About the author: Lamar Watson, CFP®, is a Fee-Only Financial Advisor in the Washington, D.C. area, that works with clients virtually across the country. Lamar's work with his clients focuses on budgeting, employee benefits, paying down debt, buying their first home, and investing. Lamar is the Founder of Dream Financial Planning, a virtual financial planning firm specifically designed to help young professionals and minorities take control of their finances and fulfill their dreams. Feel free to schedule a complimentary consultation to learn how we use the The DREAM Financial Planning Process ™ to help our clients achieve their goals.
As companies continue to navigate the uncertainties that have come with the coronavirus pandemic, and employees figure out their day-to-day routine, financial stress triggers are bound to occur. While feelings of stress and anxiety are certainly heightened amidst the current pandemic, feeling stressed about your finances isn’t anything new.
In fact, an American Psychological Association (APA) study found that 72% of Americans have felt stressed about money at least some of the time during the first few months of the COVID-19 pandemic.1
Here are six financial stress triggers that you may be experiencing and our tips on how to overcome them.
Trigger #1: Making Too Many Financial Decisions at Once
Making financial decisions can be overwhelming. Where you can, try writing down and organizing what needs to be done and how quickly. Decide what can wait (maybe a home renovation project) versus what can't (such as car repairs or maintenance). Clients often come to me for help balancing several financial priorities. They're seeking help for everything from paying off student loans, buying their first home, and saving for retirement.
Figuring out where you can minimize decision making and space out your financial obligations can help ease the stress of dealing with everything at once.
Forty percent of Americans spend less than their yearly income. But an almost equal 38% spend the equivalent of their paycheck. That leaves 18%b of Americans left spending more than they make, meaning a good number of us (almost 60%) may need help with our budgeting and spending habits.5
Problems with spending vs. saving isn't a new issue in America by any means. In fact, the stats have stayed fairly similar since 2009. But the good news is, today's savvy savers are leveraging top software applications to help keep their family's money on track.
Trigger #2: Losing Track of Your Spending
It’s easy to lose track of your spending, especially when using credit cards or contactless pay. The problem is, when the bill or bank statement comes around, it can be shocking to see how much you’ve spent. Keeping track of your spending in the first place can really help reduce the stress and anxiety you feel when it comes time to check your account. If you're working with Dream Financial Planning we use RightCapital to help our clients to build, track, and maintain their budget and personal balance sheet. If you're not working with us, feel to check out the three tools below that should help you budget effectively.
YNAB (you need a budget)
You Need a Budget, or YNAB, is embraced for its alternative approach to thinking about your money. This software uses an “every dollar has a job” method, meaning every single dollar in your possession is designated for a purpose - saving, paying off debt, investing, etc. The theory is, by accounting for every single dollar, you’re forced to spend wisely and rethink what your money is being used for.
Considered to be one of the oldest, most well-established apps in the personal budget software game, Mint is a free budgeting app offered by Intuit, the makers of TurboTax and Quickbooks. This app offers almost everything any family would need to start budgeting and staying organized with their day-to-day finances. You can use it to create a budget, track your expenses, alert you when a bill is due, monitor your investments and more. As far as budgeting, this app can automatically categorize a transaction you’ve made (assuming you’ve linked that account to the software) to help give you important oversight into your spending habits and understand where you may be able to save.
Embracing the envelope system, Goodbudget creates virtual envelopes for your money, breaking expenses down into categories like gas, groceries, eating out, debt payoff, etc. From there, the premise is fairly simple. As you spend money in a category, you can watch the bar on a chart fill with green. If you’re about to overspend in a category, the app will send you an alert, giving you a chance to reallocate funds or think twice about your next purchase. Built with couples and families in mind, Goodbudget can be synced across multiple devices (the amount depends on which version of the app you’re using) to help keep multiple people aware of household spending.
Trigger #3: Credit Card Debt
Having too much credit card debt goes hand-in-hand with letting your spending go unchecked. While it’s nice to build good credit, and many credit cards offer reward points based on how much you use it, you still need to track your spending.
Credit card debt can rack up quickly. If you can’t pay off your credit card, interest will grow - and quickly. Credit card companies make millions off the interest of unpaid balances, meaning paying at least the minimum payment each month should be a top priority of yours. Credit card debt can creep up quickly, and nipping it in the bud is much easier than trying to tackle it later down the line.
Trigger #4: Paying for your Children’s Tuition
College tuition is always on the rise. In fact, the cost of college has increased by more than 25 percent in the last 10 years.2 This is a huge financial stress on many families, especially those with multiple children. While it may be a goal of yours to pay for your child’s education, it just isn’t always possible.
Many students have to take out student loans and apply for financial aid, which adds to the mounting student debt around the country. More than 40 million people collectively have over $1.5 trillion in student loan debt.3 To help reduce the amount of debt your child may have to take on in the future, you can start working now to help save. Options like a 529 plan are designed specifically for funding future education. Work with your financial advisor to determine how else you may be able to prepare.
Trigger #5: Paying for Healthcare Expenses
You never know when a sudden medical emergency will arise, and when one does, it can be a major financial stressor for many families. Aside from the general doctor visits and prescriptions, an unexpected hospital visit can really set a family back, and it can take months or even years to pay back these expenses.
If you have health insurance, take the time to reevaluate your coverage. Run through potential “what if” scenarios to determine how much you could be left paying out of pocket for you and your dependents. If you know you’ll be responsible for paying a significant amount in the event of a medical emergency, focus on padding your emergency fund. Add to it regularly and determine if you’re in a position to be contributing even more. One vehicle you can use to help pay for healthcare expenses is a health savings account.
Health Savings Account
To be eligible for an HSA, you must be enrolled in a High Deductible Health Plan (HDHP). Not only do these plans offer a tremendous tax benefit, they serve as another avenue for retirement savings. These accounts offer a win-win situation by balancing today’s savings and planning for the future. In exchange for lower premiums, an HDHP has higher deductibles. If you have large unforeseen medical expenses, you may have sizeable out-of-pocket expenses.
What qualifies for a high deductible health plan?
For 2020, the IRS defines a high deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP'S total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can't be more than $6,900 for an individual or $13,800 for a family.
The tax advantages of an HSA are as follows:
- Contributions to an HSA are pre-tax or tax-deductible. Just like a 401(k), 403(b) or IRA.
- Earnings grow tax-deferred. Just like a 401(k), 403(b), or IRA.
- Withdrawals for eligible medical expenses are tax-free.
When using HSA funds for non-qualified medical expenses before age 65, you’ll owe tax plus a 20% penalty.
Maximum contribution amounts for 2020 are $3,550 for self-only and $7,100 for families. The annual “catch- up” contribution amount for individuals age 55 or older will remain $1,000.
Trigger #6: Costs of Raising a Child
In a recent survey, 53% of those with dependent children say they are financially stressed.4 Beyond funding their education, other costs include:
- Diapers and formula for infants
- Childcare for younger children
- Doctor visits
- Family vacations
As any parent knows, the list goes on and on. You want nothing but the best for your children, and for many families, this may mean spending more than you have to support them and provide for them in the best way that you can. Feel free to download our Baby Checklist for first time expectant parents for helpful tips to prepare financially.
To help alleviate some of the stress, revisit your family budget - or make one if you haven’t yet. Laying out all upcoming expenses on paper can help make them feel more manageable, and it can give you a sense of how much you should expect to spend. Budgeting puts you back in control of your family’s finances, especially when it comes to caring for your kids.
Getting your finances in order is not an easy feat. Start by identifying your own financial stressors and determining how you can start to address them. Doing so can help you and your family in the long run by providing a stronger financial future and peace of mind.
Dream Financial Planning Process ™
Whether you're managing student loan debt, starting a business, or considering buying your first home, the DREAM Financial Planning Process™ is tailored to the unique needs of busy professionals is their 30s and 40s. This process focuses more on short-term goals while you grow and evolve in your personal and professional life. If you're looking for guidance on: Financial Planning, optimizing employee benefits, budgeting, student loans, and managing your 401k or investments we can help.
With uncertainty surrounding the economic stability of our country, it's okay to have fears and anxieties surrounding your own savings and investments. The most productive course of action from here is to reach out to Dream Financial Planning (or whoever your trusted advisor might be) and discuss your options. It's easy to have knee-jerk reactions when it feels like the bottom is falling out, but it is imperative to make decisions using research-backed data and a level head. If you'd like a Complimentary Review and risk assessment of your investment portfolio feel free to send me an e-mail.
On the first Thursday of every month I send out a monthly newsletter with tips and tricks to help you manage your Finances. In the August Newsletter I discuss why I started Dream Financial Planning and the foundational principles of my firm. There's also an article from Time.com about money market funds. If you have questions about what to do with a large cash balance, you might find this article helpful. I've also been getting a lot of questions about how to invest money you'll need in 5 years or less. You can view my thoughts here.
One article from U.S. News & World Report discusses when it might make sense to work with a Financial Advisor and the additional value we can provide beyond just managing investments. I also included two downloadable PDFs. One highlights what you should consider when paying off your student loans. The other provides guidance on Income-Driven Repayment ("IDR") Plans, which can be an attractive option for federal student loan borrowers.
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Disclaimer: Dream Financial Planning, LLC does not warrant that this information will be free from error. None of the information provided on this website is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall Dream Financial Planning, LLC be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials in this site, even if Dream Financial Planning, LLC or a Dream Financial Planning, LLC authorized representative has been advised of the possibility of such damages. Please consult with your own advisor before making any changes to your Financial Plan, Investments, or Insurance coverage.