7 steps to stress-free money

Why do we have so many money worries? Why does it cause so much stress in so many peoples lives? Money should be stress free. So, what are some simply ways we can achieve Stress Free Money? It should be there to serve us. Yet, it seems that we regularly becomes slaves to it. Buying more, earning more, consuming more, borrowing more. The cycle never ends.

1. Know where you’re going

Where are you going? And why are you going there? Unless you’re simply meandering through life, you need to know where you’re going. Are you going to a university and incurring a large student debt because you can see yourself loving the chosen career, or are you simply in it for the cash? Do you have family, or want one in the future? Build a solid base by knowing where you are going.

2. Know who you are and your cashflows

Knowing who you are drives how you should set up your financial situation. Money stress is caused by a misalignment between what you want and who you are. Importantly, what type of people do you surround yourself with? Your loved ones and friends? Are your values aligned or wildly different?

I am a natural risk taker. I struggle with slow and steady savings. Yes, I know all about the power of compounding interest. But for me, I know that at some point I’m likely to take that hard saved cash and take a risk with it. Sometimes it pays off and sometimes it doesn’t.

Have a good hard look at your income in and where you spending goes. Do you know what you spend? How much goes on housing, food, clothing and travel? It's usually easier to cut costs than to increase income. Have a good hard look at everything you spent money on. Is there leakage? Are there little expenses that can easily be cut out with no impact on your lifestyle? Probably.

3. Know risk

Risk can come in many shapes and sizes, from the easily identifiable financial risk such as running out of money or losing money on an investment, through to non financial risks such as getting sick, crashing your car or getting divorced.

Understanding and being aware of risks means you can make decisions about them. Should you keep the risk, which you will do if you want to earn a return on your investments, or mitigate the risk? Risk can be mitigate in a number of different ways. Diversification, which spreading your risks around, and insurance, which is transferring your risks to someone else.

4. Save then spend

Building up savings is critical to stress free money, Now how you do this is going to depend a lot on the sort of person you are. Some people are really good at creating a budget and then sticking to it. We achieve far more success by putting our money into an online savings account that I can’t access anywhere other than at home. Once locked away, we can’t get to it.

5. Control debt

How much debt do you have? Divide it into two types, productive debt and consumer debt. Consumer debt is debt that is used to buy “things” or depreciating assets, like credit cards and car loans. Its expensive, very easily obtainable and very addictive. Productive debt is debt that is used to purchase appreciating assets. Productive debt is often harder to get (ever tried applying for a home loan?), and usually far cheaper.

Even student debt isn’t necessarily a bad thing. If you get a degree that leads you to a professional qualification, you will earn more over time. It's positive leverage. The issue becomes when you get a large amount of student debt on a degree that you either didn’t finish or won’t lead to a higher paying and fulfilling career.

6. Invest wisely

Investing means that you earn extra income on your capital. It can be anything from a simple savings account, through to sophisticated private equity. The first rule of investing is not to lose money. The second rule is see rule one.

But what does it mean to invest wisely?

It means knowing risk and knowing your returns. All investing involves taking on risk – that’s why you’re getting paid. The more you’re paid, the higher the risk. Simple, right? Yes, its simple, but often forgotten in this day and age of super low interest rates.

7. Give back

I’m not a great believer in spirituality or a high power but I do believe that the world gives you back what you put into it. Giving to those less fortunate than you. And yes, there is always someone worse off. Find a way of giving back. It might be money but it could also be time.

Money Should be Stress Free

We’ve outlined how we manage our money to be stress free. These steps are not a quick, one-time solution. To actually achieve Stress Free Money takes time and effort. Are you ready for the journey?