Credit: Freedigitalphotos.net
Good morning! Today I have a guest post from Matt Becker, a personal finance blogger at Mom and Dad Money. Matt is a proud husband and dad and loves to share the financial lessons he’s learned with other young parents. You can find him on twitter and facebook.
I hate it when I have to think about my money.
Don’t get me wrong, I love thinking about financial issues. I love learning new things, tinkering with different processes and strategies, and trying to find the best way of doing something. I just like doing it on my own terms.
When I’m forced to think about my money, it’s usually because something is glaringly wrong and needs to be fixed quickly. I feel uncertainty about how to proceed, guilt and embarrassment that I’m in this situation, and a time pressure that all adds up to a lot of stress. This stress makes it difficult to make good decisions and it negatively affects my mood and how I interact with my family.
But most of all, while good financial management is a cornerstone of a healthy lifestyle, I didn’t grow up with aspirations to track all of my spending. I didn’t daydream about making complicated spreadsheets to follow my investments. I certainly didn’t hope to live a life where I agonize over every spending decision because I’m worried about how it will affect my checking account balance.
I do dream of a simple life where I spend quality time with my family and pursue work that I enjoy. With those goals the forefront, I have tried to set up a personal financial system that lets me be as independent from it as I want, freeing me up to focus on the things I truly value.
What is there to worry about?
The list of potential financial worries is almost endless:
-Did I pay all of my bills on time?
–Am I saving enough money for retirement?
-Can I put food on the table for my son?
-What would happen to my family if I lost my job?
-What would happen to my family if I died?
-Can I afford the flight to go to my best friend’s wedding?
This list is just a small taste of the things that I might worry about. And while they are all legitimate concerns, if they are daily worries then they are taking time and energy away from other parts of my life. This kind of regular worry is exactly what I want to free myself from. There are a few simple ways I try to do it.
Set up my own personal safety net
The first step to removing financial worry is handling the worst case scenarios.
I have a large emergency fund, currently 6 months of full expenses but more like 9 months of emergency-level expenses. This could carry me through a reasonable period of unemployment or handle other big unexpected expenses.
I have ample life insurance, disability insurance, health insurance, and liability insurance.
My wife and I have wills and a living trust set up to make sure our son is cared for if we died.
While experiencing one of these worst case scenarios would still be painful, these safety nets let me know that my family would at least have the financial resources to handle them.
Create good, simple and consistent money habits
We’ve all heard the advice that you need to live below your means. Every financial expert has told us some version of this. And while the advice is absolutely true, we often fail to follow through. When faced with the decision to spend now or save for later, that spending impulse usually gets the best of us.
My approach is to avoid this confrontation altogether by forming regular habits that remove these spend vs. save decisions from my daily life. I bring lunch to work every day and my wife cooks dinner. We take our son to the playground or the park rather than some kind of paid entertainment. I tested different routes to and from work to find the best combination of time and cost.
These are just a few examples of simple, repeatable habits that save me money. Forming good habits ingrains positive behavior into my life and removes the anxiety of constantly having to face tough decisions. By avoiding the confrontation altogether, my life is simpler and more carefree.
Automate as much as possible
My paycheck is direct-deposited. My bills are set on auto-pay. My retirement contributions are transferred directly from my checking account on a regular schedule. We have automated savings for things like travel, car maintenance and doctor’s appointments. I have a simple excel spreadsheet tracking my investments (in only four mutual funds) that tells me when it’s time to rebalance.
All of these things took a little bit of time to set up, but now that they’re in motion I barely ever have to think about them. I never worry about a bill being paid or whether we saved enough this month, because it was all decided and set on a schedule a long time ago.
Check in on a regular schedule
All of the above runs on auto-pilot, but I still check in on a regular basis to make sure things are running smoothly. But because everything is so organized and automatic, these check-ins are almost always quick and simple.
My wife and I have a weekly time that we review our budget and make sure we’re on track for the month, a process that typically takes about 15 minutes.
Once per month I review all of our accounts and record our net worth so I can track our progress over time. This takes another 15 minutes.
On a weekly basis I check on my investment spreadsheet to see if there’s any rebalancing needed. This takes about 5 minutes.
All in all, that’s a total of about 1.5 hours per month spent reviewing our finances. But because we spend that small amount of time doing it, and because my wife and I make sure we communicate regularly to stay on the same page, the rest of the hours in the month are free to focus on other things. These check-ins help us both stay stress-free because they confirm that everything is running smoothly and give us a regular venue to identify and handle anything that isn’t.
Relax and enjoy your life
All of the above takes some work, but it is organized and focused work that relieves financial worry and allows me to spend more time on things I enjoy. I can play with my son without any nagging concern about our bills being paid. My wife and I can spend our time mapping out our plans for tomorrow because we know we have today handled. When I work, I can do it because I enjoy it and I want to produce something great, not because we need to eat tomorrow. I’ve tried to set up a life where I dictate my relationship with money, not the other way around.
Independence from my finances is my dream of financial independence.
What is yours?
Photo Courtesy of FreeDigitalPhotos.net
This post was featured on Monster Piggy Bank, thank you!
I find that the more debt we pay off the less I worry about our finances. I know that I have to continue planning for retirement and to keep abreast of my finances, but honestly the debt is the only thing that has kept me awake at night.
Debt can certainly be a huge burden. And paying it off can open up a whole new set of opportunities. It’s great to hear that you’ve identified your biggest source of worry and have a plan to relieve it!
Like you, we have a large emergency fund. Honestly, that safety net is the best way to keep the worry out of your finances.
I agree about the E-fund. It’s in a “high-interest” savings account, which as everyone knows is still returning almost nothing these days. The low return just doesn’t bother me though because that’s not what it’s there for. The security it provides is, in my mind, priceless.
We have a fairly large E-Fund as well and are in the process of making it even bigger. Being self-employed it gives us peace of mind knowing that we can cover things if business goes south.
I would imagine that having that cushion is even more important when you’re self-employed, simply given the potential for month-to-month fluctuations in income. As a business owner, it’s nice to know that you have some time to fix any problems with a long-term viewpoint instead of scrambling madly to find a short-term fix just so you can pay the mortgage next month.
Excellent and very thorough post!
We finally made it to a point financially where we don’t really have to worry much. It took a lot of work to get here. We pay bills as they come in. We have money saved and we’ve taken steps to protect it. We take care of ourselves, our home, our cars…so that we rarely have surprises financially. We also have adequate insurance so that when things do happen – and they do – our liability and/or out of pocket expenses aren’t astronomical. I remember the days when a car repair or medical/dental bill would send us scrambling to figure out where the money would from and I don’t want to go back there…so we save, we live a simple yet very enjoyable lifestyle, we monitor our accounts, we protect our assets and we are grateful to have reached this place in our lives.
Sounds like you guys have a great system in place! While no one wants those unexpected bills, it so comforting to know that they can be handled.
I have a lot of the same goals (with the exception of the kid) to be free of money worries. I’m still not out of the woods as far as money worries as that has a lot to do with my variable and unpredictable income as a freelancer. But I don’t have debt, so at least that’s one thing that is good, and my emergency fund is decent, so that also helps. I do need to get a bit more organized about stuff like retirement investing though. I think that’s a missing piece of the puzzle.
I’m certainly not living an entirely financially worry-free lifestyle either, but I think the efforts taken to get there have been helpful. I’m guessing that retirement investing is difficult with a variable income, but any little bit you can do now will certainly help make things less stressful later.
It’s funny how people differ. I don’t really mind thinking about money and I enjoy having to earn it, because of that I think that being self employed helps in my search for financial independence. I’m completely self reliant when it comes to earning money. Some days it’s stressful but I quite enjoy the excitement of not knowing what each day will bring. Really enjoyed this post Matt.
Don’t get me wrong, I love thinking about money as well, tinkering and trying to improve. It’s just that I don’t like it when there’s something requiring me to think about it, as that’s usually a signal that there’s a problem that needs to be addressed. I like your mindset of using self-employment as a freeing experience. A job might feel secure, but in the end it’s not up to you whether you continue to get paid. Self-employment brings different stresses, but it’s all in your hands how you manage them. For many people this control can be a big source of comfort. Thanks for the comment!
Dealing with worst case scenarios is definitely the best thing young adults can do to help alleviate money problems. Getting an emergency fund is very difficult, probably mainly due to psychological reasons; there is always something else your money can go towards whether it’s paying down debt faster or purchasing something you previously did not have the funding for.
An E-fund does seem to be a particularly difficult thing for a lot of people. It seems like a big reason is that people don’t like having money sitting around “doing nothing”. I’ll admit that there are times when I’m frustrated by the low returns from a savings account, but I remind myself that, just like insurance, it is in fact doing something. It’s providing protection. As Betsy said above, things always happen and I would much rather be prepared for them than try to eke out a few extra percentage points of return.
I think we’re largely worry free these days, and a big cushion and living below our means are the big reasons why.
That’s great! It’s amazing how powerful living below your means is. Even when you have an off month in terms of spending, you don’t really get into trouble because of that cushion. It relieves so much of the day-to-day anxiety.
I´ve built up an emergency fund which could last me over 5 months, if I needed it for living expenses, which is a real comfort, because it makes me worry less!
Great work! I’m sure it took some time to build up but the security is definitely worth it.
Great tips here, Matt. We are finding, like Glen, that the more debt we pay off, and the more we automate and plan things, as you suggested, the more free from financial worry we are, and it’s a great place to be!
You guys set such an awesome example for tackling your financial stresses head-on. I’ve always found that while creating a plan can be stressful, mostly because you’re doing something you haven’t done before, the stress relief it provides going forward is always worth it.
I also think having an emergency fund allows you peace of mind. You know you can handle things should they come up. My problem is I never seem to think it’s enough, so I still worry! About the only thing I own that could go bust is my car, which is in decent shape. Then my health/safety comes next. Everything else is pretty much anticipated, so I’m probably just being silly. I agree that automating things is great, and you’re doing a good job of having everything else organized!
Sometimes it’s just tough to shake that anxiety out of our brain. I still have un-needed worries too. I think it’s just part of being human. As long as you objectively know that you’ve got things covered though, hopefully over time those random anxieties start to decrease.
All of these are great tips and I totally agree with you. Have you read “The Automatic Millionaire”? It has a lot of great tips for automating your finances, it sounds like it would be right up your alley!
I haven’t read that book, but thanks for the recommendation! I got most of my automation ideas from Ramit Sethi. This article in particular was eye-opening for me several years ago: http://www.fourhourworkweek.com/blog/2009/03/26/the-psychology-of-automation-building-a-bulletproof-personal-finance-system/
I get very stressed about finances. Especially when I think about all the interest we pay on our debt each month. I’m looking forward to the worry-free financial life and working very hard to get there.
As long as you have a system in place for dealing with the things that cause you stress, you’re on the right path. I don’t think that many people are truly worry-free, but the ones with the least worry are the ones who are following through on a well-designed plan. Good luck with the debt payoff!
Great post! I am a total worrier. I worry that I don’t have enough money. I worry I’ll never pay back my student loans, but I just try to do the best I can. Simplifying my life and reducing the amount of bills I have has really helped!
Simplification is a huge point that I didn’t really talk about. Thanks for bringing it up. It’s actually something I’ve personally been wrestling with recently, as I’ve tried to take on some extra things in my life. I’m enjoying them, but they take time and energy and add complexity and stress. It’s a difficult balance.
Balance is definitely something we all struggle with. Good luck, Matt!
Great tips, with recently building a new house it’s really thrown our financial situation out of wack. Be that we had a set amount to save each month and the bills were simple and easy to handle. However when you build a house you also take on certain amount of uncertainty for a while and until we get things back in order we are going to be in that out of wack situation.
Building a new house is certainly a huge financial commitment. Change is always difficult and it can take some time to adjust. But that doesn’t mean it should always be avoided. Being able to deal with change and uncertainty and coming up with solutions to them is a great skill to have. Good luck!
Just like anything in life, being disciplined and having good habits over a consistent time equals positive results. We can probably see the same in our career goals, fitness goals, and the same is true for our financial goals.
Great points. Good habits are the backbone of success in almost any field.
Isn’t it crazy how simple saving and investing gets once you automate it?
Automation is my best friend. I do nothing, my savings increase. Like magic.
Super post, Matt! My wife and I got so sick of worrying about money. Ramit’s book really helped with the automating, good money habits and safety nets. Now our time spent on money matters is far less, but far more enjoyable!! Thank you for a great read!
Thanks CJ! I think Ramit’s book is one of the best. Simple, effective and fun to read. I’m glad you guys have gotten to a good spot.