Do you stress about money and worry about your overall financial position? If so, you’re not alone!
According to Capital One, 77% of Americans are concerned with their financial picture. Some of the top worries are managing debt, running out of money, keeping up with inflation, and not having enough money to retire!
If that wasn’t bad enough, financial stress often spills over into other areas of your life, too. When you have money fears or experience financial problems, it’s difficult to concentrate, sleep, or even think clearly!
Even though money is a constant stressor for most people, it doesn’t have to be for you. Oftentimes, making small changes to the way you manage money will improve your financial position. Not only that, but it can allow you to have a complete financial transformation, too!
What is a Financial Position?
In the past personal finance wasn’t taught in school, so most adults never received a formal financial education. If you haven’t learned about money and the way that it works, then how do you expect to manage it successfully? Unfortunately, most people don’t, which is why they continue to worry about it!
When it comes to reducing money-related stress, it pays to be aware of your financial position. In doing so, you begin to understand the full extent of the situation you’re in. It may reveal that you’re living beyond your means and taking on debt which is causing you to worry about making ends meet. Because of this, you may have additional concerns about saving, investing, and being able to retire at all!
One way to gain a better grasp of your current financial position is by filling out a personal financial statement. It will help you discover whether you’re using your income to acquire assets or liabilities. The more liabilities you have, the higher your burn rate will be, and the more likely you are to stress about money!
Taking a financial assessment is another way to highlight your situation. It too will give insights into how you’re using and potentially abusing money!
Either way, you’ll be able to calculate your net worth which is the best indication of your financial position. A positive net worth shows that you’ve built some level of wealth that can help you feel financially safe and secure. Whereas a negative net worth shows that you’re financially insecure and are likely going to experience stress!
Regardless of whether you need or want to improve your financial position, here are 5 strategies that will help you turn it around in a short time!
#1 – Make a Budget
Too often, budgeting gets looked at in a negative light. It’s considered to be restrictive and limiting. But in reality, it’s positive because it establishes a way for directing your money to the places you want!
For example, imagine you don’t have a budget (I know, this was super difficult for me too.) Without a budget, you don’t have a spending plan either. You’re more prone to buying impulsively which can cause you to overspend! Not only that, but if you don’t have a plan for spending, you won’t have one for saving, either!
Regardless of what you want to do to improve your financial position, you need to save. Savings allow you to start an emergency fund, dig your way out of debt, and make equity investments. Without them, your situation isn’t going to improve and in some cases, it’s going to get even worse!
If you’re unable to save right now, start looking for ways to lower your monthly expenses. Determine which of your recurring costs can be reduced or that you can go without. When you cut or eliminate them, you’ll have more cash available to put towards your financial goals!
The money metric that’s most crucial for improving your financial position is your savings ratio. The higher it is, the more money you’ll stash away, and the faster you’ll see results. Not to mention, the sooner you’ll experience less stress, too!
#2 – Build an Emergency Fund
Another way to improve your situation is by building a solid financial foundation. As you stash money aside, you build a cash cushion that’s ready to get deployed anytime an emergency strikes!
For one reason or another, some people don’t think that an emergency will happen to them. So, they don’t prepare. Unfortunately, when disaster strikes they aren’t ready and are forced to find fast cash. They must use credit cards or other high-interest rate loans to solve their problem which puts them in a worse financial position than when they started!
Whether you’re prepared or not, emergencies are going to happen. It’s not a question of if, but of when and at what cost!
For most people, setting 3 to 6 months’ worth of expenses aside in an emergency fund is a good rule of thumb. But, if you have inconsistent income or are an entrepreneur, then you should consider having even more!
While having an emergency fund can reduce stress, it also gets you in the habit of saving money. When you have the financial discipline to save today, it ensures that your financial position improves tomorrow!
Also, when you dip into your emergency savings, don’t forget that replenishing them should be one of your top priorities!
#3 – Payoff Consumer Debt
Unfortunately for most Americans, their financial position gets worse from year to year. Rather than saving and investing, they’re busy spending money they don’t have. Not only do they take on debt, but an ever-increasing amount of their income is getting consumed by the payments, too!
According to Experian, consumer debt has been expanding by 5.4% over the last year. Despite mortgages topping the list; auto and personal loans aren’t that far behind!
When you take out consumer debt, it weighs on you. You feel added pressure to perform at work and make payments on time. If you’re unable to, your credit will suffer, the balance may compound higher, and you could even find yourself in the middle of a personal financial crisis!
One of the easiest ways to improve your financial position is by paying off all your consumer debt. Given their high-interest rates, shedding them will give you a large risk-free rate of return on your money. If that isn’t good enough, you’ll receive a sense of financial freedom and peace once they’re gone, too!
#4 – Manage Lifestyle Inflation
As workers advance in their careers, they begin earning more money. Aside from that, they often spend more of it, too. Now, they may feel the need to dress the part as well as fit in with other workers in a similar role.
Even though lifestyle creep can start with a new wardrobe, it usually doesn’t end there. It can lead to a bigger house, nicer car, and countless other status symbols, too!
For many people, the key driver behind lifestyle creep is trying to keep up with the Joneses. Oftentimes, they buy material possessions that are similar to the ones owned by their neighbors and coworkers. In more extreme cases, they have an unspoken battle where they’re constantly trying to outdo one another, too!
As simple as it may sound, it’s important to remember that you don’t know the Joneses’ financial position. Not only that, but If they’re anything like the average American, they’re also drawing in debt!
When it comes to getting a raise or receiving a financial windfall, it pays to plan ahead. Determine how much of it will go to spending and savings, upfront. This way, you’ll still reward yourself for working hard, but you won’t go overboard. Instead, you’ll have a certain percentage of your funds that will go into savings, investments, and improving your overall financial situation!
#5 – Save for Retirement Today
If you’re like most people, you dream of having a happy retirement. You’ve worked long and hard to get to a point where you can relax!
Whether they realize it or not, people often put their Golden Years in jeopardy. Without understanding their retirement expenses and future medical treatment costs, they risk running out of money. Can you imagine the stress of watching your nest egg dwindle to nothing in old age? That sounds terrifying to me!
Many people don’t make saving money a priority. Instead, it gets put on the back burner. They think they’ll get around to it once they’re old or earning more money. But more often than not, they don’t. Now, they have to work longer and harder to retire, if they’re ever able to at all!
As an employee, one of the easiest money moves you can make is contributing to a 401k or IRA. Not only will you be saving for your future, but you’ll likely earn free money in the process, too!
Aside from that, investing today allows you to capitalize on the power of compounding. Rather than you working longer and harder, your investment capital does. Over time, it will surpass your earned income, allowing you to reach your freedom number and have complete control over your time!
For some money personalities, saving and investing for the future is difficult. If that’s you, try using financial automation. This way, you won’t have to remember to put money aside for the future because it gets done for you!
If you’re like most people I work with, your financial position isn’t where you’d like it to be. In the past, you may have mismanaged your money, taken on debt, or even made some financial mistakes that you’re still paying for!
Regardless of the circumstances, your financial position can improve. As long as you can start living below your means and saving, then you’ll have money to improve your situation as well as help you sleep better at night!
What are you doing to improve your financial position? Comment below.
Good list here Todd! Lifestyle creep only tends to hit me at bars and restaurants. I throw caution to the wind on entertainment, though I’m a tightwad with the rest of my day-to-day!
Thank you! Bars, restaurants, and even food deliver tend to be big expenses for most people these days. Way to be a tightwad!