Question:
I am worried about money and want to be debt free as well as financially secure in retirement.

Answer:
Finances = Stress. You don’t need to be a mathematical genius to identify with this equation and, more importantly, suppress the undeniable surge of anxiety associated with it. Truth is, uncertainty and perceived lack of control top the list of stress inducers when it comes to finances. But, irrespective of your financial situation, you can avoid this negative relationship by merely adjusting the way you treat money.

Ever heard the saying 'money can’t buy you happiness'? Well, research has confirmed this and found that once your basic needs have been met (think Maslow’s hierarchy of needs), there is very little congruency between a growing bank balance and your happiness. In fact, what is suggested is that as we progress in life, our finances play an ever increasing role in our stress levels. So much so that it is ranked as the number one reason for many divorces and is the main reason for suicide among men.

To gain optimal financial quality of life, you need to be able to manage your money in such a way that it does exactly what you want it to. This implies that you have to have some idea of what you want your money to achieve for you and then you have to ensure that it is meaningful. So although more money does not necessarily mean increased happiness, the level of control you have over your finances does.

Financial stress generally originates from external and internal sources. External sources are generally out of your control (e.g. retrenchment, interest rates, fuel prices or even divorce). However, there are certain external sources that can be planned for. These include loss or reduction of income due to death, disability or illness.

The internal sources of financial stress stem from our inability to apply sound financial management principles to our lives. This self-defeating behaviour not only depletes our wallets and bank balances, but also leaves us with a great deal of uncertainty and anxiety around our financial well-being. This is the one area we can have a huge influence on if we want to change our relationship with money.

So what are the steps you need to take in your own pursuit of happiness? The first step is setting a clear vision and goal for what you want your money to achieve for you. This vision should encompass what is important to you as well as any hobbies or interests you find personally rewarding. People are ultimately less worried about merely having lots of money; it’s more about the kind of lifestyle the money will offer. Ideally, this visioning exercise should be done with your partner and even the rest of your family. Remember that keeping up with the Joneses can be the least rewarding emotional experience as you could end up chasing someone else’s dream.

The next step is to understand what your current financial reality is in comparison to what you want it to be. This is usually where most people fail because they do not know where to start and they are afraid of what they might find. You would generally start by reviewing your spending habits in relation to your income (yes, the dreaded word — budget). Too many people avoid this because it could mean making sacrifices. However, it should rather be viewed from the angle of making the most of your money by spending it mindfully on those things that are important to you.

Once you know where your money seems to be disappearing to, you can develop a plan of action. This could include cutting unnecessary expenses and allocating funds to more worthy channels. It should also include setting aside some funds to reward yourself for the hard work and sacrifices you make as well as 'paying yourself first' by investing in your financial future. It is important to understand that the earlier you start investing, the better ally you will make of the two greatest investment wonders — compounding and rand cost averaging.

'Expect the best, plan for the worst' is an old military saying that rings true in financial planning. Even the most elaborate wealth creation strategy can be ruined by a personal disaster such as death, disability or critical illness. Protecting your finances against this could be the most prudent decision you will ever make. At the end of the day your ability to earn an income and support your family could well be your biggest asset, so it is well worth protecting.

Once all the hard work is done, discipline comes into effect. Failing to stick to your strategy could be one of the greatest threats to your financial well-being. People’s behaviour and impulsive reactions to situations and information often have a greater impact on their finances than any type of economic cycle, market performance or Reserve Bank decision. As a classic example, we witness record inflows at the market’s highest point and record outflows at the lowest point. In this way, the strategy of buying high and selling low becomes a classic wealth destroyer. However, you should review and monitor your strategy annually to ensure that it takes into account any change in personal circumstances and remains meaningful and relevant.

So, as the pressure of the daily 'grind' seems to eat away at your sanity, take a deep breath, tick off 'personal finances' on your to-do list and smile to yourself. In the end you’ll find that it was all worth it.

acsis Limited is an authorised financial services provider. The response to the question covers some of the issues in a general and factual manner and does not constitute advice. It is important to consult with a financial planner who, after an analysis of the individuals’ personal needs, goals and circumstances, will be able to provide comprehensive and appropriate advice.

If you would like acsis to put you in touch with an independent financial planner, click here!

RSS

Digg

de.li.cious

facebook

MORE PERSONAL FINANCE

44 ways to make more cash It's not easy to make extra money, but it can be done if you're creative. Here's how...

What will you regret? Advice to a reader who wants to know if he should accept the promotion he's been offered...

How to ditch all debt Do you have credit card debt? Do you want to pay off your home loan more quickly?