Study after study has shown that money problems are a major source of stress for millions of people. Some studies in recent years have indicated that money is a top stressor for most Americans – even above job stress, family responsibilities and health concerns.
If you’re having financial challenges, you most likely don’t need a survey or a poll or a published paper to inform you that you’re under stress. Nor do you need a financial expert to tell you that things might get better if you could get a better handle on your personal finances. But how do you do that? Exactly what does getting a handle on your personal finances entail?
Everyone should master basic finance skills
As smart and sophisticated as contemporary Americans imagine themselves to be, many of us are for all practical purposes financially illiterate. Or we run our financial lives as if that were the case, which amounts to the same thing. The good news is that schools today are beginning to offer personal finance courses at the secondary and even the primary school level. We have a long way to go before we can claim that financial literacy is a priority in our education system, but it’s a good start.
Even so, it would be a mistake for parents to wait around for the schools to teach their offspring about fiscal responsibility. Education should begin at home, and the earlier it begins, the better. Of course, if the parents themselves don’t possess a strong foundation of financial literacy – and aren’t setting good examples by handling money responsibly – they are not going to be very effective teachers. No worries; it is never too late to develop and master basic personal finance skills.
Budgeting, for example, is arguably the most basic of these skills, and we’ve all been advised time and time again that we need to make and stick to a budget if we ever hope to get ahead financially. Alas, many people just approach budgeting, if they approach it at all, in the most rudimentary manner, perhaps using their checking account balance as a rough gauge of how much money they have available to spend. That’s simply not enough. Even if you don’t have savings or investments, you still need to make a detailed budget – listing all of your income and expenses – and that’s just the beginning. You also need to closely monitor all of your spending, month by month, and work to stay on track every month. To really get a grip on your budget, it’s a good idea to scrutinize your bank statements and credit card bills, if applicable, and add up your monthly spending by category. Then you can decide where to cut corners if necessary.
Separating needs from wants is another essential finance skill, one that many people find particularly challenging. Not surprisingly it is also a frequent point of contention between spouses or between parents and kids. The kids may think that they need the latest pricey smart phone or other electronic device, and the parents may not agree. One trick that can help you separate needs from wants is to think about the consequences of not buying something. For instance, will your son be unable to keep up with his schoolwork if he doesn’t have that expensive new tablet? If the answer is no, the tablet is a want, not a need. Convincing your son may be another matter, but if you stick to your guns it could be one of those “teachable moments” when the lesson actually takes.
Perhaps one of the most important finance skills concerns something more intangible than budgeting or getting your spending under control. It involves figuring out that the answer to this question: Even though you can almost certainly live with less, can you be happy with less? If you’re pursuing happiness by purchasing expensive stuff, you’ll probably never be happy. The key is to find happiness in the life you have right now, not the life you could have if you only had more money. And as you define or redefine happiness for yourself, you may find it easier to gain control of your finances and indeed of your entire life.
Be an informed consumer
Research is yet another practical skill that can help boost your personal finances, and in the Internet age it is both easier and more complicated than it used to be. Whether you’re buying a tablet, looking for a new car, or even shopping around for a financial product such as a loan, it’s essential to arm yourself with as much information as possible before making a decision. A bad decision could put a real damper on your financial situation.
The problem is that there’s a lot of bad or misleading information out there, particularly online. Despite the laws and regulations governing disclosure of affiliations, it can still be hard to distinguish reliable data from promotional fluff. Or it can simply be difficult to find information about a given company that isn’t strictly promotional.
In the case of shopping for a loan, for instance, you have to be able to get past the lenders’ sometimes-aggressive marketing and get to the real facts and figures. When shopping for a short-term personal loan, a car loan, a mortgage or any other type of loan, you need to be able to compare lenders, side by side, and figure out which one can offer you the best deal. If you have bad credit or low income, you probably won’t be able to get the best interest rate or the biggest loan, but you still have options. It’s important to research these options and not just choose the lender who has the most appealing ad. It’s also a very good idea to read customer reviews if they’re available, so you can get a better idea of people’s real experiences with the firm you’re considering.
Of course those other basic finance skills – such as budgeting, and separating needs from wants – should come into play in your decision making process. But getting into the research habit and becoming an informed consumer can help reinforce those skills.
Don’t forget the apps
Finally, if you’re having a little trouble getting started with or maintaining a fiscal fitness program, keep in mind that there are numerous apps that can help you get your finances in check. For example, there’s an app called Wally that helps you understand and get control of your spending. Mint is a great app for budgeting, and Digit helps you get and stay in the habit of saving.
Life is stressful enough without adding money worries to your list of stressors. Although some factors will always be beyond your control, and although you may always experience a little bit of tension around money, getting a better handle on your personal finances will help keep the money worries to a minimum. The sooner you start, the better off you’ll be.