Q: I’m in my 20s and will graduate from my post-secondary program in about six months once my practicum is finished. The company that sponsored me for the practicum already offered me a great job, which I didn’t hesitate to accept. If I’m careful, I should be able to save a down payment to buy my first home in about three years. The problem, however, is that my dad always discourages us kids from spending any money. My mom says he grew up kind of poor, and despite turning that around for himself in his adult years, he is so scared of being poor. My parents have given us a good life with many extras, but listening to my dad talk makes it sound like he’s totally broke. I don’t get it, and don’t want to turn out like him. ~Nolan
A: When people think of financial haunts, debt is typically the first thing that comes to mind. While being deep in debt can be exceptionally frightening, a fear of spending money or returning to a previously dire situation due to a lack of income can be just as debilitating. In a romantic partnership, if one person spends reasonably and within the family’s means and the other is either an extreme saver or simply spending-adverse, the tensions can be difficult to overcome. Children learn what they live and may have difficulty reconciling their parents’ varying habits and attitudes toward money, which could lead to a lack of confidence around their own money or spending.
As teens become young adults and responsible for their own financial futures, their financial habits become entrenched in how they manage their money, and their internal voice about their spending choices, credit use, debt, and savings habits becomes more powerful. What we tell ourselves and subsequently put into practice, can be the difference between turning our situation into a nightmare, or overcoming our financial fears to bring about peace of mind. Here are insights to consider as you look for the most effective ways to manage your money.
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Structured spending can reduce financial anxiety
Some anxiousness about money is reasonable, especially during these tumultuous, inflationary times. But when your anxiety takes over and impairs your ability to make sound financial decisions, your overall situation needs attention.
Begin by reviewing your budget; what you earn, spend, save, and donate. If you don’t have a spending plan for your current circumstances, outline your budget as you allocate the funds from your next few paycheques. Also think about what makes you happiest because that will help you to identify your values and what’s important to you. This could reveal, for instance, if what you buy — the stuff — or what you do — such as experiences — is more valuable to you, which will ultimately determine your goals.
Once you’ve outlined your budget, list your short-, medium-, and long-term goals. Rather than dreading an outlay of cash, setting goals will help you prioritize your spending choices and find enjoyment with how you choose to spend your time and money. Be mindful and deliberate as you make your spending choices and keep them aligned with your predetermined budget. Focus on what will move you closer to rather than further away from achieving your goals.
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Incorporate guilt-free spending money into your budget
Learning to not be anxious about spending your money doesn’t mean going all out or throwing caution to the wind. It means having a plan and being strategic with what you do with your money. Savings, for instance, is as important an expense as debt repayment, the rent/mortgage payment, and other routine bills and obligations. An often overlooked expense in many budgets is spending money for each person; a little bit of money that is earmarked for whatever you want. You could even think of it as a reward for living according to your budget.
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This small sum of money can help to alleviate financial anxiety because it allows you to see that all of your expenses, including money put away for savings, have been taken care of and the money earmarked for spending is available to be spent. Put another way, because you have allocated funds within your budget to allow for guilt-free spending, you don’t have to worry. Snacks on the go, lotto tickets, office fundraiser, or app download — you’ve planned to spend it on whatever you like so by doing that, you’re living according to your plan. In time, it will help to lower your fear because all of your expenses are covered and there is nothing more to be done with your cash.
Emergency savings is the holy grail of personal finance
A job loss, car repair bill, family illness, or major appliance breakdown, setting money aside in an emergency fund is crucial because it means you’re prepared and able to look after yourself and your family when — not if — something adverse happens. With savings to see you through a crisis, you are able to remain in control financially, avoiding debt and high-interest loans, such as credit card cash advances and payday loans. If you’re already in debt and worried how you’ll manage, an emergency fund is the buffer that will help you to avoid sinking deeper into debt while you work to get yourself back on track.
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Start saving in your emergency account with whatever your budget will allow. Add to it regularly and as you pay down debt or receive additional income, top up your emergency preparedness account until you have the equivalent of three to six months of expenses saved up. Nothing will alleviate financial stress and worry like a secret stash of cash to use when you need it most.
The magic of compound interest
There are many ways to save and invest, and even if you only have a small sum available, start with what you have. Add to it every time you are paid and top up the payments with extra money in your budget. The easiest way to keep adding to your savings is to set it and forget it. By automating your savings you will get the benefit of compound interest and your savings will grow without you hardly lifting a finger. Saving consistently is one way to overcome your fears and anxiety around money because it helps you to feel prepared for whatever the future brings your way.
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The bottom line on conquering financial fears
When facing financial fears, take stock of what they are and try to determine what is causing them. The reason behind your fears can help point you in the direction of a solution. If your family’s habits or attitudes toward money and debt don’t align with yours, keep in mind that money management doesn’t have to be a team sport. Share as much or as little information about your decisions as you feel comfortable with, and when necessary, bow out of more in depth conversations agreeing to disagree. Aim to strike the balance between spending, saving, and sanity that gives you peace of mind and what you need to execute your future financial plans.
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Peta Wales is President and CEO of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Peta by email, check nomoredebts.org or call 1-888-527-8999.
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