Five ways to stop stressing about money

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Many people simultaneously spend too much and worry about running out of money. The fear of not having enough leads to working too hard, and then you need to treat yourself after your stressful week. Your family may get used to a certain standard of living, you get a mortgage and… you are firmly trapped inside the rat race.

It isn’t money that will kill you but the stress around money. Even before the pandemic, expats had astonishing levels of heart disease, diabetes and cancer. These are to a great extent lifestyle diseases accelerated by stress and the unhealthy living that stress can encourage.

So if you can remove financial stress, you will be a lot happier, healthier and more productive, even if you do not (yet) have one dollar more to your name.

How do you reduce anxiety about the present and the future? Here are 5 things you can do pretty quickly.

1. Get a grip on your finances

Yes, look at the numbers. They can be controlled in a way people cannot, if you force yourself to look at them. How much cash do you have? What is the total value of your assets and liabilities? Income vs expenses?

We spend most of our time worrying about the unknown. So set aside 10 minutes a day to start pulling your finances together. Even if the numbers are bad, you will feel like you’re back in the driver’s seat. Time to get back on the track.

2. Create a cash buffer

People keep banging on about cash buffers but honestly there is nothing more important for reducing your stress. You don’t want to be living from salary to salary.

Measure your buffer in months of your total expenses. You need 3-6 months and frankly these days let’s make that 6. So if you spend $5,000 per month, you need $30,000. Then if you lose your job, you can survive comfortably until you find a new one.

I have plenty to say on where to put it, which currency etc, but what is most important is that you have it. Doesn’t hurt to also set aside money for other things on the horizon: Christmas, a wedding, a new car, a house, a single rent cheque (I wish those would go away).

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3. Track your spending

Yes I know it’s boring and miserable. Why are you so stressed about money though? Because you think you need (and will need) lots more than you have.

Try to make it fun for all the family – what do you actually spend money on? Can you guess what you spend on food, travel, entertainment, education etc? What would you chop? What brings the most value to your life? And the least?

4. Have a clear target

You’re not sure how much you need for retirement but you know it’s A LOT. Job loss, paycuts and unexpected bills can then seem like a disaster.

A LOT is not good enough. You need a specific target. Think about how much you would spend per year if you retired now – an expensive place? A cheap place?

Multiply that by 25 (thanks to the 4% rule, which is for another day) and that’s how much you need. It helps to adjust for inflation, like we do in my course, but this will get you in the right zone.

You have a target now. Work towards it and realise you don’t have to work forever. If it seems impossible and stressful, you need to look at the other parts of your life that are making it impossible (or your mindset…).

5. Build an investment portfolio

You work hard, your money needs to work hard. You won’t be able to reach your target though your salary alone. Invest in a stock fund that covers the whole world – it should grow at a tasty 7% per year over the long term.

That means each $1 you invest will be $2 in 10 years and $15(!) in 40 years. With the markets on your side, you are running along a travelator, not wading through the mud. The gap to your target retirement portfolio size doesn’t seem so impossibly big anymore.

Do you have any questions or comments? Share your thoughts in the Comments section below…

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