How to beat Financial Stress

When Terri Guillemets cryptically proclaimed that “Money is a headache, and Money is the cure”, she was probably referring to the problem of Financial Stress which, in today’s day and age, is assuming nothing short of epidemic proportions. Needless to say, Financial Stress can severely reduce the quality of your life - and so increased awareness of its underlying causes is of paramount importance. Awareness leads to action, and action leads to a sense of control that can greatly alleviate your anxiety when it comes to money matters. Here are the top four causes of Financial Stress, along with a few simple steps you could take to counter them.

Not Being on Track to Meet Future Goals

Not surprisingly, a leading cause of Financial Stress is the feeling of not being on track to meet your goals. There are three steps you can take in this regard: First, identify, define and prioritize your goals by having a financial plan prepared. Second, make sure you’re saving in the best, highest return asset classes for each of these goals, depending upon their respective time horizons. Third, get started, even if it’s with a small percentage of the actual goal fulfilment requirement. You really don’t need to go stretch yourself and invest an uncomfortable sum each month – that would end up creating more problems than solving them! These three steps may not put you on track to meet your goals immediately, but the sense of control you’ll get will help alleviate your financial stress by several notches.

Lack of Control

By far, the leading cause of overwhelming Financial Stress is a sense of a ‘lack of control’ over your financial situation. It’s not surprising then, that with so many variables (your job, your pay, the markets, the economy and so many more), you may end up feeling helpless or ‘powerless’. The solution to this problem would be to control the controllable events, while putting in a best effort to influence the uncontrollable events. For instance, you can control how much you spend each month. Not allowing the ‘lifestyle creep’ to damage your savings, and not spending at least 30% of your monthly post tax income can help. Additionally, having adequate Health Insurance and Term Life Insurance can go a long way in helping you feel in control of the future. Are you adequately covered on both fronts?

The Inability to identify a trustworthy Investment Adviser

The question of whom to take investment advice from has always vexed investors. Admittedly, this is a tough one! It's hard to identify a truly conflict-free advisor, since the Advisory business in India is still heavily “life insurance centric” and not truly fiduciary in nature. Look for an Advisor who has a CFP certification or has sizeable, relevant experience with clients – preferably people whom you know and can refer them to you. Third, look for an Adviser with no product biases (for instance, purely insurance, purely mutual funds, purely NPS or so on). If a friend or relative of yours is already dealing with a trustworthy Advisor for a long time, you could seek him or her out.

Market Related Worries!

Aristotle once said: “Either there’s a solution to the problem, and there’s no point worrying about it. Or there’s no solution to the problem, and there’s no point worrying about it”. Since markets are impossible to control (and can defy logic for mind bogglingly long periods of time), their day to day vicissitudes should therefore be the least of your worries! Worrying about the markets or the economy is like worrying about the weather – it’s nothing but a colossal waste of time and energy. You cannot influence where interest rates or the NIFTY are headed, however much you’d like to. There are a few ways in which you can beat the habit of ‘worrying about markets’. First, be a realist (not an optimist or a pessimist). Second, self-educate – even if at a very basic level. Pick up a copy of a financial daily and scan through the first page daily. Third, manage your asset allocation using common sense and the advice of a trustworthy Financial Advisor. Don’t be biased towards a particular asset class or type of investment – keep an open mind!