If you feel as though your financial life is constantly out of control, then this feeling might be accompanied by stress, anxiety, and resentment. Proactively coping with these problems is often a matter of forming a sensible plan, and understanding a few crucial financial concepts. Let’s run through some of the basics.
Establish a Realistic Budget
Reasserting control of your financial situation, almost invariably, starts with a sensible budget. This should include all of your regular income and expenses. With it, you should be able to spot spending patterns. What portion of your outgoings are going into savings, and what portion is going into discretionary spending? If you’re in the habit of doing so, it’s easy to spend a lot of money in small amounts, here and there. With the help of a budget, you’ll be able to find these areas of spending, and, where desirable, eliminate them.
Build an Emergency Fund
Financial security often stems from having a pile of cash that you can call upon during emergency situations. If you run into an unexpected medical problem or are forced out of your job, then you’ll still be able to cope with the help of your emergency fund. This money should ideally be available whenever it’s called for, in the form of cash. On the other hand, you might instead look for assets that can be easily sold when the need arises.
Seek Professional Financial Advice
In some cases, the financial chaos can be so debilitating that professional help is needed. This might take the form of a therapist, who can help you to identify exactly why your relationship with money is so unhealthy. On the other hand, you might look for financial experts who can help ensure that your money works for you.
Manage and Reduce Debt
If you’re in a lot of debt, the negative effects on your life can be considerable. This goes especially if the debt is high-interest and difficult to manage. If you owe thousands of pounds on a credit card, you might feel differently from a person who owes thousands of pounds on a mortgage.
For this reason, it’s a good idea to focus on high-interest debt. Pay it off first, and you’ll save more over time. This is called the avalanche method. In some cases, however, debt can be so unmanageable that you need to apply for a debt relief order, or for bankruptcy.
The former option is available only to low-income individuals whose debts amount to less than £50,000. But, if you’re willing to tolerate certain restrictions on your financial activities, it might represent a viable way forward.
