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How Financial Planning Can Reduce Stress

How Financial Planning Can Reduce Stress

October 13, 2023

Does it feel like we’re all stressed more than ever these days? If so, you’re not imagining things.

The most recent CNBC Your Money Survey, which polled over 4,000 adults in the U.S., reported that 74% of Americans feel stress over personal finances. This is up 4% from the previous year. Additionally, 61% of Americans consider themselves to be “living paycheck to paycheck,” while 56% of workers with a 401(k) report they are not on track to live comfortably in retirement. With rising inflation and the cost-of-living crisis, it’s not surprising that many Americans are stressed about money.

A common response to stress and anxiety in relation to personal finances is to avoid thinking about or confronting the issue. This reaction can cause the core issues to snowball, further fueling stress, anxiety, and a sense of losing control. Consequently, denial and a refusal to work toward remedying the situation often make matters worse.

While you can’t directly control things such as inflation or the cost of living, it’s important to focus on the things you can control. It may be painful, but evaluating your current financial situation and spending habits is often the first step to regaining control of your finances and reducing stress. A good way to help visualize your current financial situation, your goals, and the steps you need to take to achieve your goals is to create a financial plan.

What is a Financial Plan?

According to smartasset, “A financial plan identifies, organizes, and prioritizes your financial goals, then outlines the steps you need to take to achieve them. They can also lend some insight as to if you’re on track to meet your financial goals or if you need to make adjustments to your spending.” The goal of a plan is typically individualized and can range from paying off debt to saving for retirement and building an investment plan. Furthermore, financial plans can stretch over months or decades, depending on your goal, and they typically account for unexpected life events. Whatever the specific goal or timeline of a financial plan, the ultimate purpose is to regain control and be more prepared for the future and any unforeseen major life events. In this way, financial plans can reduce the uncertainty and stress of a precarious financial situation.

How Can a Financial Plan Help?

Creating and following a financial plan offers numerous benefits that can positively impact your financial well-being and overall life. Here are some of the key benefits of having a financial plan:

  • Clarity and Organization: A well-structured financial plan provides a clear roadmap for your financial future. It outlines your financial goals, income, expenses, savings, investments, and debt. This organization can help you gain a better understanding of your financial situation, which reduces the anxiety associated with uncertainty.
  • Goal Setting: Financial planning involves setting specific, achievable financial goals. Having clear objectives can give you a sense of purpose and motivation, making it easier to prioritize your spending and saving.
  • Budgeting and Expense Management: A financial plan typically includes a budget that outlines your expected income and expenses. Sticking to a budget can help you manage your money more effectively, prevent overspending, and reduce financial worries.
  • Debt Reduction: A financial plan may include strategies for paying down debt. Reducing or eliminating high-interest debt can free up more of your income for savings and investments, making you feel more in control of your financial situation.
  • Emergency Fund: Part of a sound financial plan is establishing an emergency fund. This fund serves as a safety net to cover unexpected expenses, such as medical bills or car repairs. Knowing you have a financial cushion can reduce the stress associated with unexpected financial shocks.
  • Insurance Coverage: Adequate insurance coverage is another aspect of financial planning. Knowing you have protection in place for unexpected events, such as illness or accidents, can offer peace of mind and reduce stress.
  • Investment Planning: Investing according to your financial goals and risk tolerance is an essential part of financial planning. Over time, investments can grow your wealth and provide financial security, reducing concerns about retirement and future financial needs.
  • Tax Efficiency: A financial plan can include tax-efficient strategies to minimize the amount you owe to the government. Reducing your tax liability can free up more money for your financial goals, reducing stress associated with financial obligations.
  • Retirement Planning: A financial plan often addresses retirement savings. Knowing that you're saving for retirement can reduce the stress of worrying about your financial future as you age.
  • Estate Planning: Financial planning usually involves creating a comprehensive plan for the management and distribution of your assets and wealth after your death or in the event of your incapacity. Estate planning helps ensure the well-being and financial security of your loved ones while minimizing legal and financial complications.

Ultimately, a well-structured financial plan helps you take control of your finances, set achievable goals, and develop strategies to meet those goals. This control and clarity can reduce financial stress by providing a roadmap to a more secure financial present and future.

If you think a financial plan can help reduce your stress and secure your future, contact our financial planners in Appleton today!

Hey there! Thanks for stopping by our blog. A quick heads-up: the information here is more like friendly tips than personalized financial advice. Investing can be a bit of a wild ride, and what worked before might not be the golden ticket for the future. So, before making any major money moves, it's always a good idea to have a friendly chat with a financial professional. We're all about providing insights, not making promises. Your unique financial journey is key, and we're delighted to have you on board for the journey!