How to get your financial life under control
Eliminate stress and anxiety by getting clear about how your money moves
Do you ever feel like your financial life is a mess? Does the thought of money stress you out? If so, you’re in good company.
According to a recent CBS poll, 77% of Americans report feeling anxious about their financial situation.
More often than not, we feel this way because of a weak or non-existent relationship to the role money plays in our life.
Uncertainty
Anxiety and stress come from a lack of awareness about your finances.
When you’re foggy on how much comes in and where it goes, it’s easy for feelings of frustration and defeat to color your relationship to money.
Getting laid off five times in a row over the course of four years, I know all too well what financial frustration and anxiety feel like.
Here are just a few thoughts I’ve had over the years as I grappled with the bummer that was my financial life:
All my money seems to slip away at the end of the month, and I feel like I’ll never get ahead.
I’ve lost count of how many times I’ve resolved to ‘finally get my finances in order.’
I forgot about my friend’s birthday and have to put off saving for yet another month, but honestly, it’s always something.
When you’re out of touch with your money, you face a paradox of certainty. At once you’re clear and yet still confused:
You don’t know how much you’re spending on subscriptions each month but you do know that you’re paying too much for all of them.
You do know you’re susceptible to impulse purchases, but you don’t know how much damage they’ve done over the past three months.
You’re pretty sure food is getting more expensive, but then again, you realize you did just order a private car for your burrito.
Even worse, you’re pretty sure that your lack of financial awareness is screwing you. When you don’t pay off your credit card in full each month, you know you’re losing because the bank is charging you interest.
When another month goes by where you don’t build savings, you know that you’re extending the window for bad luck to strike when your defenses are down.
You feel guilt about not putting away more (or anything) for retirement, but how is it even possible when there’s nothing left to save at the end of the month?
Total clarity
The way out of this downward spiral is to get your finger on the pulse of your spending.
Fortunately, there’s a phenomenal tool for this very specific job: a budget.
When we think about a budget, the first words that come to mind tend to be restriction and limitation, but what’s often overlooked is the budget’s real superpower: clarity.
The clarity that a budget offers is the antidote to the frustration, denial, and stress that come from being out of touch with your finances.
Why do budgets work?
By hooking into each of your bank and credit card accounts, your budget captures every cent that flows through your life. You get a complete view into what’s actually happening with your money, and that visibility is how you begin to reclaim control.
By knowing what actually happened to your money last month, you gain the ability to smartly decide what it should do this month. The tracking work that a budget does leads to effortless planning and prioritization.
What happens when I use a budget?
By revealing your spending patterns, a budget allows you to make adjustments as life happens. If you ended up spending too much eating out last weekend, you’ll know immediately how best to make up for it.
Guilt around spending completely disappears when you know when and how to recover. The same holds true for future expenses that you know are coming.
A budget excels in helping you plan for your friend’s upcoming birthday. It’s equally good at ensuring that you save up for that next insurance payment coming up in five months.
I could go on, but you get the point. When you have better information, you make better decisions. And making better decisions is how you finally take back control over your financial life.
As your sense of control grows, it acts like sunshine that eliminates the dark and murky environment that your fear and anxiety need to thrive. In a few short weeks, all that’s left are positive feelings around the role money plays in your life.
When you have better information, you make better decisions.
How to get started today
We live in a time that’s overflowing with budget apps, websites, and services of all kinds. Honestly, there’s never been a better time to jump on the budget train.
Pick a budgeting app
There are several to choose from but I only recommend working with those that use a zero-based budget philosophy.
This is a budgeting approach that has you make a plan for every dollar you earn. It’s also stood the test of time, with its roots going back to the Great Depression.
I highly recommend You Need A Budget (affectionately known as YNAB by us devotees). It’s been around forever (I’ve been using it for 10+ years) and consistently sets the standard for this category of budgeting app.
Set up your budget
A good budgeting app will have an onboarding guide to help get you started. Here’s the one for YNAB.
Guides like these should include steps for connecting your bank and credit card accounts, as well as configuring your budget categories.
Plan to invest an afternoon to this one-time exercise. A few focused hours of effort is well worth the life changing reduction in time and stress that follow.
Enter your spending in real time
Like all good budget apps, YNAB includes a mobile app that allows you to log your spending as it happens, in the real world.
This tiny 30-second ritual has a profound impact on your psychology. Taking a beat to log an expense in the moment has the same effect as paying in cash.
You end up ‘feeling’ the expense in a much bigger way than when you absentmindedly throw it on a credit card.
Check your bank’s math daily
One of the best favors you can do for yourself is to compare your your budget to your bank’s website every day, at least in the beginning.
The official term for this is ‘reconciling,’ and YNAB mostly automates the work, so it shouldn’t take more than five minutes a day to do.
Performing a daily check that your budget is fully aligned with your bank’s view of reality guarantees that you’ll never be caught off guard by a surprise or incorrect expense.
As a fantastic bonus, the expense logging you’re doing gives you a leg up on the bank, as you’re already accounting for spending that they’re not even aware of yet.
Reflect
After a month, take stock of how far you’ve come and ask yourself how you feel. Behavior change in any realm of life is hard, so be sure to pat yourself on the back and take credit for having stuck to it for thirty days.
You might be thinking of money more than ever, but are you still worried about it?
Conclusion
"There are all kinds of cheat codes lying around, but they usually look boring. People will routinely ignore things that already work for the hope of a slightly easier path. The cheat code is the work you're avoiding." - James Clear.
You know this already, but it’s worth stating explicitly. Budgeting is one huge cheat code that saves you the 'work' of worry, stress, and anxiety.
By getting clear about how your money moves, you transform your financial life into a source of confidence and serenity. You also lay the foundation for smart decision making, and that’ll be the topic of the next newsletter.
If you found value from this post, please subscribe and leave me a comment. I’d love to hear from you.