A friend told me the story of a young mother who was unemployed, and her husband worked in education. She couldn’t find a job, and a baby was on its way. At that time, at least they had the housing issue resolved, but the inherited apartment was large, which meant that the utilities were extremely high. The renovation costs were also high, because the apartment was privately occupied when they moved in. How did they survive?
How to live within your budget?
Her answer, and what I often tell you about, was not to “tighten her belt”, but to set priorities when it comes to spending money, to decide what she really needs, when and at what price, and to set aside some money every month.
We all live within a certain budget, and that framework is determined by our income on the one hand and our needs and desires on the other.
Problems often arise when we spend more than we have and go beyond that “framework”. What people in Serbia would say – our feet stick out from under the blanket (we live beyond our means).
Why is it important to manage your finances on your own?
Managing finances is a skill and it takes time to improve. However, even small steps can improve your budget.
Sometimes, in order to make improvements, you have to face your expenses down to the smallest detail, and to economize. It is not a shame to tighten you belt and not be reckless with money.
It is not a shame to beware of situations that can endanger you financially, because they can damage your health as well.
Financial stress is a widespread experience. According to the American Psychological Association (APA), 72 percent of Americans are occasionally stressed about money, and 22 percent feel extremely stressed about their finances. This is quite important because financial stress is related to health problems such as depression and sleep problems. Serbia is above the European average in the number of suicides. The reasons range from problems with loved ones to existential ones.
Economic downturn, job losses, business closures, rising prices, rising energy bills: it is no wonder that the relentlessness of negative reports of economic downturns is affecting people’s emotional and mental health.
That is why it is important that we focus on what we can control.
How to deal with financial stress in 5 steps
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Create a budget – financial plan
You may feel overwhelmed and think that creating a budget – financial plan only adds to your financial stress, but it is one of the basic tools you need to gain control over your finances and stop worrying about money.
Having a budget allows you to decide when and how you will spend your money. This spending plan ensures that you cover your current expenses, while working towards your savings goals. It can also help you find extra money to pay off potential debts.
The first few months of planning and keeping a budget are the most challenging, but once you get used to it, you can often reduce the amount of time you spend on it, and in turn, reduce the amount of time you spend worrying about money.
Here you can download my spreadsheet where you can set goals and create a simple financial plan. After that, you can continue to record income and expenses, which is the key to taking control of your finances.
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Create your golden reserve (many people call it an “emergency fund”)
A golden reserve should cover unforeseen expenses and financial emergencies. Although car repairs can be expensive and stressful, if you know you can use your golden reserve to cover them, a lot of stress will go away. It is also easier to use the money in your budget in the way you planned if you know you have extra money in your reserve ready to cover unexpected events that may occur.
There are several opinions on how much the golden reserve should amount to, and the general opinion is that it should cover at least six months of your living expenses, while some say a year. This is due to the fact that this golden reserve should be a security for situations such as unexpected dismissal and the like, and it should provide you with security while finding another job, etc.
Of course, this can sometimes be money for a period in which you decide not to work, but to dedicate to yourself.
Building a golden reserve may seem difficult, especially if you are struggling to make ends meet every month.
Especially in these cases, set aside even a small amount for your reserve. Set aside a small amount, be it 10, 20, 50 or 100 euros, but do that every month as soon as you receive your salary. And that’s how you create your golden reserve.
You could also consider selling unused items around your house to raise that money as quickly as possible.
As for the golden reserve – the most important thing is to create it!
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Ask for help
If you are looking for a solution to your budget and spending problems, don’t be afraid to ask for help. You can take basic money, savings and investment management classes, which will help you plan your budget and do the things you need for financial success.
A financial planner or advisor can help you create a long-term savings and investment strategy that will help you take care of your current needs and plan your future.
If you feel overwhelmed with debt, you can consult credit counselors, who may help you refinance or restructure your debt. In some cases you can even negotiate with creditors.
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Determine what you can change and accept what you cannot
If you have financial problems, you may have a problem with income, a problem with spending or a combination of the two. If you know you’re not making enough money to cover your bills, think about what you can change. This may include options such as going back to school and courses to qualify for a better paying job.
Once you have a plan to help you permanently change your situation, you should be able to reduce stress.
Support from a psychologist or therapist or group support can also mean a lot in solving the problems you are facing. Some things cannot be changed, and accepting them can also significantly reduce the stress you are dealing with.
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Retrospective & Keep track of your progress
While this may not sound like a solution to your financial problem, it can make a big difference in the amount of stress you feel each day.
Find positive aspects of your financial situation by keeping track of your progress toward your financial goals. Seeing the positive aspects of your current financial situation can also help alleviate stress.
Keeping track of your income and cost structure can also help you see progress in your budget easily.
For example, in my spreadsheet in which I record how much I earn and spend, I can clearly see in what months I earned more money. I also see that in some months I spent more on entertainment – going out, clothes – shoes and, for example, some trip.
If we do not record these items, and do not take a retrospective look at and monitor our progress, we easily forget about them and forget what we have achieved.
The goal of financial management is to provide us with a better quality of life, and retrospective helps us see progress and focus on what we have achieved.
Note:
1. Taking care of your finances is taking care of yourself
2. You can change your financial situation, and it will be easier to do that if you do not live in anxiety all the time.
P.S. The mother from the story got a job, and soon after that a better job in a bank. Remember – whatever you encounter, don’t look at it as a problem, but as a situation and take control!
How to successfully manage personal finances?
You can schedule your first 1-on-1 financial coaching session today. Here you can find out more about coaching services, prices and how to schedule.