Building a relationship takes time and a lot of effort, the same can be said when it comes to building your relationship with money. A good relationship with money will provide you with the rest of mind and finance freedom.
So how do you build and maintain a healthy relationship with money? Well, a good starting point is to build a good relationship with yourself.
- How can you Improve Your Relationship With Money?
- What are the Tips to Manage Money?
- How do I Become Financially Healthy?
- What Causes Money Problem?
- What are Some Challenges That Money can Cause?
How can you Improve Your Relationship With Money?
Identify your money story
We all have a money story. You just might not know how it started.
Much of how we interact, manage and talk about money stems from lessons we learned (intentional and unintentional) as a child.
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How parents and other role models approached money rubs off on us and influences our money decisions as an adult. It’s important to evaluate why we take a certain approach to saving, spending and investing.
“A lot of people aren’t even aware of their beliefs and how their behaviors form, and when you are not aware of these automatic behaviors, you aren’t really in a position to make a decision to change them,” said Mullen.
Care for your needs
Taking care of your physical needs includes things like getting enough sleep, eating nutritious meals, brushing your teeth, and exercising.
Taking care of your fiscal needs includes understanding the difference in the money you spend on your true “needs” like food, housing, childcare, healthcare, etc. from your “wants” like entertainment, restaurants, premium channels, and gourmet coffee.
Set your goals
A major source of money anxiety stems from not having goals and a plan to achieve them. Take the time to identify your goals — and get very specific, recommended Steve Martin, a certified financial planner and director at BKD Wealth Advisors
It’s not enough to want to retire early. Calculate when you want to leave the workforce and how much savings you will need to fund your desired lifestyle.
“When you have a specific goal, now it’s a math problem of how you can get from where you are now to where you want to go,” he said.
Joy is important
Engaging in activities that bring you joy, like taking a walk, eating a chocolate, volunteering at the food bank, reading or taking an exercise class, helps you recharge your emotional well-being.
Small purchases that bring you great joy, like buying a good book, or an occasional gourmet chocolate or coffee, or buying your child a special treat, is money well spent. Set aside money in your budget for those things that bring you joy.
Similarly, giving money to causes in which you believe (within your budget), like nonprofit charities, religious organizations, medical and scientific research, or the arts, helps to remind us that money is a means to an end, not an end in itself.
Focus on your inner world
Focusing on your inner world of thoughts and emotion can help you become more self-aware. Self-awareness helps you understand what you are really feeling, and why you are feeling that way. Self-awareness also helps you understand your own actions and reactions to various situations.
Financial self-awareness is important as well. Knowing yourself and your financial condition is critical when you are faced with questions about changing jobs, working more or less hours, buying a new car, taking a vacation, or buying a house.
Regularly make time for yourself
You can’t become more self-aware if you don’t set aside time for yourself. Even a few quiet minutes in the morning enjoying a cup of coffee, or reading a good book or article can be beneficial to your self-awareness.
Likewise, you can’t become financially self-aware if you don’t set aside time. You need to designate a regular time (e.g., monthly) to review your financial situation.
Meditate
Meditation is a method that many people use to gain peace of mind and perspective during that time that they have set aside to focus on their inner world.
Use your regular financial review time to think about your financial situation and to set some goals, even small ones. Think about how good you will feel next month when your credit card balance goes down by that extra $100 payment that you decided to make.
Be your own best friend
When you are being hard on yourself for some perceived shortcoming, think about how you would treat your best friend or a close family member. Chances are that you would be supportive and forgiving. Do the same for yourself.
Be a best friend to your financial self, too. Don’t be overly critical if you stumble, but be honest with yourself. Spend time to understand your financial condition and set goals to improve your situation.
A healthy relationship with yourself, your friends, your family, and your money require time and effort. The reward is a happier, healthier, and more fulfilling life for you.
What are the Tips to Manage Money?
Unfortunately, personal finance is not a required subject in most high schools or colleges. This lack of basic financial education leaves many young adults clueless about how to manage their money, applying for credit, and how to get or stay out of debt.
To help you get started, we’ll take a look at eight of the most important things to understand about money. These financial tips for young adults are designed to help you live your best financial life.
1. Know Where Your Money Goes
Once you’ve gone through a few personal finance books, you’ll realize how important it is to make sure your expenses aren’t exceeding your income. The best way to do this is by budgeting.
Once you see how your morning java adds up over the course of a month, you’ll realize that making small, manageable changes in your everyday expenses can have just as big of an impact on your financial situation as getting a raise.
In addition, keeping your recurring monthly expenses as low as possible will also save you big bucks over time. If you don’t waste your money on a posh apartment now, you might be able to afford a nice condo or a house before you know it.
2. Learn Self-Control
If you’re lucky, your parents taught you this skill when you were a kid. If not, keep in mind that the sooner you learn the fine art of delaying gratification, the sooner you’ll find it easy to keep your finances in order.
Although you can effortlessly purchase an item on credit the minute you want it, it’s better to wait until you’ve actually saved up the money. Do you really want to pay interest on a pair of jeans or a box of cereal?
If you make a habit of putting all your purchases on credit cards, regardless of whether you can pay your bill in full at the end of the month, you might still be paying for those items in 10 years.
If you want to keep your credit cards for the convenience factor or the rewards they offer, make sure to always pay your balance in full when the bill arrives, and don’t carry more cards than you can keep track of. This financial tip is crucial for creating a healthy future for your credit history.
3. Control Your Financial Future
If you don’t learn to manage your own money, other people will find ways to (mis)manage it for you. Some of these people may be ill-intentioned, like unscrupulous commission-based financial planners.
Others may be well-meaning, but may not know what they’re doing, like Grandma Betty who really wants you to buy a house even though you can only afford a treacherous adjustable-rate mortgage.
4. Start an Emergency Fund
One of the personal finance’s oft-repeated mantras is “pay yourself first.” No matter how much you owe in student loans or credit card debt, and no matter how low your salary may seem, it’s wise to find some amount—any amount—of money in your budget to save in an emergency fund every month.
Having money in savings to use for emergencies can really keep you out of trouble financially and help you sleep better at night.
Also, if you get into the habit of saving money and treating it as a non-negotiable monthly “expense,” pretty soon you’ll have more than just emergency money saved up: you’ll have retirement money, vacation money, and even money for a down payment on a home.
Don’t just sock away this money under your mattress; put it in a high-interest online savings account, a certificate of deposit, or a money market account. Otherwise, inflation will erode the value of your savings.
Start Saving for Retirement
Just as you headed off to kindergarten with your parents’ hope to prepare you for success in a world that seemed eons away, you need to prepare for your retirement well in advance.
Because of the way compound interest works, the sooner you start saving, the less principal you’ll have to invest to end up with the amount you need to retire and the sooner you’ll be able to call working an “option” rather than a “necessity.”
Company-sponsored retirement plans are a particularly great choice because you get to put in pre-tax dollars, companies will often match part of your contribution, which is like free money, and the contribution limits tend to be high (much more than you can contribute to an individual retirement plan).
Get a Grip on Taxes
It’s important to understand how income taxes work even before you get your first paycheck. When a company offers you a starting salary, you need to know how to calculate whether that salary will give you enough money after taxes to meet your financial goals and obligations.
Fortunately, there are plenty of online calculators that have taken the dirty work out of determining your own payroll taxes, such as PaycheckCity.com. These calculators will show you your gross pay, how much goes to taxes and how much you’ll be left with, which is also known as net, or take-home pay.
For example, $35,000 a year in New York will leave you with around $27,455 after taxes without exemptions in 2019, or about $2,290 a month.
By the same token, if you’re considering leaving one job for another in search of a salary increase, you’ll need to understand how your marginal tax rate will affect your raise and that a salary increase from $35,000 a year to $41,000 a year won’t give you an extra $6,000, or $500 per month—it will only give you an extra $4,195, or around $350 per month (again, the amount will vary depending on your state of residence).
Guard Your Health
If meeting monthly health insurance premiums seems impossible, what will you do if you have to go to the emergency room, where a single visit for a minor injury like a broken bone can cost thousands of dollars? If you’re uninsured, don’t wait another day to apply for health insurance; it’s easier than you think to wind up in a car accident or trip down the stairs.
You can save money by getting quotes from different insurance providers to find the lowest rates. Also, by taking daily steps now to keep yourself healthy, like eating fruits and vegetables, maintaining a healthy weight, exercising, not smoking, not consuming alcohol in excess, and even driving defensively, you’ll thank yourself down the road when you aren’t paying exorbitant medical bills.
Protect Your Wealth
If you want to make sure that all of your hard-earned money doesn’t vanish, you’ll need to take steps to protect it. If you rent, get renter’s insurance to protect the contents of your place from events like burglary or fire.
Disability income insurance protects your greatest asset—the ability to earn an income—by providing you with a steady income if you ever become unable to work for an extended period of time due to illness or injury.
If you want help managing your money, find a fee-only financial planner to provide unbiased advice that’s in your best interest, rather than a commission-based financial advisor, who earns money when you sign up with the investments his or her company backs.
You’ll also want to protect your money from taxes, which is easy to do with a retirement account, and inflation, which you can do by making sure that all of your money is earning interest through vehicles like high-interest savings accounts, money market funds, CDs, stocks, bonds, and mutual funds.
How do I Become Financially Healthy?
Just like any goal, getting your finances stable and becoming financially successful requires the development of good financial habits. To develop these habits you need to first know what they are. So we have listed ten of them below.
Make savings automagical
This should be your top priority, especially if you don’t have a solid emergency fund yet. Make it the first bill you pay each payday, by having a set amount automatically transferred from your checking account to your savings (try an online savings account). Don’t even think about this transaction — just make sure it happens, each and every payday.
Control your impulse spending
The biggest problem for many of us. Impulse spending, on eating out and shopping and online purchases, is a big drain on our finances, the biggest budget breaker for many, and a sure way to be in dire financial straits.
Evaluate your expenses, and live frugally
If you’ve never tracked your expenses, try the One Month Challenge. Then evaluate how you’re spending your money, and see what you can cut out or reduce. Decide if each expense is absolutely necessary, then eliminate the unnecessary.
Invest in your future
If you’re young, you probably don’t think about retirement much. But it’s important. Even if you think you can always plan for retirement later, do it now. The growth of your investments over time will be amazing if you start in your 20s.
Start by increasing your 401(k) to the maximum of your company’s match, if that’s available to you. After that, the best bet is probably a Roth IRA. Do a little research, but whatever you do, start now!
Keep your family secure
The first step is to save for an emergency fund so that if anything happens, you’ve got the money. If you have a spouse and/or dependents, you should definitely get life insurance and make a will — as soon as possible! Also research other insurance, such as homeowners or renter’s insurance.
Eliminate and avoid debt
If you’ve got credit cards, personal loans, or other such debt, you need to start a debt elimination plan. List out your debts and arrange them in order from the smallest balance at the top to the largest at the bottom. Then focus on the debt at the top, putting as much as you can into it, even if it’s just $40-50 extra (more would be better).
When that amount is paid off, celebrate! Then take the total amount you were paying (say $70 minimum payment plus the $50 extra for a total of $120) and add that to the minimum payment of the next largest debt.
Continue this process, with your extra amount snowballing as you go along, until you pay off all your debts. This could take several years, but it’s a very rewarding process, and very necessary.
Use the envelope system
This is a simple system to keep track of how much money you have for spending. Let’s say you set aside three amounts in your budget each payday — one for gas, one for groceries, one for eating out. Withdraw those amounts on payday, and put them in three separate envelopes.
That way, you can easily track how much you have left for each of these expenses, and when you run out of money, you know it immediately. You don’t overspend in these categories. If you regularly run out too fast, you may need to rethink your budget.
Pay bills immediately, or automagically
One good habit is to pay bills as soon as they come in. Also, as much as possible, try to get your bills to be paid through automatic deduction. For those that can’t, use your bank’s online check system to make regular automatic payments. This way, all of your regular expenses in your budget are taken care of.
Look to grow your net worth
Do whatever you can to improve your net worth, either by reducing your debt, increasing your savings, or increasing your income, or all of the above. Look for new ways to make money, or to get paid more for what you do. Over the course of months, if you calculate your net worth each month, you’ll see it grow. And that feels great.
What Causes Money Problem?
Most people incorrectly assume that the cause of financial problems is living an overly lavish lifestyle, but this is simply not the truth. Oftentimes, people find themselves deep in debt or on the brink of bankruptcy because of a significant life change.
The truth is debt can happen to anyone. Nobody plans to have money troubles and not pay their bills, but life happens!
There are a number of life-changing circumstances that are beyond our control that almost anyone can end up in. Here are the most common situations and leading causes of financial problems:
1. A decrease in income
One day you have a great paying job, and the next thing you know, your company has downsized and you’re out of work. In today’s economy, jobs can be difficult to find, so you may find yourself being forced to take a lower paying position in order to make ends meet.
If you’ve been able to stash away the recommended 3 to 6 months’ worth of savings as an emergency fund, then a decrease in income may not hit you as hard. Unfortunately, many people live paycheck to paycheck and are unable to save enough for emergencies.
This is when debt payments and bills can start to fall behind, and you may find yourself being bombarded with credit collectors and the possibility of losing your house.
2. Marital and family issues
Couples don’t say “I do” with the intention of getting divorced, but statistics show that four in 10 marriages in Canada will end in divorce and one of the primary reasons is financial issues. Ironically, those that end up divorcing or separating because of financial problems usually find themselves facing even more financial hardship because they are now living on one income.
Communication in marriage is key, especially around money. When you plan to get married, it’s not just your life plan you need to talk about, but your financial plan is important too. Develop a realistic budget together and talk about money often to ensure you’re working toward the same financial goals.
3. Health and Medical expense
What would happen if you were in an accident and were out of work for an extended period of time? Your income could drop by approximately 40 per cent, or maybe even lower. In addition to a reduction in income, you may end up incurring additional medical expenses such as medication, physiotherapy, and more.
It’s scary to think about major illnesses or even the death of a spouse, but these things can happen. That’s why it’s best to prepare yourselves with life insurance, disability insurance, and a will, so that you’re well prepared if things do go wrong.
4. Education expenses
It’s a bit of a double-edged sword, but in most industries, in order to get a good-paying job you need to get an education, which costs money. A lot of money in fact.
The average student takes between nine and 15 years to fully pay off their loan, with the average debt post-graduation being $16,727 for university grads, $10,172 for college grads and $29,000 for doctoral grads.
If you’re not yet in school, the good news is you have time to save. Use a student budget calculator so you’ll know exactly what you need to put away for your education.
Once you’ve graduated, it’s important to budget wisely and ensure you make regular debt repayments when you start working in order to pay it off as soon as possible. If you can’t pay your student loan, you should understand your options.
5. Lack of budgeting and money management skills
The leading cause of financial problems is simply that people don’t have the skills to manage their money. Let’s face it, if no one taught you the basics of money management and budgeting, how would you learn? Even worse, you may have picked up some bad habits from your parents who probably never had any lessons on money management themselves.
It’s a vicious cycle, but there is a way out. Spending your hard-earned money without a financial plan is like driving into unfamiliar territory without a GPS. With the proper tools, you can learn how to budget your money and get on the right track.
If any of these financial problems sound familiar to you, you may benefit from credit counseling. Credit counseling is a process whereby certified counselors help debtors with debt repayment through tools like financial education, budgeting, and guidance in order to reduce and eliminate debt. A certified counselor can help point you in the right direction and find the solution that works best for your situation.
What are Some Challenges That Money can Cause?
Money problems are the most common cause of friction in relationships, not having enough of it, having too much of it, or spending it in a way your partner doesn’t agree with. We will discuss some of these problems and a possible solution.
1. Having Different Ideas On How To Spend Money
It is not uncommon for partners to have different priorities when it comes to spending money, but if those differences can’t be resolved then that is when it becomes a problem.
Let’s say one of you is more financially conservative then the other, the conservative is not going to like seeing the indulgent spender impulse buying clothes or knick-knacks.
If you feel like this might be your situation, then it would be best to talk to your partner about how the money should be spent and try to reach a compromise or create a budget that allows for some discretionary spending but not too much, that way both sides are happy.
2. Comparing How Much You Have To How Much Others Have
The vast majority of people use the people closest to them as a reference to figure out their place in the world. For some, seeing yourself lacking behind your friends financially can cause self-esteem issues or subconsciously give you a chip on your should when it comes to money.
For others, seeing yourself well ahead of your peers can give you a self-esteem boost. Both of these are equally unhealthy.
Why? Because you are tying your self-worth to other people, which means you are tying it to something that you have no control over.
Instead of playing the comparison game with other people, only play it with yourself. Ask yourself if you are doing better than you were last year, last month or even yesterday. If the numbers aren’t showing growth, then you can always double your effort to make more money and have pride in your work ethic.
3. Not Having Equal Responsibility For The Bills
If one partner is paying for everything and the other is paying for nothing, then this can create a power struggle where the one who pays for everything claims control over the other because they pay for everything.
This is very unhealthy for the relationship. For the controller because there is a lot of pressure on them since they are solely responsible for keeping everyone afloat.
And for the supported because they are dependent on the other for their lifestyle so they may feel they have no choice but to give in to the other’s demands. The solution to this is to evenly split the responsibility between yourselves.
This takes the pressure off the primary payer and gives some of the control back to the other partner, that way there is no power struggle or friction between both parties.
But what if one has to stay home in order to raise the children or take care of elderly/sick family members. Well in that case if the bill payer tries to exert their will over you, then you must remind them of what you are bringing to the table.
Tell them that it would be very uncomfortable for them to have to pay for everything in addition to paying for child or elder care services if you weren’t around to provide it.
It’s not manipulative to remind your partner of your role, how you are helping, and how you inherently have an equal say in matters because it is a partnership not a dictatorship.
4. Having / Dealing With Debt
Debt is a big thing to overcome if you have a lot of it. Firstly, you need to learn how to control your spending habits in such a way that you are not using your credit cards every month because you run out of money til the next paycheck.
Secondly, you need to learn how to pay down your debt. If you cannot pay more than the minimum payments, then you might be saddled with this debt for life and it will only grow over time.
Obviously this causes problems because debt is like a big growing monster that always on your back, it will wear you down and it can make life very difficult because you get turned down for loans.
Soon you can’t afford things like medical bills or repairs because all your income is already assigned with debt.The way to overcome this financial obstacle is to pay down your debt as soon as possible whenever you find yourself accumulating it.
Even if you have to not spend money in other places, always pay down your debts as soon as possible, clip coupons and eat at home if you have to. Just pay it down at all costs.
5. Money Secrets
A lot of people keep their finances secret from their families, this is extremely unhealthy.
For example (this actually happened in my family growing up), let’s say one partner is in a car accident and then tries to call their insurance to make a claim, well if there is no communication between partners then they might find out at the worst possible time that they are uninsured because the other partner decided that they couldn’t afford to pay for insurance and didn’t tell anyone about cancelling their coverage.
While this is an extreme example, it is also common for couples to have secret bank accounts unknown to each other.
What is the purpose of this?
Well maybe that partner wants to have a discretionary spending fund, or maybe they are saving up in case the relationship goes south.
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It could also be that they want to make it seem like they don’t have a lot of money so that the other partner can pay for most of the expenses.
Whatever the reason is, this is very unethical and shows an unwillingness to have good faith in the relationship, honesty and open communication is the best policy here.
You should completely feel comfortable enough with your partner to discuss finances with them without judgment, if not then what is the point of the partnership then?
Finally
Remember, you don’t need any fancy degrees or special background to become an expert at managing your finances. If you use these eight financial rules and financial tips for your life, you can be as personally prosperous as someone with a hard-won MBA in finance.