Financial stress is a terrible thing. I’m sure everyone reading this blog has stressed out about money at some point in their life. But the thing is, stressing about money doesn’t change the outcomes. Instead, it just ruins your day.
So, am I suggesting that you should never worry about money? Not really. I believe that if you are doing all the right things then it will all work out well in the long run. And worrying about it in the interim won’t help. Taking all the right actions and still worrying about money is a complete waste of emotional time and energy.
Here is a list of things/actions that you might need to worry about.
Spend without any consideration for the future
Do you think before you spend? Or do you consistently adopt the attitude that “you only live once and could be dead tomorrow” so I may as well buy it?
Everything in life is about moderation. I know it sounds really boring, but it’s true. I believe that we shouldn’t continually deny ourselves the things we enjoy. Investing is a journey and it should be enjoyed as much as possible. However, by the same token, we can’t always buy everything we want either. Sometimes we must make sacrifices and compromises. That is, live comfortably within our means.
If you regularly deny yourself some of the things you desire, then you probably have nothing to worry about.
Have no idea how much you spend on general living expenses
Do you know how much you spend on general living expenses (i.e. tell me an actual amount)? I don’t mean ‘guess’ or ‘estimate’. Have you actually sat down and worked out what that number is?
Probably 80% or more of prospective clients I meet cannot tell me (accurately) how much they spend on general living expenses (i.e. everything excluding mortgages, investments, school fees and holidays). I would like to make two important points about this:
- You cannot manage what you do not measure. How do you know if you are spending too much if you don’t know how much you are spending? How can you make any plans or commitments without a clear picture of your cash flow?
- Most people materially under-estimate how much they spend. The problem is that there are probably 30+ items in everyone’s budget that consist of several small transactions. These small expenses can add up. Often people are surprised by how much they spend.
Just knowing how much you spend is usually enough. You will find that you naturally become more careful with your expenditure. And you can proactively eliminate the expenses that don’t give you any pleasure or you can do without.
If you know how much you spend on general living expenses, then you probably have nothing to worry about.
You don’t regularly contribute a percentage of income towards investment or debt reduction
The old adage of “pay yourself first” is very good advice. Or as Warren Buffett puts it, “Do not save what is left after spending. Spend what is left after saving.”
Everyone must commit to an annual savings amount. An annual savings amount is a sum of money that you will contribute towards securing your financial future. This could be directed towards the accelerated repayment of debt, additional super contributions, servicing an investment loan and so on. Where you direct your annual savings amount might differ from year to year. But the most important thing is that you are regularly diverting a portion of your income towards activities that strengthen your financial position in the long run. The key here is consistency and discipline i.e. year after year you invest the same (or increasing) amount of income into your financial future.
The benefit of committing to an annual savings plan is that you can then enjoy some guilt-free spending. That is, if you know that you have already made a significant contribution towards your financial future and you still have some money left over, then you can spend that money on a holiday, new clothes or something else you enjoy – without feeling any sense of guilt that it’s the wrong thing to do.
If you are regularly contributing towards securing your financial future, then you probably have nothing to worry about.
You don’t have a long-term plan
You don’t need a map until you have a destination. Therefore, you need to decide at what age you would like to retire and how much money you will need to enjoy a comfortable standard of living. Then, once you have a clear ‘destination’ you can develop a plan (your map).
If you don’t have a long-term financial plan, how do you know if you are investing enough and/or have the right assets? The answer is that you can’t. The risk is that you haven’t invested enough or invested in the wrong assets and you are wasting precious time by not taking corrective action. Until you do some long-term planning, it is difficult to identify these errors. One thing you can never make up for, no matter how smart you are, is lost time. Time is the most critical ingredient in any low-risk, successful investment strategy. With less time you must accept either higher risk or lower returns.
If you have a clear, long-term financial plan, then you probably have nothing to worry about.
You are doing all the right things, so you have nothing to worry about?
If you are prudent with your expenditure, know where your money is going, regularly contribute towards your financial future and are working towards a long-term plan, then what do you have to worry about? Worrying won’t change anything. Only actions will. And you are taking all the right actions so relax and be confident that it will all work out.
There is typically very little you can do to influence income or expenses in the short term. Your current financial situation is the consequence of all your past decisions/actions. The only way to change it is to charge your actions starting today.
If are aren’t taking the right actions (as above) and you don’t worry about money, then perhaps it’s time to start? In my experience, the ironic thing is that the people that tend to worry about money are the ones that probably don’t need to. And the ones that don’t worry, are probably the ones that should!
Financial stress is avoidable. Worry is a choice.
If you ever find yourself worrying about money, re-read this blog. 🙂
