The True Cost of Financial Stress and the Benefits of Positive Personal Finance Habits

The True Cost of Financial Stress and the Benefits of Positive Personal Finance Habits

Money is part of our everyday lives.  As adults, we dedicate ourselves to a career in order to earn money and take care of our families.  Many families often spend much time and effort stressing about not having enough money to pay for bills, college tuition, or retirement. Despite how hard we may work—how large of a raise we receive or how many extra shifts we pick up—many of us still find ourselves wanting, or needing, more money. It seems like our counters are stacked high with a never-ending mountain of bills. Credit card debt only grows larger and loan payments feel endless. Whether it be debt payments, bills, or daily expenses, financial obligations can make it hard to feel at ease and secure. 

Money is the #1 reason Americans are so stressed out. Can you relate? If so, you are not alone.

Many of America’s adults worry about their finances. According to BlackRock’s annual Global Investor Pulse survey, money is the number one cause of stress for American adults. A 2018 survey conducted by Varo Money found that 85 percent of people were sometimes stressed about money, and a full 30 percent of people were constantly stressed about money. 

How come so many of us struggle to feel at ease and stable when it comes to money matters?

Though bills and expenses will always carry some sense of burden, the stress that we associate with money often comes down to personal finance. Those of us who practice positive financial habits are able to take control of our financial lives—and in turn the stress—while others who disregard the importance of personal finance may end up floundering in financial stress and anxiety.

BlackRock’s President Robert Kapito explains how simple personal finance habits, such as saving and investing, can determine how stressed people are about their money; “For too many people, investing and retirement planning are all about an intangible future…But what we found is that there are immediate benefits for those who start early…focusing on retirement planning helps alleviate stress and improves your overall well-being today”.

 

Current Generations Struggle with Maintaining Positive Financial Habits

It is safe to say that practicing basic personal finance principles—such as saving, financial planning, and budgeting—can help people manage the stressor of money. Still, many adults fail to practice these personal finance habits.  

Take saving, for example—saving is practically the oldest skill in the personal finance book. Growing up many of us were told that saving our hard-earned money is important to be successful in life. As kids, we save up for the newest toy. As teenagers, we save up to buy our first car. As adults, we are told we need to save for life’s milestones. We need to have the resources to buy our first house, send our kids to college, and be financially ready for retirement. Though it may feel like the mentality of saving for our future is ingrained in our brains since childhood, as a society, we still struggle to save enough money. 

Research shows that financial saving is not as commonly practiced as you may think. In fact, many of us do not have enough saved to cover the cost of an emergency situation. According to a 2016 study conducted by NORC Center for Public Affairs Research, two-thirds of Americans would have trouble getting together enough money to cover a $1,000 emergency. Research conducted by the Federal Reserve of Economic Data shows that, in recent years, the national personal savings rate is low compared to earlier decades. Thus far, the average savings rate for 2019 hovers around 6 percent. In 2012 this figure peaked at 12 percent and in 1975 was a whopping 17 percent.  Most financial advisors would recommend that you save about twice the current average savings rate. 

Saving is not the only financial consideration that many people struggle with. Debt is also a large financial stressor in the lives of many Americans. According to the Federal Reserve’s Consumer Credit G.19 release, total consumer debt in 2018 totaled almost $3.9 trillion. This included about $1.5 trillion in student loans and $1 trillion in credit card debt. This means that the average consumer debt per capita was approximately $11,880 last year. 

When it comes to debt, Millennials are often thought of as the most impacted generation. These young adults are notorious for incurring large amounts of debt. According to a 2018 NBC News/GenForward survey, about 75 percent of Millennials are in debt, of which 25 percent are over $30,000 in debt and 11 percent are over $100,000 in debt. 

Not only does the millennial generation have a bad reputation when it comes to debt, but research may suggest that they are not as financially literate as the generations preceding them. In 2014, PWC published a report showing that  “among the overall population, Millennials are the age group with the lowest level of financial literacy”. According to the report, when tested, only 24 percent of Millennials demonstrated basic financial literacy. 

These statistics may seem shocking, but they demonstrate a key reason as to why so many people are stressed about money: personal finance habits. Considering such a large percent of the American population is failing to save enough money, all the while continuing to take on more debt, it is no wonder money-related stress is so common.

 

Adopt These Personal Finance Habits to Reduce Your Money Stress

If money happens to be a large factor triggering your stress, consider evaluating your personal financial habits and encourage your family members to do the same. If you do not practice some, most, or even all of the following positive financial habits, you may have found a way to help alleviate your financial anxiety.

Financial Planning and Budgeting

Financial planning is key to taking control of your finances and in turn your money stress. It allows you to map out your day-to-day expenses and potential emergency costs, and align them with your income and financial goals. When you have a financial plan in place, it is easier to make financial decisions. 

An integral part of financial planning is budgeting. Living by a budget allows you to account for short term cash flows and live within your means. Creating a weekly, monthly, and/or yearly budget will make it easier for you to reduce unnecessary spending, save more, and take on less debt. 

Another important aspect of any good financial plan is preparation for retirement. The ultimate career goal, for most people, it to eventually retire. Though to do so comfortably requires much planning and preparation. This usually involves setting up and contributing to a retirement fund. Consider consulting a financial advisor or coach to help you develop, and stick to, a financial plan.

Overall financial planning and budgeting will enable you to feel in control of your finances, and in turn, help reduce the financial stress and anxiety in your life.

Goal Setting

Another important personal finance habit is goal setting. Paying off short term expenses should be the first priority and foremost concern when it comes to managing your disposable income. It is also important to set long term financial goals. Creating long term financial goals, such as saving up for a family vacation or paying off your car loan, helps you to stay on track with your financial plan. 

Financial goal setting also helps you and your family to prioritize what you want to spend your money on and holds you accountable to your financial decisions. It also gives you a sense of achievement and financial empowerment when you finally attain your financial goal. Personal finance should not always focus on the nitty-gritty costs and expenses of life. It should also involve fun and reward, which is exactly what goal setting provides. 

Smart Saving AND spending

As discussed earlier, saving is a principal aspect of personal finance. Saving plays an important role in financial stability, financial planning, and goal achievement. It is important, if possible, to set aside a portion of your disposable income for unexpected expenses. Having a chunk of money saved away will provide you with a safety net just in case an emergency or unplanned cost occurs. 

As important as it is to save, we should not be afraid of spending money. Of course, we will inevitably spend money on daily expenses, but we also deserve to treat ourselves from time to time. However, spending needs to be done in moderation. In other words, this extra spending should be done in a smart way. If you have a bit of extra money at the end of your budget cycle—after setting aside money for savings and retirement—take a moment to consider what you wish to spend that money on. Maybe it could be used towards achieving one of your financial goals. Maybe it could be allocated towards next month’s expenses, which would help relieve you of future financial stress. Or maybe it is best used to treat the whole family to a nice dinner or to the movies. 

Having a “smart” balance between saving and spending is key to feeling in control of your money. 

Money apps and financial software: The Wallit Solution

To help you stay on track with practicing positive personal finance habits, use a convenient financial software. There are many mobile apps and online platforms to help you manage and track your money, including Wallit. Wallit helps parents and teens develop good financial habits by making it easy to manage and track their money together.  In addition to helping you consolidate your finances, it allows you to set goals, which encourages smart saving and stimulates spending. To start improving your personal finance habits, sign up for Wallit today.