Updated: Jan 6
Our finances are a mess
The current state of most people’s finances is scary.
Americans owe $1 Trillion in Total Credit Card Debt.
Last year they paid more than $104 billion in interest payments on that credit card debt.
The Average American Owes $6,375 in Credit Card Debt.
It’s estimated that 20 million Americans have a shopping addiction.
Nearly twice as many people have a credit card compared to the number of people who have a retirement account.
44% of People couldn’t handle a $400 emergency without borrowing money.
37% of Americans have admitted they have gone to sleep hungry because they didn’t have money.
5% have admitted to having taken half-eaten food out of a garbage can.
And It’s Making Us Anxious and Miserable
Here are a few more sobering money statistics.
52% of Americans admit to having cried because they didn’t have enough money.
Conflicts over money is the number two leading cause of divorce. Infidelity is number one, but it’s easy to imagine how money conflicts and infidelity could be related issues.
28% of Millennials admit they regularly try and make themselves look wealthier and more successful on social media than they are in real life.
Having more money must be the answer, right?
Remember when I just told you that 52% of Americans admitted to having cried because they didn’t have enough money? The problem doesn’t seem to go away when you make more money. 41% of people making more than $200,000 per year have also admitted they cry because they don’t have enough money.
That last statistic will probably shock most people. How could someone making more than $200,000 per year feel so hard-pressed financially that it brought them to tears?
It is because as a society we simply do not know how to manage our finances. Many people who earn a high-income fall victim to lifestyle inflation. When they make more money, they feel they need to spend more money. They want their lifestyle to match their new income. Lifestyle inflation is the reason many high-income earners never build wealth.
If you don’t learn to manage money when the amounts are small, how can you be expected to figure it out when the amounts are large?
Many high-income earners are just as stressed about money as the rest of us when it comes to money. I could imagine in a way, it is even more frustrating and embarrassing to make a high income and still not have enough cash on hand to cover small, unexpected expenses.
So, if having more money doesn’t make us happy, what will?
Mastering your money
If money is a major source of anxiety in your life the only viable option is to address your money problems head-on.
For me, taking control of my money helped me manage my financial anxieties. This will be a unique journey for every individual but here are four actionable items to start mastering your money and reducing financial anxiety.
1. Track where your money is going
The first thing you need to do if you are going to master your money is knowing where your money is going. You generally have two options when it comes to tracking your money.
The old school way. Print out all your bank and credit card statements and go through line by line where you are spending your money. You can create a spreadsheet and organize your spending into different categories.
I categorize every purchase into one of three categories.
“The big 3”
The average person spends between 50%-60% of their money on housing, transportation, and food. Together these expenses make up “the big 3”.
Values the things that at the end of your life you wish you had done or had more of. Nobody knows what those things are but you.
Stuff refers to the things we spend money on, that does not make us happier or more fulfilled. Anything that doesn’t fall under “big 3” or “values” should be classified as stuff.
The new-age way. There is no shortage of money tracking apps that track your spending for you and even create reports and nice-looking graphics to help you understand where your money is going.
Whether you opt for the old school or the new age method of tracking your money, make sure you get itemized receipts for your cash purchases. These won’t show up in your credit card statements.
2. Create a budget that reflects your priorities
Now that you know where your money is going and how much you can create a budget. A budget is like a formal game plan for your money and should reflect your financial goals. If you say your goal is to save $200 towards retirement every month then your budget needs to allocate saving $200 towards retirement every month.
I know that sounds incredibly obvious, but you would be shocked how often people state their intention verbally but don’t back it up in their budget or their spending’s.
3. Educate yourself
Money and finance can be an intimidating subject, but it does not have to be. There are tons of amazing personal finance books that are written in plain language. The subjects are extensive ranging from technical topics like debt repayment and investing to the mental aspects of personal finance.
In addition to books, there are tons of great blogs, podcasts and YouTube channels where smart people passionately talk about money and personal finance. Start absorbing all this information like a sponge.
(If you want some personal recommendations on books, blogs or podcasts let me know in the comments.)
4. Have clearly defined goals
I’ve written in the past how the Financial Independence, Retire Early (FIRE) movement is not about “retirement” as it is about financial empowerment.
Financial Independence is the point where your passive income from investments is enough to cover your living expenses. The point where you would be okay financially if you lost your job. Discovering that this was even a possibility gave me hope and got me engaged in mastering every aspect of my money.
I spent months absorbing all the FIRE related material I could. After taking a hard look at my financial situation I made a goal to be financially independent before I turn 40.
Now that I have a goal that I am actively working towards my money anxieties are at an all-time low.
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions