Financial anxiety is a common phenomenon, especially among millennials. It can be caused by a variety of factors, from not having enough money to save up for emergencies to not knowing how to invest in the future. The cost of living is to reach the highest levels since 1992 with inflation predicted to hit a minimum of 9% in Q4 of 2022. Needless to say, money worries are not just a thing for Millenials alone. Everyone especially low-income households are feeling the bite of energy increases, tax increases, increasing food prices, fuel prices, transport increases and so on.
There are many ways to reduce financial anxiety, I find the following tips helpful with reducing financial anxiety, I hope it helps you too.
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Understand your personal finances and create a plan that works for you
If you are experiencing financial anxiety, a very good place to start is to understand why. Are you in debt and can’t keep up? Living paycheck to paycheck? Do you feel losing your source of income for even a month will plunge you into a major financial crisis? Are you in constant fear of losing your job as a result? Understanding why you are anxious is helpful. However, the best place to start is to look to improve your finances, after all, this is what is causing the anxiety in the first place. Once you have discovered the source of your financial anxiety do the following;
Create a financial plan and a spending plan
Have you ever had to write an exam? Chances are that you will be confident if you studied hard and covered all basis. You might feel a little nervous because you don’t know what questions will be asked, but you are unlikely to be very anxious. Think of your finances the same way, preparation and understanding increases your confidence and reduces your anxiety. Even if you haven’t quite tackled all the problems yet, putting a plan in place will increase your confidence about the future.
Dreaming big or making plans can seem overwhelming when you have financial anxiety. Questions like ‘will I get to retire?’, how can I get on the housing ladder? or how will I pay my rent can all lead to anxiety. However, the focus here should be on what you want and on creating your goals even if it will take time to meet them.
Take a step back from what’s happening now. This is so that you can have and focus on the big picture by setting long and short term goals for yourself. Then ensure you create a spending plan also known as a budget. A budget is a spending plan that lists your income and allocates it to different expenditure types. This is the tool you need to start working towards those goals and for resolving the main reason for your financial anxiety. For instance, if you want to be debt-free, you can use your budget to ensure you have money left to allocate to debt repayment. For more information about creating a budget, download our free budgeting ebook.
Work hard and smart to maximise your income
The two key items in your budget are your income and expenditure. With the current cost of living crisis, most people are finding it difficult to reduce expenditure. The key to maximising savings in a budget is often in reducing non-essential or variable expenditure. However, the cost of essential items such as energy and food is currently increasing and a lot of people are finding they have to adjust their budgets for the increases. We often focus on expenditure so much we forget that our income is a key component of our budget and one that should always be reviewed.
Can you find ways to increase your income? Waiting for a pay rise or promotion is putting others in control. You may have to be proactive and ask if this is not being offered. Consider moving jobs, although take into account other increases like commuting costs that can eat into your pay increase. There are also other ways to boost your income. For instance, taking on an extra job or side hustling if you have time.
A very important question to ask is “Are you getting the most value or money for your time?”, this is more important than taking on several jobs or side hustles. You can have 1 job paying your more than 1 main+ 1 side hustle or 2 jobs per unit of time. Remember to always consider other long term factors like fulfilment or long term goals. For instance, you can move jobs for similar pay to get some skills that will help you pivot, or work on a side hustle that will take some time to become profitable.
Your ultimate goal, in the long run, should be to get the most value for your time or to exchange less of your time for money. In summary, more money to meet your needs will definitely reduce your worries about money and reduce your financial anxiety so work on increasing your income.
Spend less than you earn
Spending considerably less than you earn allows you to save for the items I will talk about in a bit. It ensures you have some wiggle room in your budget. Aim for a savings rate of at least 10% which means you are only spending 90% of your income.
Your savings rate is a key determinant of paying off debt, reaching a FIRE number, saving for a house deposit, saving for retirement, or saving for that year-long trip. If you are saving into an emergency fund your 10% or 20% will be going towards this so you should still aim to spend less than you earn.
Living considerable below your means will prevent a lot of financial anxiety because you will have lots of wiggle room to absorb increases in the cost of living. If you are really struggling to save and always spend all or more than you earn, it’s due to one or 2 things. You are not earning enough or you are living above your means.
Living above your means does not mean you have a luxurious lifestyle, it could simply mean you live in an area with a high cost of living. For instance, housing in London and the South East of England is very expensive. If housing is a high percentage of your budget, can you downsize? Move to a cheaper place? In other to keep our expenses below our income, we have had to make compromises with housing because we live in the South East. It is not easy, but it allows for that wiggle room and peace of mind.
Work towards Debt Freedom
Debt is such a polarising topic in the personal finance community with lots of varying opinions. There can be such things as good and bad debt, but debt is only good in my book when used for investment purposes and even that carries a measure of risk that you have to be comfortable with.
From a household or personal finance point of view, the only debt that fits the category of ‘good debt’ is mortgage debt. Other types of debt especially consumer loans can be problematic and spiral out of control.
There is a link between huge debt and mental health. This article by Citizens advice UK, confirms this. It states that a lot of Citizens Advice UK debt clients feel very anxious because of their debt. It goes without saying that one way to reduce financial anxiety is to tackle your debt. Forget what anyone says or your beliefs about the good in credit cards, if your debt/payment is increasing and causing you to worry, it’s time to tackle it.
Save for these 3 things
If you manage to do well enough to spend less than your income, you will be left with some savings. My savings pot is divided into 3 main categories as follows;
- An emergency fund – this is to meet unexpected expenditures you are not insured for or loss of job. Having savings that can cover a minimum of 3 months of expenditure will help you feel less anxious about losing your job or meeting unexpected expenditures.
- Sinking funds- A sinking fund is often used for known expenditure that is expected in the future. You put money aside monthly until the expenditure is fully funded. For instance, if you are planning to go on a holiday in2 years’ time that will cost £2000, you can save £100 monthly for the trip. In 20 months, you will have a fully-funded trip. I sink fund pretty much everything that is an annual spend including things like car and home insurance, road tax, big birthdays, Christmas and so on. A few pounds set aside monthly towards the activities I know will happen gives me peace that I would meet those obligations when they arise and prevent a scenario of using a credit card thereby increasing debt.
- Investments for long term goals and retirement– this is important and will ease some worries and anxiety about the future. Please see our investment series and blog post on how to plan for retirement for more information.
Saving into the 3 pots above should reduce your anxiety greatly. You will not need to worry about unforeseen/ planned expenses or funding your retirement.
Give yourself permission to enjoy more in life so that you don’t feel like you are missing out all the time
It’s hard to catch a break isn’t it when you have to work all the time. Some people feel stressed if they have to watch their spending all the time. As I said in my last post, some things are just part of being an adult. Life will be tough and hard in some stages so we need to consciously try to enjoy life and the moments we have.
This doesn’t need to involve anything elaborate. There was a time we couldn’t afford to travel. It was a bit difficult because everyone seem to do so, I used the opportunity to find out more about our local area. There was always so much to do around and I enjoyed it more with a shift in perspective. You can have fun and be happy anywhere. And you can travel to amazing places and still be unhappy.
So don’t let FOMO (fear of missing out) get to you. If social media is a problem, shut it off. Although, it will be good to get to a place where seeing other people happy doesn’t provoke negative emotions. Channel your energy and emotions into staying on top of your goals. Take a deep breath and say “soon, it will be my turn to see Machu Picchu”
Take a walk, and smell the roses. Appreciate the little things. Everything is commercialised these days so we have forgotten how to have fun without spending money.
Learn how to truly enjoy yourself without spending loads so you don’t get some anxiety from seeing other people’s Instagram lifestyles. And when you can afford to, budget and reward yourself with something you really enjoy.
Practice gratitude and find validation in other things.
Finally, there is someone always worse off is so cliche but true. I value life and good health and I am really grateful for every day I wake up healthy and mentally sound. Being able to appreciate life and expressing gratitude when things are tough gives you a positive approach to life. A positive approach is often what you need to keep anxiety and depression at bay. Acknowledging that things could be worse or that things will look up gives you hope.
Stop the comparisons, the “why me”, hating on wealthy people and just focus on you. What have you got going? …good health, friends, family? Find things to be grateful for even in tough circumstances. I know it is often easier said than done. Tough circumstances are in varying degrees and it might be simplistic to say just be grateful. If you are struggling and can’t seem to find a way out, please seek help.
Seeking constant validation from others or the things we do and love can lead to anxiety. It’s great to take pride in our work or in our ability to take care of ourselves or our family. However, we can get so absorbed in these roles that it starts to define us. Work is great, making money is what helps pay for the things we need but the person we are without these things is who we really are. I find validation in my faith and not in work, possessions or people. These things can be lost without being lost.
I hope these tips are helpful, I certainly have found them so. Let me know in the comment section below what resonated with you the most. You can also show share your top on how you kick financial anxiety to the curb, I am sure it will be helpful to someone.
Keep the noise to a minimum
Financial anxiety can be exacerbated by noise. There are several sources of noise and distraction. One main source of noise is the news media. It is a good source of information but should be taken in doses. I tend to get my news online by doing a quick sweep of the headlines. Having the news channel/radio on repeat and hearing about the cost of living crisis over and over again will only make you feel anxious. Take it in doses and curate what you watch. The second biggest source of noise is often from social media. If social media is making you have financial anxiety, reduce your consumption or curate your content to only see helpful stuff.
Rest/relax, take stock and reboot
It is hard to rest when so much is going on and you are worried and anxious but you have to try. When things get overwhelming try to stop, go for a walk, switch off everything and try to relax.
It’s good practice to stop, rest, take stock and reboot. If you have done all the above or feeling completely hopeless from financial anxiety or any form of anxiety, seek help.