Five Ways to Eliminate Financial StressWritten by Christina Miller
Edited by Carly Simon-Gersuk
Prior to the unprecedented challenges facing our economy, unemployment was down to 3.5%, the lowest rate in half a century. By the end of May, COVID-19 led to this era’s second highest unemployment rate at 13%. This accounts for the 20.5 million jobs losses and trails the previous month’s, April, highest unemployment rate at 14.4%. This rapid shift in hardships has left countless Americans stressed about money, and moving forward there are many factors that play into financial stress. Factors such as eliminating certain triggers and mitigating where possible can help to reduce money anxiety. Here are five steps to take right now:
1. Pay down your credit card
According to the credit bureau, TransUnion, average credit card debt among U.S. adults with a credit card is $5,596. Carrying around this much debt means that you’re paying around $1,000 just in interest each year if you have a typical annual percentage rate of 17.99%. By paying down your credit card, you will begin to pay less in interest and start to eliminate the stress that comes with having large debt. In addition to paying down your credit card balance, another strategy for decreasing the amount of interest paid is by refinancing with a credit card that has a lower APR. With MoveCU, you can find credit cards with the lowest APR nationwide or within your geographic area and apply immediately. Many credit unions will even offer free balance transfers, so you literally have nothing to lose. An example is Lake Michigan Credit Union’s Prime Platinum Card, with a 6.25% APR (one of the lowest rates in the country) and includes free balance transfer.
2. Start building an emergency fund
Most finance gurus advise having a buffer of six months worth of emergency savings. To calculate how much this is for you, figure out how much you pay for necessities each month (rent/mortgage, insurance, utilities, food) and multiply by six. These funds should be liquid and easily accessible (i.e. not invested or in a CD). Having an emergency fund gives you peace of mind and allows for unexpected life changes. Many people experience financial stress when they are faced with an unforeseeable expense, but having an emergency fund enables you to handle these situations with as little financial stress as possible and also give you flexibility in the case of life changes.
3. Track your spending and create a budget
People oftentimes face financial stress in part because they don’t even know where their money is going. I’ll never forget the time I tracked my expenses for the first time and found out just how much I was spending on eating out each month. I think the shock lasted days, but I definitely learned my lesson that $20 here, $30 there really adds up. Developing a budget will help you to figure out what you can afford, and also enable you to determine how much you can invest. Without a budget, many people fall into the habit of spending money on things they need and want without first determining whether they can truly afford it.
4. Cut unnecessary expenses
We understand that little luxuries are part of a balanced, enjoyable life. However, when these luxuries begin to put a strain on the budget, they become something that detracts from quality of life rather than enhance.
5. When in doubt — don’t
When tempted with a large purchase, make sure to ask yourself if it is something that you really need or if it’s just a “want.” If the purchase is something that is not a necessity, follow the rule: when in doubt — don’t. This means that if you are questioning the purchase or thinking that your money would be better spent elsewhere or saved, then you should probably not go through with the purchase. This will prevent buyer’s remorse and will develop better money management skills, which will in turn help to alleviate financial pressure.
Written by Christina Miller
Edited by Carly Simon-Gersuk