If you stress about money, stop! Try these steps to take control

Most people stress about money. This happens across the board, regardless of whether people feel they are struggling or their careers and jobs are heading for the stars.

If you’ve ever felt anxious about repaying loans, you are not alone.Financial stress impacts a large number of Irish adults, even those that are doing well financially. Debt is a financial commitment that can take decades to repay, think of a mortgage; it is little wonder people stress at one point or another, especially during times of life events such as the arrival of children, loss of employment, retirement and so on.  

Financial anxiety might be natural but that doesn’t mean it should affect your happiness. A number of global studies document the impact financial stress can have on your physical health and mental well-being. But the news isn’t all bad. If you do stress, there are ways you can reduce financial stress.

If you stress about struggling across the pay-day line

The Irish economy is still recovering from the terrible decade of the economic crash, so it might be little wonder that many people may experience exhausted bank accounts long before the next payday arrives. With little in the way of rainy-day savings, this group can be just one car mishap away from financial burden they have no way of paying.

To counter this cycle, create a personal budgeting plan you can live with. It really will help you establish a sound financial footing. “The first step can be the hardest” says financial expert and Qualified Financial Adviser, Frank Conway, Founder of MoneyWhizz.org. He recommends that people write down what it is they want to achieve financially. If it’s to build a small emergency fund; write it down. If it is to save for a first mortgage deposit; write it down. “Writing down a personal money goal is grounding, without it, there will be less reason to be organised or work towards any financial goal” advises Mr. Conway.

Taking the first step to develop a personal money culture

In this first step, if the goal is to build a small rainy-day fund, the next step is to identify all the areas little savings can be made. “Start with day-to-day shopping, list what you need and stick to that list” says Mr. Conway. Writing a shopping list might sound a little old fashioned but when money is tight, or a financial goal is really important, then a list serves as an emotional set of brakes on unplanned and unnecessary spending. It’s all about discipline when it comes to money management; finding those small savings every day can really begin to add up.

Unexpected expenses can throw the best laid money plans into a tailspin. But, while they may be unexpected, they’re not uncommon. At one time or another, most people will get hit for a big car repair bill, home repair bill or even a medical bill. That’s why it’s important to plan for the unexpected. It might seem a lot to ask at first, and especially if you have never done this before but by simply saving one euro after another, you are on your way! Saving just €11 per day can result in €1,000 saved in just 90 days. And while that may not be possible for everybody, everyone can set a daily goal that suits them, the most important step is saving that first €1. From there it just a matter of time and discipline.

If you stress about being hit by a financial meteorite…

Another thing to keep in mind is having the right level of insurance coverage can also help mitigate the costs of an unexpected, major event. Home and contents, serious illness, health and perhaps even income protection can all provide invaluable cover in the event major disasters strike. In Ireland, some of those insurances are mandatory (mortgage protection, car), others are not. What you need to keep in mind is to balance the level of insurance against your family needs. Don’t be over insured but make sure you are not under insured either.

If you stress about being in debt forever…

Many homeowners stress about their mortgages. What if they lose their job, or they become ill? It’s a natural concern. Having the right types of insurance will reduce the impact of those events occurring. However, more people stress at just the thought of the debt, and the cost of interest. So, for that group, they can look to take advantage of overpaying their mortgage if they have the extra cash to do so. It’s a little piece of money magic that will reduce the term to repay the mortgage and also slash the cost of interest significantly.   

But, before paying off a tracker mortgage early, the better money option is to focus on high interest debt first. Credit cards are a prime example. Because they are both high interest and the interest compounds, this actually turns out to be one the most expensive forms of credit. So, the best option financially is to pay off and credit card and other high interest debt before tackling a mortgage, especially a low-interest tracker mortgage.

If you stress about money in retirement…

There is little doubt that having enough money in retirement is becoming a bigger topic here in Ireland. Over half of Irish workers have no private pension provision. And thanks to rising health concerns, living in retirement might be more expensive than some people might have planned for. “Ireland still has a very generous system to invest in a private pension” says Mr. Conway.

If an employer offers a pension contribution, this is a great way of growing some money for those post-employment years. But even if they don’t, you can still put income aside for a pension, receive tax-relief and remember, that money can grow tax-free and you can even take out a significant tax-free amount on retirement, up to 25% with a maximum of €200,000.

If you need €40,000 to live and pay all of your bills today, in 20 years time, factoring for inflation of 2.5%, you will need at least €65,500. So if you think the State Pension of €12,900 will suffice when you retire, you need to either adjust your lifestyle expectations or start a private pension.

If you stress about your savings or the risk to your investments…

Some people that may be thriving financially can stress. For those with large sums of money on deposit, they may stress over the impact inflation will have on the value of their money. Others, especially those with investments may stress that the property or company shares they own might not perform as well in the future.

These are real threats to the value of money. For those with exceptional amounts of money on deposit, they need to do enough to counter the corrosive impact inflation will have on the value of that cash. The numbers can be staggering; if one has €100,000 on deposit earning just .5% with inflation at 2.5%, over the course of just two years, they could lose €4,000 in the real value of that money. This is why inflation is sometimes called the silent killer of money.

For those with a lot of money invested, they need to look at taking some simple diversification steps to ensure any investment growth they have enjoyed is protected.

Across Ireland, we know that most people really don’t understand or practice risk diversification on their investments. For example, it is not uncommon for a 50-year old farm owner to own shares of their local dairy firm. Kerry Group, Glanbia are just a few examples. Shares that may have been purchased in the 1980’s for pennies may now be worth €90 or more. For some, their shares may be worth millions! “The proven method of protecting investment value over time is by following a very simple rule that Warren Buffet recommends; don’t be greedy and don’t be foolish”.

The challenge when it comes to investments of any kind, commodities, property, shares, funds and even cash is when people become emotionally attached, they fear taking decisions that appear counter-intuitive. When the value of a share rises, few people want to sell because they expect more rises. When the value of a share decreases, they equally don’t want to sell because they expect the value of that share to recover, or they can’t fathom cashing in on a loss. People have been shown to become trapped by emotional expectations and this is where a lot of money can be wasted and lost. Instead, they need to develop a plan to lock-in gains and limit losses, no matter how painful.

Stressing about money solves nothing and puts your physical and financial well-being at risk. Write down your plans and take the first steps to taking back control.

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