Age, gender, occupation, salary, and net worth don’t seem to matter. Regardless of any of these factors, people are stressed about money. In fact, it’s generally ranked as the number one stress factor in America. But is there a solution?
The Stressful State of Personal Finances in America
According to MarketWatch Editor Catey Hill, money is the clear frontrunner in the race for what causes everyday Americans to feel stressed and anxious. She highlights numerous studies from trusted independent resources that show:
- Money is the primary culprit of stress for roughly 44 percent of Americans, followed by personal relationships (25 percent) and work (18 percent).
- Money is the primary stressor for Americans, regardless of the economic climate. Whether in a period of recession or growth, Americans never feel at ease with their finances.
- 69 percent of American workers are stressed over their finances, while an astonishing 72 percent worry about their personal finances while at work.
At first, the natural inclination is to tell people to toughen up and get over it. You’ve probably heard statistics that explain how the average American with a median income is part of the “Global 1 Percent Club.” And while this may be true, talking points like this are lazy and without context. Americans may make more money than most people in the world, but they also live in a culture where spending is rampant, debt is high, savings and investments are low, and – most frighteningly – people don’t even know what their financial picture looks like.
According to research from the Federal Reserve, just 61 percent of Americans can cover an unexpected expense of $400 without going into debt. Credit card delinquencies are rising among younger Americans. Just 36 percent of working Americans believe their retirement saving is on track. One-quarter of working-class households have no retirement savings. The list of alarming statistics and data points goes on and on.
In other words, people are unplugged, disorganized, and illiterate – and it’s taking a toll. Financial stress is considered a leading factor in depression and anxiety, migraines, ulcers and digestive issues, high blood pressure, heart attacks, poor diet, and poor sleep. It even makes people less likely to get routine check-ups and exercise.
It’s Time to Get Organized
If you’re stressed out about money, you can at least rest in the fact that you aren’t alone. But that’s one of the few comforting factors. What you really need to do is address your financial stress by dealing with the underlying factors that are allowing it to flourish beneath the surface. For most of us, this means getting organized.
The majority of people with financial stress and/or anxiety over money would say they feel a lack of control. They don’t feel as if they can wrap their brains around the matter, so they just give up. Words like scattered, messy, disheveled, uncertain, chaotic, and confused define their relationship with money. But it doesn’t have to be like this. Whether you make $40,000 per year and rent an apartment, or you bring in a multi-million dollar annual salary and own half a dozen homes, financial organization isn’t optional.
In a financial sense, getting organized means:
- Understanding your current financial picture.
- Eliminating bad financial habits.
- Having clear and responsible money goals for the future.
- Decluttering your financial footprint (getting rid of unnecessary elements).
- Having a precise and confident financial philosophy.
Once you get organized, you’ll no longer feel scattered, messy, disheveled, uncertain, chaotic, and confused. Instead, you’ll be able to describe your relationship with money using words like calm, systematic, orderly, simple, settled, and composed.
6 Proactive Steps Every American Should Take
The exact ways in which you organize and declutter your finances will depend on your own personal circumstances, challenges, resources, knowledge, and experiences. However, any American who is stressed out about money will benefit from walking through the following proactive steps:
- Find Out How Much Money You Make
You probably know how much money you make in terms of the salary you and your employer agreed upon when you were hired. But there’s a big difference between gross pay (salary) and net pay (what you take home). Making financial decisions through the lens of gross pay is a mistake.
For example, let’s say you make $100,000 per year. In your head, this means you’re bringing in around $8,300 per month. However, you have to account for taxes, Medicare, Social Security, healthcare, 401(k) contributions, and anything else that’s taken out of your paycheck. After all of these deductions and contributions, you might only bring home $3,500-$4,000 per month. Pretty crazy, right?
When it comes to getting financially organized, the first step is to figure out how much money you’re actually bringing home. You can do this by analyzing your pay stub. On your stub, you’ll see lots of numbers and codes, but all you really care about are the gross pay, the net pay, and the various deductions and contributions that account for the gap between the former and the latter.
Deductions and contributions are things like income tax, Social Security, Medicare, 401(k) contributions, insurance payments, profit sharing, union dues, wage garnishments, federal unemployment insurance, etc.
Depending on how much you’ve paid attention to your income over the past few years, this may be an enlightening experience. Moving forward, it’ll help feel like you have a finger on the pulse of your finances.
- Track Your Expenses
Now that you’re cognizant of how much money is flowing into your checking account each pay period, it’s time to get clear on how many of your precious greenbacks are heading out. More specifically, it’s important to know where the money is going.
If you’ve never tracked your expenses, it’ll seem a bit cumbersome at first. However, this is an integral part of organizing your money and gaining clarity around your financial situation.
Thankfully, it’s fairly easy to track expenses today. Whether you want to save bills and receipts or rely on your online bank statement, you can calculate where each dollar is going and run month-end calculations to see the breakdown.
You’ll be surprised by some of the results. For example, you know you eat out a lot, but you probably didn’t know you spend $500 per month at restaurants. Or what about the fact that your weekly Amazon purchases run $150? Why is your energy bill $300 on a 1,200-square-foot apartment?
Expect some frustration, but don’t get too flustered. Now that you know where all of your money is going, you can stop the bleeding and regain control over your finances.
- Get on Precise Budget
Armed with a clear understanding of your true income and a concrete idea of where your money is going, you can develop a monthly budget.
While most people think budgets are boring and constricting, they’re actually quite freeing. When you develop a budget, you get the opportunity to organize your cash flow and direct your money as you please. You no longer have to hover your mouse above the “Buy” button and wonder if you can afford the purchase. You simply pull up your budget and check. If the answer is yes, you buy it. If the answer is no, you wait until next month. A budget takes vague decisions about money and transforms them into simple black and white choices.
There are a variety of budgeting methods – including the envelope system, reverse budgeting, and zero-based budgeting. Do some research on each and find out which one works best for your income, personality, and peace of mind. And while some people prefer to use paper or Excel spreadsheets, there are numerous budgeting apps that remove the guesswork from the process and help you get on track.
- Build Up Your Emergency Fund
As previously mentioned, a large percentage of Americans would have trouble paying off an unexpected $400 expense. Even fewer people would be able to cover a $1,000 expense. This speaks to the lack of financial foresight most households have.
Emergencies – whether car problems, medical bills, or home repairs – happen. If you don’t have cash sitting in the bank waiting for these problems, you’re kidding yourself. Build up an emergency fund to establish peace of mind.
An emergency fund is simply a cash savings account that’s separate from your checking account. It consists of roughly three to six months of household expenses. (If your basic expenses for a given month are $3,000, this means you need an emergency fund of $9,000 to $18,000.)
An emergency fund ensures that an emergency expense doesn’t sink your finances or cause you to go into debt. It’s a cushion that you can fall on in a time of need. If you don’t currently have any savings, it’ll take you some time to fill one up. Develop a line item in your budget and make monthly contributions until you reach a comfortable level.
- Organize Files and Records
Now that you’ve regained some control and are proactively telling your money where to go, you have a chance to deal with all of the other administrative details.
Over time, most people see their financial footprint expand. This happens every single time a new credit card or bank account is opened. It also occurs when you buy a new house or piece of property. Each time you begin a new job, you leave behind one retirement account and start a new one.
After a decade or more of working, saving, and investing, most people have a dozen or more accounts and assets to track. And if you’re anything like the majority of your peers, you only have a vague idea of what your assets are worth, how to access them, or how they even fit into your financial portfolio. Here’s how you begin getting organized:
- Make a list of every account or asset you own. This includes real estate, cars, cash value insurance policies, mutual funds, stocks, bonds, retirement accounts, savings accounts, etc.
- Next, go through each of the items on your list and find out how to access the financial information associated with it. This includes account numbers and online login information.
- Finally, create a consolidated spreadsheet where you list off all of this information for easy access. You may even want to keep a running tally of the value of each account – updating it every three to six months.
On a related note, now’s a great time to go through any paper records you have and organize important documents into folders. Anything you don’t need should be shredded and discarded. You can also go through your computer desktop and clean out any files or folders you no longer need. Consolidate the information that’s left.
If you have a bunch of retirement accounts from different jobs and past employers, roll them over into a single account. This simply reduces the number of headaches and helps you gain more control over these investments.
- Get Some Help
The final step in the process is to reach out and get some help from people who have expertise in financial matters like saving, investing, and planning for the future.
It’s highly recommended that you have your own financial team of people. At the very least, you want a CPA (accountant) and a financial planner/advisor. It’s also recommended that you find a good insurance agent to help you offset and diversify risk. You may only meet with these people a couple of times a year, but it helps to have some folks in your corner who understand your situation and can offer advice.
Discover a Life Free From Financial Stress
Life doesn’t have to be characterized by money troubles, stress, and anxiety. You’re a member of one of the largest and most successful economies in all of human history. The key isn’t to make more money, find a better job, buy a better house, or accumulate a massive net worth. None of these things will put your mind at ease. The solution is to simplify, declutter, and get organized. Hopefully this article has given you some powerful tools and techniques to do just that.