A perfect storm of world events naturally triggers financial stress for the vast majority of Americans. In a recent survey by the American Psychological Association, more than 80% of American adults reported feeling increased financial stress due to: higher inflation (87%), persistent supply chain issues caused by pandemic (81%) and global uncertainty due to the war in Ukraine (81%).
Moreover, the difficulties associated with the pandemic – including poor health, loss of loved ones, difficult work and family situations, isolation and inconvenience – have affected the entire nation and the world. In the United States, 63% of respondents said COVID-19 had changed their lives forever.
The financial toll of stressed employees has also had an impact on businesses. A survey conducted by PwC found that 34% of employees across multiple industries said money worries in the past year had had a major to severe impact on their mental health; 18% said it hurt their productivity at work; 38% of employees under financial stress said they were looking for a new job; and 37% had used payday loans in the past year.
The obvious question in the wake of all this increased financial stress is, how can you reduce it?
It’s an alarming number: at the start of 2022, nearly two-thirds of the American population was living paycheck to paycheck. Soaring inflation is certainly a factor, but the bottom line for many individuals and families struggling financially is that they don’t have a budget or, if they do, they don’t have a budget. don’t hold it. Financial stress is often caused by a mismatch between the money you spend and the money coming in.
Build a budget that matches your monthly income and expenses — the latter includes all monthly bills and debt — then use an expense tracker to learn more about your spending habits. All of this information will help you identify ways to reduce your expenses, starting with eliminating more non-essential expenses.
Accumulating debt or struggling to pay it off each month strangles us financially, reducing disposable income and the amount of money you can save. So come up with a workable plan to get rid of your debt.
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List your debts in the order in which you want to pay them off. Paying off the smaller credit card or loan first gives you the satisfaction of crossing one off your list and building momentum. Or you could pay off the debts with the highest interest rates first, such as credit cards. Getting high-interest debt paid off as soon as possible saves you the most money in the long run.
Focus on paying off one debt at a time, allocating the extra money saved from restructuring your budget to the first debt you try to eliminate. When you focus on paying off one debt at a time, you are able to pay off the debt faster because more of the money will go directly to the principal balance and less will be spent paying interest.
Things we can’t control tend to worry us. Knowing what you can control and taking appropriate action can reduce your stress. A good example of taking advantage of what you can control is sticking to a consistent savings plan. Saving will give you a sense of accomplishment and comfort. As you accumulate savings, you’ll know the money is set aside in case you need it.
It is important to understand this: paying off your debt, and eventually eliminating it, will have a direct impact on the amount and quality of your savings in the short and long term. Everyone needs an emergency fund. Ideally, if you have the money and the discipline, you will develop a two-pronged savings approach that puts money into an emergency savings account every two weeks and into a long-term savings account. term, such as an Individual Retirement Account, 401(k) or High Yield Savings Account.
Once you’ve built up your emergency fund significantly, you can consider putting some of it in a certificate of deposit, which offers a guaranteed rate of return that’s typically higher than traditional savings accounts.
Financial stress can seem overwhelming and unmanageable if you have no measures in place. Keep it simple, be honest about what’s causing the stress, and stay positive knowing that making small changes here and there can make big differences over time.
John L. Savarino is an investment advisor representative for Rooted Wealth Advisors and hosts the financial show “Talking Money” on YouTube.