A New Year can be exciting but daunting for many as the reality of financial burdens set in. Financial stress is defined as the emotional tension and helplessness one can feel specifically related to money matters. Financial stress can lead to strains on your relationships, depression and anger.
So how can we better prepare for and cope with financial stresses as they come our way?
1. Align with your partner on spending and savings goals by being transparent. As you create a plan provide for some individual spending freedom and flexibility. Be genuine and non-judgmental in conversations about money.
2. Have 3-6 months of expenses in cash for unexpected spending or loss of income. I call this the “sleep at night fund”. If you spend $6,000 a month you should have $18,000 to $36,000 in cash.
3. Plan for large expenses: Create a separate savings plan for that trip or remodel. The general rule is any large expenses in the next 1-2 years should be allocated to a safer investment like cash, a CD, or money market. Consider a low interest rate home equity loan or line of credit for home improvements.
4. Debt Management: Create a plan that tackles your high interest-bearing debt first while still maintaining a cash reserve and saving for future goals such as retirement. Pay attention to debts that may be variable and move up as interest rates increase.
5. No judgements: Keeping up with the Jones’ is overrated. Instead, think of your money as a tool. A tool to live with financial freedom and peace of mind.
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