5 steps to reduce financial strain and gain control over your money

Are you feeling anxious about your money?  Studies show what many of us already know: money underpins every aspect of our life, and if you’re experiencing financial strain, it can lead to a number of other emotional and psychological issues. 

Life happens and with that, comes debt and overspending.  In fact, the average Canadian household debt load (not including mortgage) hovers around $23,000. Anxious feelings can arise with an array of triggers, such as constant worry about money or experiencing feelings of being overwhelmed with no end in sight.  Losing sleep worrying about everyday expenses can take a serious toll on your mental health and it can lead to depression and other life-altering illnesses. 

Financial wellness can improve your wealth and health

If you have money worries, there’s a good chance your kids have picked up on it as well and will sense your stress.   As much as you try to provide for and protect them, your relationship with money will impact the relationship they have with money.  Whether it’s discussed or not, kids pick up on the behaviours and attitude you show towards wealth and financial matters and they’re learning from you every day.  In fact, your child has cemented their beliefs about money by the age of seven!

Feeling good about your money and your financial health is empowering and an incredible act of self-care and the impact will be felt by those around you.  Financial wellness is growing in awareness, as many recognize the emotional impact of money and how gaining control and confidence of it can greatly improve our overall health and well-being.  No matter what your self-care routine is, you should check in with your financial health as well, because your personal finances and health are intricately connected. 

If you’re tired of being stressed out about money (or lack of it), here are 5 simple steps you can take to improve your financial wellbeing: 

Step #1: Hit Pause

Look around and reflect on all the items that were purchased in the last year and ask yourself the following questions:

What did you buy?  Why did you buy it?  Do you use it often? If I had to buy it again, would I?

So often our purchases are made on impulse and don’t add much value to our lives.  In the moment, however, it feels good, and you must.have.it.right.now! But let’s be honest, did you really need that popcorn stand with the matching gumball machine for the backyard patio?  Or what about the watch that so perfectly matched one outfit…and then never wore it again?

Our society has created a culture where consumption is made easy – a click of the button, and it arrives the next day.  Before you make your next purchase, pause!  Ask yourself why you’re buying it, and if it will add value to your life.  If it’s a large ticket item, wait at least 24 hours before you make the purchase.  You may feel different about the next day. 

Step #2: Make a date with yourself and track your cash flow using the 50/30/20 Method

The first step to reducing financial stress is to know exactly where your money is going.  Book a date with yourself (yes, write it in the calendar…otherwise, will it ever really happen?). Download your credit card and debit account transactions from the last month and get your highlighters ready!  We’re going to track your cash flow.  I find a glass of wine or good cup of coffee helps with this exercise because this is a task even an accountant would dread.

A helpful way to sort through your expenses is to apply the 50/30/20 Method.  At the top of the page, write your net worth income (after-tax income) for a month.  Then, categorize your spending into three buckets: Needs (50%), Wants (30%), and Saving & Investing (20%).

Under the ‘Needs” category, include expenses that you need to pay for you to live.  For example, rent or mortgage, hydro, transportation, groceries.  This bucket should also include minimum payments that must be made towards debt payments, like a credit card or student loan.

The “wants” category is for all those things that make life fun!  Dining out, movies, clothing, and kids’ activities fall into this bucket. Even that popcorn and matching gumball machine goes here.  Be honest with yourself – Starbucks is a want, not a need!

The last category of “saving and investing” is where you’ll add the extra debt payments (the additional payments you plan to make towards credit cards, etc.), and any money that goes towards emergency funds, investing, or accounts that fund your goals.

Here’s the math part: after all the expenses have been included, add all items in each category.  Once you have three final numbers, divide each category amount by your net income to get a percentage. Compare your percentage to the model: are your expenses in line with the 50/30/20 model?  If you are over or under, review the expenses, and see where you can make some adjustments to improve.

While this isn’t a perfect budgeting strategy, it’s an excellent way to get a snapshot of your current expenses and how to track your cash flow.  You can’t skip this step, because the only way to make a plan is to know where the money’s going.

Step #3:  Set your goals

I like to help my clients learn how to spend with intention.  This means understanding your values and creating goals that match what’s important to you.  This will help you stay motivated towards reaching your goals, because if your spending on something and it doesn’t match your values, then why are you spending on it? 

For example, if you value family time and creating lasting memories, you may create a financial goal to enjoy an annual vacation at Disney World.  The next time you reach for your credit card, ask yourself how aligned this spending is with creating a lasting memory for your family.  When you focus on what’s most important in your life, it will become easier to save for what matters most. 

Step #4: Prioritize your debt

Credit card debt or other high-interest debt should be paid off as quickly as possible.  No matter what your financial goals are if you’ve got debt looming over your head, it’s going to make it difficult to make any significant process. Effectively eliminating debt requires a plan and consistent action. 

Take a moment right now and imagine your life debt-free.  What are you doing?  How do you feel? When your debts are paid, you can start to invest.  And investing is the first step towards building lasting wealth.

If you find yourself in debt and it’s severely impacting your life, consider reaching out to a professional credit counselor or seeking the advice of a financial professional.

Step #5: Create a list of financial matters you want to learn more about

Personal finance has recently been introduced as part of the curriculum within the Canadian school system and our children will now start to learn some of the fundamentals of good money management.  This could be an excellent opportunity to empower your financial literacy as well!  Make of list of some of the areas you want to learn more about and go for it.  You can start online: here is an unlimited amount of resources online.  Podcasts and books are a great way to learn as well!    

While our lives may not return to normal post-pandemic, we can certainly take care of our financial health and come out stronger on the other side.

 

Your financial health is important.  If you're ready to reduce your stress and improve your overall well-being, Set up your free 30-minute consultation call here.

 Stephanie Wolfe is an Accredited Financial Counselor of Canada (AFCC) and the Founder and CEO of Wolfe Collective Wealth Inc.  She is a passionate advocate of financial wellness and empowering women to take control of their wealth.  She resides in Toronto with her husband and three children.