Cracking Down on Financial Stress

Of all the stressors people are exposed to, financial stress may very well be the most insidious. Dealing with finances can be overwhelming because of all of the other responsibilities we have in life. But a bit of preparation and legwork on the front end can make for smooth sailing later.

Take a hard look at your expenses
If you’re worried about where your money is going and how much extra you have left from month to month, create an inventory of your monthly expenses.

Jot down on a piece of paper or even an Excel spreadsheet how much you pay for various expenses. As you drill down, you can easily identify where your cash is going and perhaps find areas where you can conserve a bit. Don’t get nervous! You don’t have to be an accounting whiz to work through your expenses, and you can be as detailed or as broad with your categories as you like.

You may come up with something like the following:

Housing $/Month
Mortgage $1,800
Maintenance $50
Property Tax $250
Food, Clothing, Transportation  
Groceries $400
Dining out $200
Clothing $150
Car payment $340
Car insurance $90
Car gas and maintenance $250


Of course, the more specific you are, the more opportunity you have to find areas where you can save more. Be sure to include things like:
  • Insurance premiums
  • Education and student loan payments (for yourself and your children)
  • Utilities
  • Mobile phone charges
  • Any other items that you may have on an auto-payment plan
Be sure to capture everything you spend—even the smallest items like a cup of coffee or parking. It all adds up and will give you an accurate picture of the funds you require.

Budget is not such an ugly word
Once you’ve tracked your expenses, you may have identified areas where you’d like to spend a little less. Fortunately, you control what you spend, so create a budget for each category that you’re willing to stick to. This may mean simply adding a Budget column to your list and tracking what you’d like to spend. You can then compare how you do with the actual totals each month.

Keeping a budget will help you save more and perhaps leave room for putting more into your 401(k), IRA, or other investment vehicles. There are few better cures for financial stress than knowing you have wiggle room and a bit of a nest egg in case times get tough.

Something to keep in mind as you budget is the maxim, “pay yourself first.” As you go through what you’d like to put toward different expense categories and what you’d like to save, account for socking money away before you even get into the nuts and bolts of itemization.

Chipping away at interest charges
In addition to budgeting, you can take steps to allay your financial worries when it comes to finance or interest charges on things like credit cards. If you only make the minimum payment each month, you won’t put much of a dent in your balance. A good rule of thumb for paying down principal is to divide the minimum payment by two. Then, add that amount to the minimum to come up with your total payment.

While you’re balancing the rewards of paying down interest with taking extra cash to invest, evaluate what you may receive in return from your investments and whether or not it may exceed credit card payments with a higher interest rate. That is, if you’re paying 20-percent interest on a credit card, you may want to pay that off rather than invest the money into an account in which you typically receive an 8-percent return.

Plan, plan, plan
Having a plan in place for your financial goals and how you are going to spend and invest your money may very well be the best medicine for your worries. This will allow you to plan ahead for larger expenditures and set the course for your financial future. Contact a financial professional to get started on pursuing your goals.

© Copyright 2008 Commonwealth Financial Network