3 of the Biggest Financial Stressors and How To Obliterate Them

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3 of the Biggest Financial Stressors and How To Obliterate Them

Stop what you’re doing for a second and think about money. What comes to mind? What feelings bubble to the surface? Contentment? Happiness? Fear? How about stress?

The fact is, for many of us, finances stressors still top the list in our lives. This is a problem felt around the globe, affecting nearly everyone at some point in time. And we all know that stress affects our health and wellbeing; therefore, money problems are detrimental to more than just our savings account.

There are particular aspects of personal finances that can be more stressful than others, and we’re going to look at a few of the top contributors, as well as offer some tips for overcoming obstacles in these areas of your finances.

Debt. This is a big one—probably THE big one. We live in a world that is taking on more and more debt, day by day, at both national and personal levels. As of 2015, the average household in America was almost $131,000 in debt with nearly $16,000 in credit card debt alone (AKA not in mortgages, which is considered “good” debt).[1]

The best thing you can do for yourself and your family is to get out of debt as quickly as possible, but doing so will take more than a wave of a magic wand. It will take commitment and effort. We’ve talked about getting out of debt before, but here are a few quick tips for you to consider:

  1. Create a budget. Find any wiggle room and throw any excess income toward your debt. Consider prioritizing budget items and getting rid of any unnecessary expenses and then taking that sum and depositing it directly toward your debt load.
  2. Trim away. You probably won’t have the cash to simply obliterate all of your debt instantly (if you did, you wouldn’t be in debt in the first place), so you have to choose a place to start. Many financial experts say to begin with debt that accrues the highest interest while others advise to tackle smaller loans and debts so you can experience victory and build momentum. Either way, set your eyes on the goal and throw everything you have at one chunk of debt at a time.
  3. Snowball it. Once you’ve knocked out one piece of debt, take that monthly sum you’ve you been paying and put it toward another piece of debt. If you’re working your way up from smaller debt balances to larger ones, you might want to consider finding secondary income to throw toward larger debts so you can get rid of them faster and avoid feeling overwhelmed.
  4. Utilize “found money.” Found money can be anything from the $100 you made housesitting over the weekend to the raise you received for your exceptional work. Any income that is above and beyond what your budget accounts for should go directly and immediately to your debt.

Once out of debt, your goal is to stay there. In the future, you’ll want to focus on never carrying anything over from month to month on credit cards and only making big purchases when you have the cash to back it up.

Retirement. If you’re in your 20s, chances are you aren’t stressing too much yet about retirement. But ask any 40-year-old with a measly 401k what keeps them up at night? You guessed it—retirement.

Ready for the most shocking statistic we’re going to throw your way? Here it is: one in three Americans has ZERO DOLLARS saved for retirement.[2] This means 33% of people won’t have enough to live comfortably once they retire, making this a huge stressor for many households.

Though there’s literally thousands of different ways to save for retirement, and each financial guru will advise differently, here are some basic tips for getting started right now:

  1. Know what you’ll need. Financial experts estimate that it’ll take anywhere from 70-90% of your preretirement income to live comfortably once you stop working.[3] Once you know what you’ll need, you can set goals for yourself and commit to sticking to them.
  2. Meet your employer’s match. If your employer graciously offers 401k matching take advantage of it. Essentially that is free money. Your contributions go into a 401k fund on a pre-taxed basis (you will have to pay these taxes when you take this money out upon retirement, so be sure to factor that in), and you’ll be able to cash this out at age of retirement, or currently 59 ½ years old in the US.
  3. Max out your 401k. Right now, Americans can contribute $18,000 (under the age of 50) to a 401k. As soon as you can afford to do so, max out your 401k and do it every single year until legal retirement age.
  4. Start an IRA savings plan. If your employer doesn’t offer 401k plans, you’re not out of luck; you’ll just have to save a little differently. Enter Traditional IRAs and Roth IRAs. These are basically forced savings accounts, deposited at an already taxed rate. Your IRA cannot be withdrawn from until retirement age without incurring penalties, making it a better way to save than a traditional savings account.

College funds. Everyone wants the best for their kids and to be able to provide them with a solid education that will lead to endless opportunities in their adulthood. But households that struggle financially find the thought of college funds to be stressful and overwhelming.

First of all, you need to prioritize. Sure, it’s super important that your kids get a good education, but it’s more important that you have the means to do so. Once you’ve obliterated debt and have a secure footing for retirement, you can begin to funnel money into an education fund, and here’s how:

  1. Start a 529. Here’s how 529 plans work: you invest money at an after-tax rate as your kids are growing up, then when they’re ready to begin college, you can withdraw this money, and any gains made on the investment, tax-free for qualifying educational expenses.[4] Each state’s plan differs, so be sure to read-up on yours before investing.
  2. Open a Roth IRA. Like a 529, Roth IRAs are contributed at an after-tax rate and withdrawn tax-free. While retirement IRAs penalize you for withdrawing your funds before age 59 ½, you can do so, tax-free and penalty-free, for qualifying educational expenses. With IRAs, there are income and contribution limits, making them less accessible than a 529.
  3. Prepaid college plans. This option lets you select a college plan and purchase it at a locked in price. This can save you a lot of money due to inflation over time. For example, if a semester currently at College X is $10,000 and you buy a $5,000 plan, you have locked your child in at 50% paid. Let’s say between now and the beginning of your kid’s college career, College X’s semester tuition inflates to $20,000, you are still locked in at that 50%, making this a very appealing option for parents who can afford it upfront.

We hope these tips are helpful to you as your navigate some of the biggest financial stressors in life. Focus on one step at a time toward financial freedom!

 

[1] Issa, E.E. (2015). 2015 American household credit card debt study. Accessed July 5, 2016. Retrieved from https://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/.

[2] Kirkham, E. (2016). 1 in 3 Americans has saved $0 for retirement. Accessed July 5, 2016. Retrieved from http://time.com/money/4258451/retirement-savings-survey/.

[3] United States Department of Labor (n.d.). Top 10 ways to prepare for retirement. Accessed July 5, 2016. Retrieved from https://www.dol.gov/ebsa/publications/10_ways_to_prepare.html.

[4] Kuchar, K. (2016). How to save for your child’s college education. Accessed July 5, 2016. Retrieved from http://www.thesimpledollar.com/how-to-save-for-your-childs-college-education/.

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