Recently, I found out that April is Stress Awareness Month. I was very pleased to find out about this Awareness Month, as in todayโs society, it seems that we are becoming increasingly connected and pulled in many different directions at one time.
Going along with this, I figured it would only be fitting to take a moment (on this personal finance blog) and share the ways/techniques that I personally use to manage my financial stress.
Overall, I believe that the 3 most effective ways that I am able to reduce financial stress are: 1) having an emergency fund savings account, 2) automating my finances, and 3) using a passive investing strategy.
Letโs walk through each of these one by oneโฆ.
Emergency Fund
As Iโve covered previously, an emergency fund is a very stable, liquid, accessible, and/or cash account in which you place anywhere from 6-18 monthsโ (depending on your situation) worth of expenses. These funds can then be drawn upon in emergencies, such as losing a job or becoming injured.
By placing the emergency fund savings process as a very high financial priority and accumulating a substantial balance in this account, it can very effectively reduce your financial stress.
An important consideration in order for an emergency fund to reduce your financial stress is deciding โwhereโ this account should be located. As mentioned, you want your emergency fund account to be very accessible (liquid) and sheltered from financial fluctuations of the stock market. Online money market savings accounts are my favorite vehicle of choice for an emergency fund, as they offer these features. In todayโs competitive banking environment, there are many options to choose from.
Automating My Finances
My second favorite way to manage financial stress is to automate my finances as much as possible. Since most financial transactions can take place electronically these days, it has become very easy to do this.
So, what exactly does automating your finances mean? Basically, it entails the following:
- Scheduling auto-payments for your credit card bills each month.
- Scheduling auto-payments for your utility, TV, internet, and other bills each month.
- Scheduling auto-payments for your rent or mortgage.
- Scheduling automatic transfers for your savings goals as well. This includes setting up automatic transfers from your checking account to your emergency and other savings accounts, IRAs, and 401ks.
The idea behind automating your finances is that since we are all human, we are bound to make mistakes and forget to pay bills and/or save for our goals at some point in our lives. By taking the human factor out of the equation and not having to think about things, I find that it not only helps me reduce my financial stress, but also helps me better achieve my financial goals.
With all of this automation, you still want to make a note for yourself to check your accounts at least once a month to make sure everything is functioning properly.
Passive Investing / Asset Allocation Strategy
The third favorite way that I reduce financial stress is to employ a passive investing strategy with an appropriately selected asset allocation.
First, letโs discuss the asset allocation portion of this method. What this means is that I select a pre-defined split between equity (stocks, which have more risk and more return) and fixed income (more-stable) investments to maintain on a month to month basis. I have selected a 70% equity / 30 % fixed income asset allocation because I figured that I would be able to lose ~30% in portfolio value in one year, given my risk tolerance and personal situation. In my experience, most people are overexposed to equity, and hence overexposed to risk, which will increase financial stress greatly when the markets are experiencing a downturn.
Next, I reduce financial stress by investing in passively managed index mutual funds. These are mutual funds which instead of attempting to beat the stock market indices, simply mimics the performance of the stock market. By employing this strategy, it makes it so that I do not have to constantly monitor my portfolio and worry if I am investing in the โcorrectโ stocks.
How about you all? How do you find is best to reduce your financial stress?
Share your experiences by commenting below!
***Image courtesy ofย https://www.flickr.com/photos/83633410@N07/7658305438
