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Stop Worrying about Money

How to stop worrying about money by making the most of what you earn.

It’s no secret that financial stress is a leading cause of both health problems and divorce. Money problems permeate your life, making it hard to concentrate at work and enjoy life at home. Although money may not buy happiness, it certainly goes a long way when it comes to reducing your stress.

Still, even on a limited budget there are steps you can take to make the most of the income you earn. In most cases, it all comes down to careful planning. The more you plan ahead, the less financial stress you experience from day to day.

#1: Use technology to create a budget instantly

These days budgets aren’t difficult or time consuming to make. Technology makes it easy to create a budget with just a few mouse clicks or swipes on your phone. By creating a budget, you have a roadmap of where your money goes. This reduces stress because it allows you to organize bill payments and pay for necessities without struggling to find cash flow.

If you’re putting off budgeting because of how little cash you have available, you’re not doing yourself any favors. Better to budget and control the limited cash flow you have than to leave it up to chance or hope. Get the numbers organized and you’ll be surprised at the peace of mind it provides.

Recommended video: Budgeting Made Easy, How to Build a Stable Financial House

#2: Start a small emergency fund

Experts recommend that you should save 3-6 months of budgeted expenses as an emergency fund. This means you have enough money set aside to cover several months of bills and other necessary expenses. This money is enough to help you get by without relying on credit cards if you lose your job.

Still, for most people saving that much at once can seem daunting. If you make $3,000 per month as a household that means you should have $9,000-$18,000 in savings. And if you’re living paycheck to paycheck right now that might seem nearly impossible.

Instead, start small. Aim to save up to have $500 as an emergency fund in your savings account. This would cover most emergency expenses that might come up, such as a car repair or unexpected bill like a traffic ticket. Having this money set aside gives you a lot of peace of mind, because you have financial padding to fall back on. Once you get to $500 work towards $1,000, which would give you enough money to cover almost any unexpected or emergency cost.

Recommended video: Penny Wise, Pound Foolish: How to Save Money Everyday

#3: Work towards a true financial safety net

An emergency fund helps alleviate daily financial stress caused by unexpected expenses that pop up. A real financial safety net gives you the same kind of confidence, only over a long term. This is the emergency fund mentioned above that covers 3-6 months of budgeted expenses. This offers greater peace of mind, because now even if you lose your job for a few months your finances will be stable.

Once you have your $1,000 emergency fund, keep saving and work your way towards the 3-month expense goal. In most cases, this will be a sizeable fund. As such, you may want to save the money in an account with better growth than a basic savings account.

For instance, Money Market Accounts or CDs generally have better interest rates than a standard saving account. MMAs often have minimum deposit requirements around $1,000-$5,000. So it makes sense to use an account like that for your financial safety net because it matches the amount you need. You have money saved in case the worst happens and you’re out of a job for half a year. At the same time, you have an account that’s generating healthy growth.

#4:  Eliminate your credit card debt

Debt tends to be the biggest source of financial stress. This is especially true about high interest rate credit card debt, because the payments increase as your balance go up. The more you charge, the more credit card bills cut into your budget. And less cash flow in your budget means more financial stress as it starts to feel like every dollar gets spent the minute it clears your account.

So it follows that reducing your credit card debt is a crucial part of minimizing financial stress. Each credit card debt you pay off is one less bill you have to worry about.

Ideally, you want to develop a strategy that pays off your credit card debt in full within five years or less. If you can’t do that using the debt reduction techniques described in the video, consider other avenues for debt relief. Whether you use a debt consolidation loan or debt management program, your goal should be a plan that pays off your debt in 60 payments or less.

#5: Achieve and maintain a high credit score

Another time people usually worry about money is when they apply for loans. Waiting to see if you can get approved is stressful. Being forced to use subprime lending tools that have high interest rates and strict repayment terms is even more stressful.

By maximizing your credit score, you reduce the stress associated with applying for new financing. Whether you need a new car or a new home, you can apply for loans with confidence. You can also secure great interest rates and flexible terms that work for your budget. The empowerment to get approved for financing whenever you need it takes a huge leap forward to finding your financial Zen.

Recommended video: The Game of Good Credit

 #6: Set up automatic retirement contributions

Saving for retirement is another major money concern that often keeps people awake at night. The earlier to can start saving and the more automated you can make that saving strategy, the better. Just the simple act of having a working retirement plan will make you feel better about your long-term financial outlook.

If it’s available through your employer, sign up for a 401(k). Check with your HR department to see if your company offers any match program. This is where your employer gives you extra money for every dollar you contribute; it’s usually 50 cents to the dollar up to 6% of your annual salary. Set your contributions accordingly.

If you don’t get a 401(k) through your employer, start an IRA. If you only have low dollar amounts to contribute, you can get a myRA account. This is a retirement account specifically designed for low income earners. In any case, set up automatic monthly contributions that work for your budget. Even $50 per month will help you get started. You can learn more in Consolidated Credit’s Debt-Free Retirement Guide.

#7: Plan year-round for tax season

Make sure to keep track of business-related expenses, transportation costs, childcare costs and housing costs throughout the year. All of these correlate to tax deductions and tax credits that reduce you liability. That means you get a bigger refund each year OR you can decrease your withholding so you get more money in each paycheck.

Tax season is stressful because it’s daunting to tally up an entire year of your financial life in a short time when you file your returns. If you keep receipts organized and highlight deductible transactions on your monthly statements throughout the year, it makes tax time stress free.

Whether you go through a tax preparer or file on your own, do this either way. Paying attention to deductibles and credits throughout the year reduces your stress before April 15.

#8: Shop strategically for the holidays throughout the year

Another thing you want to do year-round is shop for the winter holidays. The current price tag for holiday shopping for a family of four is over $1,000. Trying to make the holiday merry and bright usually ends up generating money stress and credit card debt. If you shop throughout the year, then you spread the cost burden out.

Keep running gift lists for everyone you buy for so if something goes on sale, you can buy it then. You may have to keep presents in your closet for a few months, but it’s better than a winter filled with financial stress. If you buy things when they’re at the best prices or when you have a good month in your budget with few extra costs, you will have a much happier holiday season. You can also buy birthday gifts using the same kind of strategy, so gift giving can always be free of financial strain.

#9: Don’t loan money you can’t afford to lose

Even if you have your debt, savings, budget, and taxes all organized, it doesn’t mean your life won’t have financial stress. A major source of stress comes when you loan money. Whether it’s helping an adult child get set up in a new home, loaning a friend a few hundred dollars or cosigning a car loan for a cousin, bringing finances into personal relationships almost always creates stress.

That doesn’t mean that you shouldn’t help, but you should only help if you have the money to burn. In other words if your own financial stability depends on you getting paid back promptly, it’s probably not a good idea to loan the money.  Similarly, if you can’t afford to pay back a cosigned loan on your own if the borrower defaults, don’t cosign!

If you only loan money you can afford to lose, you reduce the money worries that come as you wait to get paid back. And if the worst happens and you never see a dime, your own financial stability will still be intact.

#10: Find any way possible to pay for college other than a loan

Student debt has now become the second largest source of debt for Americans after mortgage debt. Student loans can’t be discharged during bankruptcy, even if they’re private student loans you take out through a for-profit lender. And even repayment plans for federal loans can take up to 25 years to complete. To say that student loan debt is a major money concern is an understatement.

So whether you’re funding a child’s education or furthering your own, find ways to pay for school that don’t involve borrowing. Even subsidized federal student loans for low-income households will still be a burden once repayment starts. And you can’t always guarantee the income you will earn after your degree.

With that in mind, you consider any and every option for funding higher education that doesn’t involve a loan. If you have kids, start a college savings fund early and start looking for scholarship and grant opportunities early – as in, their freshman year of high school or earlier.

If you need to go back to school, check with your employer to see if they offer educational assistance programs for employees. And keep that in mind when applying for a new job if you plan to go back to school. Many employers provide tuition assistance programs that may pay for all or part of a higher degree.

And make sure that the degree you receive will be worth the price tag. If you pay $100,000 for a degree and only earn $30,000 per year, it’s not cost effective. Make sure to check graduation and job placement rates for your school and chosen career field. Go for public, nonprofit schools when possible. And work with the schools’ Financial Aid department to finance your education as much as possible without loans.