Maybe you know the feeling.
You wake up at night worrying. It’s like a rodent gnawing inside your stomach.
You worry about your finances. You feel like things are a bit out of control.
You should be on top of it.
But how? Where do you start?
Seven out of ten women stress about saving and investing, according to a study from Fidelity.
Six out of ten say that it has gotten worse during the pandemic.
It’s an American study, but it is a reasonable assumption to say that this is probably a global phenomenon. It’s also fairly safe to assume that many men suffer from the same ailment.
It’s human and natural that anxiety grows when the world shuts down, and shares behave like a roller coaster that could be called the devil’s ride from hell.
But instead of popping a sleeping pill and ignoring the feeling, it might be a sign to take a closer look at the money matters.
Here’s what you can do:
1. Make a Money Date With Yourself
The time has come to get acquainted with your finances. You need an overview of how much money you actually have.
Step one: Write down all your assets: Your retirement savings, your cash savings, your stocks and shares.
Step two: Write down how much debt you have (including mortgage and student loans and whatnot).
Step three: Add up all the assets and subtract the total debt.
Now you have your net worth.
You have made your own balance sheet and figured out your equity.
Plot down these numbers every month. It’s very motivating and calming to follow the development of your net worth (provided it grows and doesn’t shrink).
What about the value of the house or apartment you live in?
I suggest you make two balance sheets.
One with your net worth without your home and one where you include it.
You have to live somewhere, and housing is a necessity. You can’t include it in the assets that you can live off long term (your financial freedom money).
On the other hand, you should include it on a separate balance, just because it’s motivating to see your total net worth develop. After all, the money tied up in your house is also your money.
2. Have Emergency Savings
You need to have emergency savings in cash so that you are able to pay for any unforeseen expenses such as car repairs, a refrigerator replacement, or sudden high transportation costs due to an accident or illness.
Life can surprise us in so many ways. When it does, you don’t have to worry about the financial consequences. You have your own back and you’ve created emergency savings for that.
There must be at least USD 2,000 in a cash savings account that you always have access to – preferably with a debit card attached.
This account cannot be your normal account for daily expenses, because there’s a risk that those savings will be sucked into your day-to-day bills and expenses.
Make sure it’s a separate account and only used for that.
Having it clearly set aside for this purpose and not entangled in any other money transactions gives you an enormous benefit:
It creates peace of mind.
3. Have Security Savings
You should also have about 3-5 months’ salary available in cash.
This is the account that makes you worry less about getting laid off.
It’s also the account that gives you the courage to resign if something unacceptable happens at your job.
This amount should also be placed in a separate account, but it doesn’t need to have a debit card attached to it. You’ll have a bit more time before you need to access it.
The purpose of this savings account is to make you more calm in your work and less sensitive to the boss’ whims or any surprises at work such as a merger, budget cuts, or restructuring.
The benefit of this account is that it makes you more brave and able to weather storms at work.
It may be the single best thing you do for your career as it will make you able to make some bold decisions and brave moves.
4. Have Automated Savings for Your Financial Freedom
You also need a freedom account intended to make you financially free in the long run.
The important thing is that you automate the process.
You must be sure to put money into your freedom savings each month.
That’s why it’s such an excellent idea to make it an automatic transfer at the beginning of the month, so it’s as high a priority as rent and other fixed expenses.
The mistake most people make is that they wait and see what is left at the end of the month. Most people have a tendency to spend whatever is there, so nothing will be left for your future freedom.
How much should you transfer to your freedom savings each month?
A minimum of 10 percent of your salary, but more is better. If you can reach 20-50 percent, that would be even better.
Your freedom savings are to be invested in assets (preferably shares) so they can grow and work for you.
You are never to spend any of your freedom money until you’re financially independent.
The benefit will be immediate. Having set this system up, you will feel calm already today, knowing you are working towards true financial independence.
5. Gain Knowledge About Investing
You need practical experience in investing alongside coaching, training, and education.
You need to learn how to make your money grow in the best way possible.
We learn a lot in school. We learn to read, write, count, and play catch.
But we learn nothing about how to handle our money.
You must be your own schoolmaster and get educated about this.
Take courses, get coaching, read books, and read blog posts.
The Real Cure Against Money Stress
There’s no way around it.
You need to become intimate with your economic and financial situation. You must create different saving pots with different purposes. You must also give yourself the education that the primary school hasn’t managed to give you.
At first, it may feel uncomfortable. Maybe you want to stick your head under the pillow instead. But force yourself.
As you gain more experience, your money stress will disappear, and you will develop a sense of calm and more “money confidence”.
As you watch your money grow, you will get a sense that you are on top of things.
As you get into investing and get comfortable with it, you’ll find that investing is actually quite fun too.
Your first step towards learning more about investing could be downloading my free e-book Free Yourself. You can get it right here.