Liam Gibson, Wealth of Geeks
Amid the tumult caused by global health crises and wars in recent years, the citizens of the world’s richest country have grown increasingly worried about money.
According to a recent CNBC poll, 70% of Americans feel stressed about their finances. Moreover, a majority - 52% - of adults surveyed say their financial anxiety levels have increased since the Covid-19 pandemic first hit in March 2020.
Looking at the media cycle, it’s no wonder Americans are stressed. A steady drumbeat of morbid news has dominated headlines this year, from the supposedly imminent recession to stubbornly high inflation and from interest rate anxiety to the congressional drama surrounding the U.S. government’s ticking debt bomb.
Despite leading market indices regaining almost 10% since the start of the year, there is still plenty of pessimism surrounding the economic outlook, and consumers continue to fret about long-term inflation. In fact, in the obstacle course of finance, many people are trying to take finances into their own hands. In this article, we’ll examine some core tenets of wise money management and, with the help of expert input, identify habits and practices that contribute to wealth and security over the long term.
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Saving for a rainy day
The baseline for financial resilience is to have some cash ready in case an emergency strikes. Yet most Americans are woefully underprepared. According to a January survey by Bankrate, most Americans - 57% - say they could not afford an emergency payment of $1,000 if they had to.
One problem may be mixing accounts up. Emergency funds and retirement funds should be kept separate, but many people get wires crossed when things suddenly go wrong in their life.
“Build a separate emergency fund, aiming for about three to six months’ worth of living expenses,” advises Jorey Bernstein, CEO of Bernstein Private Wealth. “This money should be readily accessible and not subject to market risk… avoid tapping into retirement funds unless absolutely necessary. Penalties and tax implications often make this a costly move.”
Some may benefit from a visual reminder not to break the glass unless necessary. “A simple trick to keep you focused on not touching the emergency funds would be to add a picture to the account profile that shows an alarm or some other common symbol for emergency,” says Ryan Kaysen, CFP at Ingeritas Financial (IF).
Beyond a rainy day fund, investing for the long term is also crucial. Many passive investors consistently buy diversified exchange-traded funds (ETFs). The best ETFs typically charge the least in fees, with funds like Vanguard S&P 500 ETF (VOO) and iShares Core S&P 500 (IVV) remaining industry favorites. Meanwhile, defensive investors concerned about inflation and the stability of the US dollar may wish to invest more in gold.
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Debt burden
Debt can beleaguer financial well-being and cause huge distress for many people’s mental health. Unfortunately, like their government, Americans are sinking deeper into debt. According to the Federal Reserve Bank of New York, America’s household debt leaped by almost $400 billion in the last quarter of last year. The national total is now nearing a staggering $17 trillion.
In the course of one’s life, owing some level of debt is nearly inevitable. Handled correctly, however, it can be turned from a destructive to a constructive force in financial life.
“Overcoming the hurdle of debt involves understanding the cost of debt, making a plan to pay it down, and learning to use credit responsibly,” says Jorey Bernstein, CEO of Bernstein Private Wealth.
Bernstein points out two prevailing myths bout debt - that all debt is bad and that paying it off should always be your top priority.
“In reality… Mortgages and student loans can be considered “good debt” as they are an investment in your future,” he adds. “While it’s important to pay off high-interest debt, you also need to balance this with savings and investments for the future.”
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Financial education
Teaching finance has not traditionally been a part of American schooling, although that may be changing. As of last year, at least seven states mandate some level of personal finance education, yet more are in the process of introducing it.
Yet there’s no need to wait for personal finance to be offered in the formal curriculum. Parents across the nation can be their child’s financial teachers. Ryan Kaysen, CFP at Ingeritas Financial (IF), says the most powerful personal finance lessons can be taught by parents using practical applications.
“I often talk to my clients about their ‘money DNA’ - their experiences from their past that shaped the way they feel about money today,” says Kaysen. “If children see their parents spending more than they save then they will grow up thinking it is normal to have a lot of debt and to stress about money.”
“Parents shouldn’t be guarded or afraid to talk to their children about their finances openly,” he adds. “This encourages transparency and a reflection about the decisions made about finances and is a great way to introduce more complex situations to children.”
The social aspect of money can also cause anxiety. The need to compare with others and be seen to be keeping up with the Joneses is in driving needless consumption.
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Good financial habits
Some advisors say this needs to be more aligned with the deeper meaning of money. “Understand that true wealth isn’t about material possessions but financial freedom and stability,” Bernstein says. “Instead, surround yourself with positive influences: Seek relationships with people with good financial habits. Also, seek financial advice. Consider consulting with a financial advisor to create a realistic plan for achieving your financial goals.”
Sound principles will apply to most people, yet everyone’s circumstances are unique. Overcoming anxiety around money requires taking a holistic approach to finance. By taking a concerted focus on resolving financial issues as they arise and seeking out the help of professionals when needed, individuals can make better-informed decisions, develop sustainable financial practices, and ultimately achieve greater economic well-being.
