If you feel stressed about your money, you're far from alone. According to a 2018 study from Northwestern Mutual, many Americans feel that their financial future is unclear: 46% of us are concerned about outliving our retirement savings, 59% of us are concerned about the rising cost of healthcare, and 55% of us feel anxious about the cost of an unplanned financial emergency (like a job loss during a recession).
It's hard to feel in control when you think about big picture financial issues. Decisions about how healthcare is handled are often made by Congress, insurance companies or doctors. Retirement, especially for younger Americans, is so far away it's impossible to predict costs exactly.
And many Americans have the 2008 stock market crash still top of mind. Though we have been in a bull market for nine years, many Americans carry a fear of another crash and ensuing recession with them. Millennials who watched their parents lose investments or homes in 2008 are particularly wary of any future stock market crash. In 2016 only 33% of Millennials invested at all, citing insufficient funds to spare towards investing, and feeling like they don't understand investing well enough as the reasons they avoid the stock market.
All this uncertainty leads to financial stress, which isn't exactly a dream relationship to have with your finances. If you're looking for more control in your financial life, these five steps can lead to less financial stress no matter what direction the stock market is going.
Focus on Increasing Your Income
When you have more money, you may have more options. Increasing your income can help lower financial stress - if you handle the increase correctly.
As you make more, use it to create financial stability in your life. Try and avoid lifestyle inflation - that is, spending more simply because you make more.
Create Multiple Streams of Income
You may be asking, "Where is all this extra income supposed to come from?" Hopefully, from multiple sources.
If you have a full time job but also bar tend on the weekends, or if you rent a spare bedroom out in your house, you have multiple streams of income. Should one stream disappear, you know you'll have at least something coming in through another channel.
Having income flow from different areas in your life is one of the most efficient ways to protect yourself financially. If a recession eliminates one of your income streams, you can rely on the other (or others) to help pay the bills.
Pay Off Debt
Nobody likes debt. Not only is it a drain on your finances, but it often comes with an emotional burden like guilt or frustration for having debt in the first place.
Paying off debt is another very strong move against financial uncertainty. When you have debt, you owe someone every month. Missing any kind of debt payment can impact your credit score, and land you in a whole mess of trouble.
I recommend focusing any extra payments on your highest interest debt. (Usually credit cards have higher interest rates than debts like student loans.) Paying off the highest interest debt first gives you a strategy to follow. It also saves you more money by helping you pay less interest overall.
Create a Flex Budget
A flex budget is the leaner, meaner, version of your current monthly expenses. Identify parts of your current spending you could cut if need be. Start with things like Netflix or drinks out.
Moving to a flex budget is a way to prevent having to tap into savings should something like a recession happen. If you lose some of your income, you can simply trim the fat in your monthly spending, and make it work on a new, lower income before you need to reach into your resources.
Boost Your Savings
The more you have in savings, the easier a recession will be on you. With more savings tucked away, the bigger buffer you have between yourself and going into debt.
All of us should have an emergency fund. Common financial advice is to have three to six months' worth of living expenses tucked away in a high yield savings account as your emergency fund.
However, if you're carrying high interest debt, you can have less in your emergency fund while paying off debt. One or two months' worth should carry you through most emergencies, and once the debt is gone you can boost the account to the full six months.
If you're a freelancer who experiences fluctuating income month to month, you might also consider keeping more than six months' worth in your emergency fund. Having eight or nine months' worth of living expenses saved up means you can weather those lower income months easier.