See how to avoid financial stress by organizing your accounts, creating a budget and investing for the long term.
With so much uncertainty in the current scenario, it is common to find yourself in a situation of financial stress. The economic crisis has intensified even more during the new coronavirus pandemic, creating insecurity and, often, losses.
Worries about money often have a strong impact on the personal and professional lives of those who suffer from this problem, and can even lead to depression.
Read this post we prepared to better understand financial stress and find tips for overcoming it.
What is financial stress?
Before understanding the mechanisms of financial stress, it is worth taking a step back to define what stress is in general.
This is a natural human reaction that appears in dangerous situations. When it occurs routinely or at high levels, it ends up being quite harmful to physical and mental health.
This condition affects sleep, mood, appetite, immunity, productivity and relationships. When stress is linked to a financial motivation, it can be the result of debt, loss or fear of losing a job, consumerism or unforeseen events linked to credit emergencies .
In the United States, a study carried out by the Thriving Wallet platform discovered that financial stress is one of the biggest villains of well-being.
The results, published in 2020 and pre-coronavirus, showed that money had an impact on the stress levels of 90% of respondents. Among the participants, 65% felt that financial difficulties had accumulated so much that it would not be possible to solve them.
Planning to avoid financial stress
The way forward to alleviate financial stress is planning. By ignoring the problem, things will not just go back to normal. Therefore, through developing positive habits like expenses control and savings, you can expect unexpected events without exposing your assets.
Make a financial diagnosis
The first act to break or prevent financial stress is to thoroughly examine your savings. Acquire a view of your spending monthly, outstanding debts, income, and total assets available.
Systematize your budget
After you know your possibilities and liabilities, then it is now time to create your budget. In writing, enter all of your income and costs on paper or an app. This will let you know your main expenses and what you can cut back on and eliminate.
Set goals
Usefulness of goals is quite high in maintaining good financial health, increasing your wealth and making your dreams come true. What you should do is to set clear and realistic goals on what you want to accomplish.
For example, You may look up at your goals getting out of the red, taking a trip, paying a deposit on an apartment, etc. Divide them into short, medium, and long term. This shall help you decide where you want to invest your money.
Pay off your debts
One of the biggest causes of stress is debt. Before building your future, settle your accounts with the present .
Free yourself from these worries by planning to pay as quickly as possible, so as not to be further harmed by compound interest charges , the real villains of those who take out credit.
Once you understand everything owed, attempt to negotiate with a creditor about the amount or payment method, and set how much you will need to save to reach that amount. Other times it can be useful to remember that when the interest rates are low enough, it may be wise to refinance another, high-interest loan.
Create an emergency fund
Having an emergency fund is part of basic financial planning . It will give you peace of mind when you encounter unexpected situations that affect your finances, whether it’s a health expense, a car expense, a house expense, or a layoff.
Ideally, you should have six months of your living expenses saved , so that the impact of unpleasant expenses is less. And this amount needs to be set aside in an investment that is easy to access and has daily liquidity.
Invest to overcome financial stress
Little by little, it is possible to overcome financial stress. Once you have resolved your debts and consolidated your emergency fund, it is time to protect and multiply your assets by allocating part of your income to investments.
To do this, check out our tips:
Understand what diversification is
There is no single investment that works for everyone and for every purpose. Therefore, you should research and learn about the different types of investments, and then adapt each one to your profile and goals, according to the redemption time. Diversification is also important to improve the profitability of capital and reduce risks.
Learn about variable income
Variable income is an inevitable path. Sooner or later, investors must explore this universe to obtain above-average returns in a low interest rate scenario.
The tip is to start slowly, get to know your investor profile and take these first steps with an investment fund. This way, you delegate the allocation of resources to a manager and can increase the value of your capital without taking too many risks.
Invest for the long term
Having financial independence as a goal or thinking about your retirement is always valid when putting together your portfolio.
With this mindset, you can combine fixed and variable income to get the best of both worlds: liquidity in times of emergency and high profitability over longer periods.