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For a long time, I was terrible with money. I’d often spend a lot more than I earned and then worry about being unable to pay my bills.
It was something that regularly kept me awake at night. Why? I’d often wonder what would happen if my checking account went into an unauthorized overdraft or anything else that could wreak havoc on my life.
I knew that something had to change. So I began reading loads of books, watching dozens of videos, and attending lectures from some of the most well-known investors on the planet.
Slowly but surely, I developed the necessary knowledge to dig myself out of a financial mess and live a life that I once thought possible. Put simply, I’m no longer kept awake by the thought of not having enough money.
How did I do it? By following a few simple steps that helped me to eliminate my financial anxiety. Like Dave Ramsey once said:
“You must gain control over your money, or the lack of it will forever control you.”
The advice was simple. Yet, it changed my life forever and has kept me sane during this pandemic. So if you want to manage your financial anxiety, here are several steps that you can take.
1. Identify Your Most Important Expenses.
If you’re anything like my past self, you spend money on a load of useless things that you can probably do without. For example, I used to have 37 website subscriptions that cost me several hundred dollars a month.
If you want to have more disposable income each month, you need to identify if a specific expense is essential or not. For example, rent, food, and car payments are likely to be considered necessary for survival.
But if you’re buying a new piece of technology every month just to look good in front of your friends, that’s probably a habit that you can drop (at least for now).
Identifying your most important expenses allows you to evaluate your lifestyle and significantly reduce your outgoings each month. Because when you’re not down to a few dollars in your checking account at the end of each month, you’ll certainly have peace of mind.
2. Build A $500 Emergency Fund.
The situation right now sucks. However, an emergency fund will certainly make getting through this dark period in history much easier. Why? Because you’ll have a safety net to draw from if you encounter any unexpected expenses.
In March, I was traveling around Australia. I visited Melbourne, the Gold Coast, and Brisbane. But then borders started to shut. Flights started getting canceled, and I quickly needed to purchase a last-minute flight to get out of the country.
Thankfully, I had a good amount of cash in my emergency fund that I built specifically for unexpected events like that. So the following day, I was on a flight back to London via Singapore.
Start by building an emergency fund of $500. If you contribute $50 a week to it, you’ll be finished in ten weeks. If you contribute $100 per week to it, you’ll be done in five. Once you reach your initial target, double it, and so on.
The point of building an emergency fund is to have a safety net for any unexpected events that you may encounter. Because when you’re not constantly worrying about how you’re going to pay for something, you’ll undoubtedly feel much less anxious each day.
3. Create A Plan To Pay Off Any Debt.
If you have any debts that require payments, you’re obviously going to need to factor them into a weekly/monthly budget. Regardless of how large they are, don’t judge yourself or lose hope. Why? It’s not a productive thing to do. In the words of Mark Manson:
“Hopelessness is the root of anxiety, mental illness, and depression. It is the source of all misery and the cause of all addiction.”
Instead, a better solution is to create a plan that gives you hope for a much better financial future. Because when you know that your debt won’t last forever, you’ll stop feeling hopeless about your finances, and your mental health will exponentially improve.
I’ll give you an example. Let’s say you have a debt that totals $10,000. If you contribute $500 a month towards it, it’ll take approximately 20 months to pay it off. But if you contribute $750, it’ll only take thirteen months.
You get the idea. Having a plan to pay off debt gives you something to strive for. It helps you realize that this moment of financial difficulty is only temporary.
Anxiety, by definition, is a feeling of nervousness or uncertainty over the future. So if you can create certainty by building an emergency fund and writing a plan to pay off any debts, your anxiety will quickly fade away.
All you need to do is take daily steps towards a better financial future, and the power of compound interest will result in a much happier life over time.