If you have poor personal finance management skills, then you have to improve them in order to deal with your financial stress.
Today there is a gaping chasm between the richest and the poorest people in the world. The majority are either poor or in debt.
Neither the economy nor the government are solely to blame for that.
Where Do You Rank?
According to the website Global Rich List, owning just 10,000$ worth of assets ranks you in the top 32% wealthiest people. Furthermore, earning a net income of 30,000$ per year ranks you in the top 20% earners globally.
A big portion of the human population earn a low salary for the work they do. For example, India has a population of 1,33 billion and the actual average daily wage rate is around 4$.
On the other hand, many in rich countries like the USA or the UK are in debt.
Let us take the USA as an example.
The Northwestern Mutual Insurance company conducted a study in 2018 based on a survey of 2,003 U.S. adults. They published the following conclusions:
- Americans are twice as likely to have accumulated $5,000 – $25,000 in debt (33%) rather than personal savings (17%)
- Fewer people said they carry no debt this year compared to 2017 (23% vs. 27%)
- Two in 10 people allocate a staggering 50% – 100% of their income towards debt repayment
- 1 in 10 (13%) Americans say they will be in debt for the rest of their lives
The situation is not better in other industrial countries.
Britain’s household debt has reached a new peak in 2018. UK homes now owe an average of £15,385 to credit card firms, banks, and other lenders, according to the TUC.
Ways to Deal with Financial Stress
Your personal spending habits are the main cause of your financial stress. Not having enough money in your bank account is actually a very good reason to worry.
With no money you become a slave to your current employer, city, and home. The lack of freedom and flexibility can make anyone feel unsatisfied. It also makes you vulnerable to life’s misfortunes.
Some may argue that a person can be free in their mind without needing money but that is not true.
Let’s imagine that you are a talented painter, musician or writer who just enjoy doing the things he or she was born to do and that is to paint, play music or write.
You wouldn’t be able to concentrate on what you want to do the moment you get hungry or when you remember that your landlord will knock on your door at the end of the month to collect the rent.
That fake sense of freedom will come crashing down like gunned-down jet fighter, when you or a family member experience a financial emergency.
If you want to live freely, you have to get out of the system.
When you achieve that, you will enjoy your life more.
No matter where you are right now, you can deal with your financial stress and gain your freedom.
1. Accept Failure
Accepting failure is the first step to overcome it.
You have to feel humbled by the fact that you screwed up.
Nevertheless, the winds of change are blowing and you are ready to sail towards your financial freedom.
2. Stay Hopeful
You might feel imprisoned by your previous financial mistakes but that is no reason to lose hope.
Money is a game and you shouldn’t feel disappeared if you lost a few rounds already.
Many of the richest people were completely wiped out financially before but they bounced back.
You are no different.
If you work on your dreams you will eventually realize them because hard effort never goes unpaid.
3. Avoid Getting into Debt Again
It will be hard to deal with your financial stress if you continue to borrow more money.
All religions have forbidden usury, which is paying interest on a loan, for a good reason.
It basically gives the loaner a chance to abuse a person with no money by allowing him to earn money off the loan for no additional value created whatsoever.
Our whole global financial system is built on debt. All governments of the world are either in debt to big financial insititutions or to each other.
It is a system that encourages you to spend money you do not own on things you can not afford.
4. Build an Emergency Fund
You need to save up enough money that can allow you to survive for at least 6 months without income.
Deposit the amount you will save in a separate checking account.
This fund should not be treated as a saving account nor as an amount of money that you can use to invest in assets like stocks, precious metals, real estate, cryptocurrencies, etc. or spend on a business project you are working on.
It is an emergency fund and should be treated so.
You will only spend it when there is no other way to overcome an emergency.
As part of your emergency fund, you should also set aside enough cash at your home.
During a financial crisis, banks tend to limit the amount of money you can cash out from your account. They do that to protect themselves and the economy from people freaking out and running in masses to the ATMs.
If you think this is too much, then talk to a person from Greece or Argentina, who experienced massive financial crisis in their countries.
The citizens of these countries are still until today somehow limited to the amount of money they can cash out from their accounts or transfer to a foreign bank account.
You shouldn’t trust anyone and it is better to be over-prepared than under-prepared.
5. Get Out of Debt
If you do not have any debt at the moment, then you are positioned at a better place to gain financial freedom than a person who has debt.
If you have debt, then your second priority after building an emergency fund is to paying back your debt.
Your monthly income should mainly be spent on two main things for a certain period of time:
- Life essentials: Rent, Food, and utility bills (Electricity, Heating, Internet, etc.)
- Loan payments
This is the phase in which you will unlearn all your bad spending habits and learn the value of money.
It is a phase of patience and sacrifice.
Do not care about what people think of you because they really do not.
What matters is your state of mind and your financial freedom in the future.
In order to deal with your financial stress and get rid of your debt fast, you have to do the following:
Reduce your monthly costs and increase your monthly income
Treat your personal life like a company that is about to collapse and you are the CEO in charge.
In the following section, we will elaborate further on what you can do to achieve this and suggest ideas that can inspire you to make some decisions.
5.1. Reduce Your Monthly Costs
Move To a Cheaper Apartment
If you are currently spending more than 25% of your monthly income on rent, then you can consider moving to a smaller cheaper apartment that will cost you no more than 25% of your monthly income.
If you can move back to your parent’s house for a while or share a flat with someone then do it.
Sell Your Car
Having a car means spending money on taxes, insurance, fuel, maintenance, and repairs. If you really do not need one, then sell it.
The best alternative for a car is a bicycle because it doesn’t cost you anything after the first initial investment, it is good for your health and also good for the environment.
If you have a family or absolutely need a car to commute, then consider downgrading your current car in case you have an expensive one that you are still paying for.
Get rid of the loan payments and buy a low-maintenence cheaper one that you can actually afford.
Stop Going Out
If you eat and drink outside, then you are wasting a lot of money..
Learn how to cook and plan 3-4 trips per month to the supermarket to buy all the things you need to feed yourself.
If you want to enjoy and chill with your friends, then buy drinks from the supermarket and invite your friends to your place or go to thier place.
Sell Unused Stuff
Do you have an old motorbike, TV, smartphone, laptop, gadgets, machines, books, clothes or anything else that you are not using and is worth selling?
Go to Craigslist or any similar website and get rid of it.
Never again shall you buy stuff you do not need.
5.2. Increase Your Monthly Income
Change Your Job
If you are already not satisfied with your current job, then you can look for another one that can pay you more.
A new job that pays at least 20% more is the kind of job you should be aiming for.
Find a Second Job
If you have a lot of free time in the evenings or on the weekends then you can consider working a second job for a period between 6-12 months and even longer depending on how much debt you own.
It is a hard thing to do, but you have to do it if you really want to reduce your debt and stabilize yourself financially faster.
Start your own business
The best tool to increase your income and eventually deal with financial stress is to start a profitable business that generates multiples of what you can earn as an employee.
It is not an easy thing to do otherwise, everyone would be doing it.
But the formula is simple.
Create a a needed product or a service, then bust your ass promoting it and serving your customers.
6. Get an Insurance
Another thing that can help you deal with your financial stress is adding a safety layer consisting of a few insurance policies to your life.
Two important insurance policies you have to get are:
Health insurance might be a bit expensive, but it is quite necessary to have because it protects you against life’s unpleasant surprises.
In case you get ill or have an accident, the cost that you will have to pay without a health insurance could break your back.
It is always smarter to over-protect yourself.
In some countries in Europe, paying for health insurance is obligatory and the monthly costs for it are deducted automatically from the gross salary of an employee.
This insurance is important in case you want to protect your source of income or at least a part of it. In some countries in Europe, paying for unemployment insurance is also obligatory and the monthly costs for it are deducted automatically from the gross salary of an employee.
If you live in a country that has similar laws, this doesn’t mean that you should blindly trust the government.
Instead, you have to look into the conditions and the amount of money you will be recieving in case you lose your job or become disabled.
In case the amount is not enough for you to maintain your lifestyle, then get an additional private unemployment insurance to improve it and secure yourself better.
This is a general rule of thumb that you have to follow in order to live freely:
Never rely on your government or anyone else. Take responsibility and protect
yourself by yourself
7. Open a Saving Account
After finishing all the basics mentioned above, you can start building your wealth portfolio.
The first thing you can start with is a classical saving account.
You should aim to save enough cash that could allow you to survive without income for a certain amount of years you can specify yourself.
The best way to go about this is to move 40% – 60% of your monthly income from your checking account to your saving account at the beginning of each month.
Remember that cash sitting in a saving account loses around 2% of its value every single year due to inflation.
Banks worldwide pay currently a very low interest on money in saving accounts. Therefore, you should try to open a saving account that pays the highest interest available in your country to offset as much as possible of the decrease in the value of the saved money caused by inflation.
8. Buy Precious Metals
Precious metals like Gold and Silver should be the first assets you can buy.
All banks, governments, and investment funds allocate 5% to 10% of their financial portfolio to precious metals.
You are no different.
You should also allocate at least 5% of your financial portfolio to precious metals.
Start by buying phyisical precious metals coins or bars then add precious metals ETFs like GLD, IAU, or SLV.
Again, this is not an investment but rather a hedge against the uncertainty of the markets. It is also a way to store your wealth in another form beside cash.
9. Buy Cryptocurrencies
You must have heard of cryptocurrencies by now. In case you haven’t, then allow me to give you a short summary.
Cryptocurrencies are decentralized digital assets designed to work as a medium of exchange in a peer to peer network.
The most known cryptocurrency is called Bitcoin.
Think of it as a digital precious metal that is hiding behind a mathematical puzzle that computers try to solve.
When the puzzle is solved, the amount of Bitcoin found is given to the people who are providing power to the computers solving the puzzle.
The mined cryptocurrency can be the bought and sold for fiat money like US Dollars on special exchange markets and can be used to buy and sell products and services directly without the involvement of a third party like a bank or a payment service like PayPal.
The concept of cryptocurrencies has been studied by academics and championed by digital punks since the 1980s.
After the global financial crash in 2008, an unknown person nicknamed Satoshi Nakamoto published a paper. It described the first truly functional cryptocurrency, which was named Bitcoin.
After the birth of Bitcoin, hundreds of modified versions of Bitcoin were created.
The technology developed by Satoshi to create Bitcoin established the foundations for a new field of technology called Blockchain. We won’t get into more details, but it is important to understand that a lot of scientists, engineers, futurists, finance experts, etc. believe that blockchain technology would revolutionize the world just like the Internet did a few decades ago.
When you invest in something, your main goal is to protect your wealth and grow it in a healthy manner. If you fail to do that, then you won’t deal with your financial stress but rather lose your money and cause more stress.
10. Invest in Real Estate
Investing in real estate doesn’t necessarily mean that you have to get a morgage.
We have previously discussed in this blog post the downfalls of borrowing money.
An easier modern approach to investing in real estate is crowd-investing.
You with many others invest into a big pool of money used by real estate developers to build a specific real estate project.
After the completion, that real estate is rented to tenants.
By doing so, you become an owner with a share in the project and receive therefore on average between 4% to 7% profit per year on your initial investment from the monthly rent paid by the tenants.
In case the market value of the project you invested in changes, the amount of money you initially invested in the project will too.
Therefore, it is important to invest in real estate projects that have potential to increase in value and are easy to rent to tenants.
If you decide to go this route, then make sure to invest using a platform that allows you to sell your shares in these projects easily and in a reasonable time period.
11. Invest in Stocks
If you are a complete newbie to stock markets, then consider investing in a mutual index fund through an ETF that tracks a major stock market index like Nasdaq-100, S&P 500, FTSE 100 or even the entire stock market in a specific country or region.
By owning shares in these ETFs, you will diversify the money you invest in a wide range of companies and therefore your risk of losing all your money will be lower.
If you are willing to risk a bit then go for individual stocks.
You could buy stocks of companies that have the potential to grow in the future or stocks of stable established companies that don’t have debt and pay quarterly or monthly dividends.
A great app to use in order to buy stocks free of charge in the US is Robinhood.
If you are living inside the EU, then use Degiro to buy stocks for low fees.
It is by far the best current option available.
You Can Deal with Your Financial Stress
These was our guide on how to deal with financial stress.
Share with us your current financial situation in the comments below.
Let us know which of the ideas mentioned in the blog post are most helpful for you at the moment.
This article was written for educational and informational purposes only and
should not be taken as financial advice