Uncertainty and money issues can increase stress and anxiety. Many of us have experienced stress due to money issues, at some point in our adult life. COVID-19 has impacted the financial health of many of us adding additional stress to an already uncertain situation.
Creating and following a household budget can help manage financial anxiety and reduce stress in three ways.
1.Monitor and allocate
The first step of building a home budget is to collect information about income from all sources and outgoing funds. Typically, regular monthly expenses like mortgage or rent, heat, water, phone, insurance (home, auto, personal) and so forth are easy to identify. Other, expenses like groceries, transportation, grooming, entertainment and so on can add up and will vary month to month.
Your first home budget draft can use estimates; however, careful tracking over the first three or so months will allow you to update your budget with actual expenses. (There are lots of online tools or mobile apps to help.) The tracking requires monitoring all expenses and income. A spreadsheet or several envelopes for receipts and invoices can be used to track all outgoing funds. Create four to six expense themes to track all the money your household spends in a month. Sample themes could be:
- Groceries – This includes all groceries, from all sources used to cook or prepare food at home. Look at the main grocery shops as well as all the times you grab a few items between main shops.
- Entertainment – This typically includes evenings out – movies, activities, cocktails, coffee with friends, etc. It can also include dining out, unless you would like to track dining out separately to monitor it more closely, especially if you eat out routinely.
- Vehicles – It is important to understand the cost of your vehicle – gas, cleaning, maintenance, parking, all the associated costs to owning your vehicle. If you don’t own a vehicle, this can be a transportation category and track transit fare, taxis or vehicle rental/car co-op fees.
- Clothing – Purchasing clothes, uniforms and footwear factors into monthly costs. If clothing isn’t a regular monthly expense, you can slot it into the miscellaneous category.
- Children – Childcare, activities, events, supplies. Children have a wide assortment of costs and expenses some are routine and others fluctuate depending on the season. Tracking all of them is important.
- Pets – If you have a pet, they come with their own costs. Be sure to track all of them – food, day care, grooming, toys, treats, vet visits and so on.
- Miscellaneous – This category should be for items that don’t occur every month. Gift purchases, in-app spending (buying books, music, etc.), special occasions, haircuts or other grooming can be considered miscellaneous.
It is important to make categories that are relevant and important to you and reflect your regular expenses. Categories should be broad enough to capture all the expenses but specific enough for you to have a good understanding of what you are spending your money on.
2. Set priorities
Once you have a good understanding of your regular incoming and outgoing funds you will be able to see trends. For example, it is one thing to have a vague understanding of how many times you ‘grab a coffee’ but when you see it tallied into a lump sum, you will reach a different level of understanding. Seeing all your monthly expenses itemized in one place, lets you make conscious decisions about how to best spend your money.
Having a full understanding of where your income is allocated – needs versus wants – puts you in a position to prioritize funds and determine if any changes are needed. This is especially true if building a budget has highlighted stressors on your finances and motivated you to find ways to reduce or eliminate the source of stress.
Setting priorities for your budget also includes identifying debt and building a repayment plan, especially for consumer debt with high interest rates. Debt is typically a source of stress for many of us, so determining how to reduce it can help ease stress right away.
3. Plan for the future
A household budget can help you prepare for the future, including a debt repayment plan. Once a plan for debt is in place and underway you can add a savings plan to your budget.
Savings can be divided into short-term, mid-term and long-term goals. If possible, automate savings with automatic withdrawals to ease the process. Having defined savings goals helps keep you on track and focused to remain committed to your budget.
A source of stress for many of us is the unknown and the impact of possible scenarios can have on your family’s finances. A budget that plans for the future includes ways to protect your family and mitigate risks. For example, an emergency account with three to six months of expenses to help in the event of an interruption to your income.
Other unexpected events can be planned for with insurance plans to help in the event of a critical illness or disability. Having specific insurance solutions in place can bring a great deal of comfort and reduce concerns for our family.
A financial advisor can work with you to build a plan to determine your family’s specific insurance needs and help automate your savings with pre-authorized deposits. Engaging with a financial advisor also adds an element of accountability and support for you to live within the budget you developed.
Money insecurity in any size and at any point in our lives can affect our mental health with increased anxiety and stress. If your expenses are over-taking your income or if you would like to make changes to how you feel about your household finances, connect with us and we can help you work through your situation with you.
If you are looking for resources, here are some that can help: