61% of employed adults in the UK agree that money is the greatest stress causing factor.
It was revealed that an astonishing 27% of UK adults feel stressed about money every single day. This was the most popular answer and not a single respondent stated that they ‘never’ feel stressed about money, while only 1% rarely experience financial stress. Surprisingly, 83% of those surveyed described their finances as average to strong, indicating that money concerns are an issue regardless of salary or bank balance.
After the stress and anxiety that 2020 brought, we all need less stress in 2021. This blog looks at ways to help you reduce your financial stress and gain peace of mind with regards to your finances.
1. Emergency fund
56% of people’s biggest cause of financial stress is not having enough an emergency fund. Losing your job, the roof falls in, or a pandemic can all be stressful on their own without added financial stress.
A report from Lloyds Bank revealed that over a third of adults (36%) have fewer than three months’ worth of essential spending in savings. Even worse, one in eight people in the UK do not have an emergency fund of any kind.
When crises occur, many people must dip into their savings, pensions, or investments. This can result in unexpected delays, penalty fees, or selling shares when their market value is low.
An emergency fund can be accessed quickly and easily when financial mishaps happen. Knowing that you will be financially covered in any emergency can be a significant weight off your shoulders.
The amount of money you should have in your emergency fund varies massively between individuals, but a general rule of thumb is that an emergency fund should cover at least 6 months of essential spending.
For more information on emergency funds, visit our blog: Why you need a rainy day fund.
Without a clear idea of how much you can afford to spend, it is easy to worry you are spending too much.
Understanding your financial situation, having goals, and knowing how much you can afford to spend is essential. Meanwhile, knowing that you are following a plan can be a great weight off your mind.
Here are some simple steps to create your budget:
- Calculate how much money you have after paying for your bills and mortgages.
- Work out how much you realistically need to save each month to reach your goals. For example, buying a holiday home in Portugal (worth £650,000) in 5 years’ time.
- Once you know how much money you have to spend each month, identify how much you need to spend on each area of your life, including on food, travel, fitness, and lifestyle, eating out, etc.
- Remember to factor in extras like holidays and special occasions.
- Check that your budget totals less than your monthly salary. The next important step is to regularly monitor and review your budget, whether digitally or by simply keeping a list on the fridge – whatever works for you.
To download your money maximiser budget, click here.
3. Get digital
In recent years, personal finance has taken a significant step into the app world, from banks like NatWest now providing a spending analytics tool through to apps such as Money Dashboard and Yolt.
Going digital can remove the hard work from handling your finances and will help you manage them more efficiently.
Yet there is an overwhelming number of personal finance apps on the market and it can be difficult to choose between them. In our blog, How to supercharge your finances with new revolutionary finance apps, we discuss which apps are the best to help you manage your finances.
4. Do not watch your investments
Similar to scrolling through Twitter, checking your investments can be addictive. Plus, it often isn’t good for your wellbeing or anxiety.
The stock markets go up and down like the weather and can rarely be predicted accurately. The more you check your portfolio, the more opportunities you have to make changes based on short-term market trends. This can result in buying stock at high costs and selling stock for a low price which can be expensive behaviour in the long run.
Investing for a long period of time (10+ years) is the best way to ensure your money will grow at a steady rate. Stocks may rise and fall by the hour, but in the long run your investments will generate returns.
Your financial planner will rebalance your investment portfolio regularly to ensure you are on track.
5. Understand what you can control
The pandemic in 2020 highlighted that there are many things out of our control. No one could have predicted a deadly virus would put the whole world on pause.
As with many things in life, we must ride out storms that we never knew were coming. The best way to do this is to keep a healthy mindset, stay adaptable, and prepare financially for the worst. Having all your ducks in a row and a financial reserve can provide great peace of mind and security.
At Capital, we leave predicting the future to the fortune tellers, psychics, and scientists. So, we will not tell you how amazing or challenging 2021 will be, but we wish you the best for next year. We hope you maintain a positive outlook that will help you ride out any storms that come your way. As trusted financial planners, we are here if you need any help with your finances, from financial planning, budgeting, building an emergency fund, or any other financial matters. Please get in touch to see how we can help you to reduce your financial stress today.