The only constant is change. Change by nature can be stressful, and change usually carries a financial component.
Being financially prepared for the expected and unexpected changes life brings can significantly reduce the stress you experience.
To get an idea of how stressful common events in life are, take a look at the Holmes and Rahe Stress Scale. The scale rates everything from death of a spouse, the most stressful, to taking a vacation – yes, even those can be stressful, especially if you haven’t saved for it. The scale is available at Wikipedia.org.
Stress is caused by wanting things to be different than they are. In his book The Power of Now, Eckhart Tolle says if you find the here and now intolerable, you have three options:
b Remove yourself from the situation.
b Change it.
b Accept it totally.
Solid financial footing will give you greater freedom to choose any one of these options; it will reduce the stress inherent in any unwanted circumstance. Also, it will allow you to focus your energy on what needs to be done.
Being financially prepared will help you adapt to your new circumstances more quickly and with less resistance. Planning for change can reduce the stress of the event and give you greater peace of mind today, knowing you are ready to handle what’s coming.
A monthly budget that reflects the reality of your income and expenses is one of the most important stress-reduction tools you have. With a realistic budget, you can more easily manage the changes you expect, while an emergency fund and proper levels of insurance can leave you ready to handle the unexpected.
If you have debt, other than your mortgage, you should have a $1,000 emergency fund. After you have paid off all non-mortgage debt, you will want to grow your emergency fund to equal three to six months of living expenses.
Your insurance plan should include auto, health, disability, life and homeowner’s or renter’s insurance. I recommend working with your insurance agents to help adjust your coverage and deductible levels so you have the optimal mix of coverage and cost.
Many of life’s changes do come with plenty of warning, usually because we instigate them. Your monthly budget can be adjusted to account for events such as a marriage, a move or a new child.
This, of course, will mean spending less or eliminating some budget items so you can put money toward those future expenses.
When planning, begin by assessing the likely increase or decrease to your income and expenses. Then consider how long before things return to “normal.” For example, if you’re having a baby, how long will maternity leave last and how will your household income be affected?
With some planning and budgeting, you should be able to navigate the sea change that is our lives. For me, budgeting and accumulating money for future expenses has been the key to leading a more peaceful and less stressful life.
Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance. www.DebtFreeTribe.com.