s happening with your money will help you create the clarity and confidence you need to take charge and creatively problem solve. And here’s the thing… while your financial stress may not be completely eliminated by going through this process, you will be empowered to make educated and wise choices about what’s next and this makes all the difference!