Financial freedom: Isn’t that the American dream? In each of my five decades, I’ve learned more (and stressed a lot) about my relationship with debt and money. The toll financial stress can take on a person can be overwhelming, which is why it’s important to regard your finances as objectively as possible.
How can someone be objective about bills, payments, childcare costs, investments, healthcare costs, unplanned spending, traveling, and other financial surprises? Let’s take a deep dive into your money mindset and spending habits. Examining your finances closely and making careful financial decisions allows you to ride out the ups and downs.
Childhood and Money
Remember that feeling of buying something with your allowance? Saving up for a new toy is usually a child’s first exposure to budgeting and finance.
In an article for MarketWatch, two experts share their opinions of allowances and the financial literacy lessons offered along the way. A personal finance expert and author of financial literacy lessons for kids agreed that an allowance is good for children as long as they understand the process of earning it. Giving an allowance weekly, without associating the consequences of completed chores, may begin a feeling of entitlement. The other expert, a finance professor, feels parents should be more involved in their children’s spending of money. Instead of giving an allowance, the child should ask for money so the parent can discuss why they need it and where they are spending it.
What is your money mindset
Both experts also agree on the benefits of creating a budget and talking with kids about money and savings. Some good tips to teach a positive relationship with money, starting in childhood, are:
- How to earn money
- How to save money
- How to discern “wants” from “needs” before spending
- How to share money
- How to borrow money
Were you given an allowance as a child? Did your parents talk to you about spending, budgeting, and saving? Were your parents consistently stressed about money, or were they very frugal? Think about your childhood, and you may get a better understanding of how you think about money — and why.
Young Adults and Money
In your late teens and throughout your 20s, you likely learned just how much you relied on your parents to feed, clothe, and house you. Leaving home for college and the real world, many young adults will take on student loans, credit cards, car loans, and housing responsibilities.
Although young adults aim for physical and fiscal independence from parents, with independence comes responsibility and choices. In your 20s, you could be planning a wedding, buying a house, starting a career, or continuing your education. Throughout this time, young adults will be faced with financial choices they hadn’t considered before. Should they buy a new car or keep the one they started driving at age 16? Again, real-life scenarios, and your previous childhood experiences, help frame your money-spending habits.
Here are some good money habits for young adults to build through their 20s.
Check your credit score.
Tracking your credit score is a good habit to begin early on. Understand what affects your score, why it’s important, and how a credit score is helpful in larger financial decisions.
Know, and ask for, what you’re worth.
As you begin your career, you may not feel confident enough to ask for a raise or increased salary. Do the research to determine average salaries for your job, and don’t be afraid to take it to your boss.
Look at your debt and spending habits.
Do you turn to retail therapy when you’ve had a hard day? In all stages of life, some people would rather ignore their debt than face it. The only way you can begin to handle debt responsibly and tackle it, or make a plan to pay it off, is to take an honest look at it. Talk about your debt and spending habits with your partner, too; money issues are the third biggest factor in divorce. You owe it to yourself, your partner, and anyone else affected by your spending to be aware and responsible with your finances.
Begin saving for retirement.
Your employer may offer a retirement plan that pulls directly from your paycheck. At the very least, set it up for the amount needed for employer matching, if they offer it. Look for other tax-deferred plans, too, such as health savings accounts, flexible spending accounts, and IRAs, even if they’re not offered at your company.
Marriage, Family, and Money
If the 20s are generally spent starting a career, the 30s are likely the time for getting married, buying a home, and starting a family. This may also be the time when you get a hard lesson on credit and debt. The good news is that it’s not too late to begin forming smart spending habits and taking a closer look at those big financial decisions.
It can be overwhelming to consider signing a bank loan on a $200,000 home, especially for those who already have payments for student loans, an auto loan, and a credit card or two. Debt, however, isn’t always a bad thing. In The Value of Debt in Building Wealth, Thomas Anderson explains that debt can be a positive experience if individuals look at it as a way of obtaining assets and reducing their tax burden. Low interest rates on these assets, such as real estate, actually produce a higher rate of return in the long run.
Learning more about debt, and which debt is advantageous, can affect your money mindset and how you spend your money. Continue smart financial choices throughout your 30s with the following tips.
Work with a financial advisor or planner
Financial professionals can offer advice even to those with a relatively small retirement fund and little savings. In your 30s, you may have a clearer idea of a future plan, including when you’d like to retire and how much you’d like to have saved when you retire.
Set up college funds for your children
Maybe you can’t imagine your child moving out and going to college, but they likely will one day. Talk with your financial planner about setting up a fund that you can start paying into now. Monthly payments, especially from infanthood, shouldn’t cost more than your daily coffee habit.
Be responsible with your debt
Yes, you may take on more debt at this time in your life than during any other. However, if you’re responsible about it, pay it off on time, and keep close tabs on your spending, those debt habits will keep your credit score up.
Build healthy habits
Examine your money spending habits — remember the “wants versus needs” lessons you learned in childhood? — and determine what you can cut. For example, childcare costs can be expensive but necessary, so some sacrifices may be needed in other parts of your budget.
Debt doesn’t have to be a bad thing. You just have to manage it correctly. A positive mindset will help reduce stress and help you make clear debt management decisions that you can live with.
Life Changes and Money
People and families in their 40s, 50s, and 60s face new life changes. These may include sending the kids off to college, divorce, health issues, and other challenges. Some of these costs may have been planned with medical insurance, health savings accounts, college funds, or investments. If not, some consumers face the challenge of recovering from costs that were out of their control. Act Two in an individual’s life can be full of surprises, both good and “it’s-not-so-good-but-it’s-a-life-lesson.”
Uncertainty can lead to stress. It can take a toll on you, your relationships, and your health. The American Psychological Association’s latest report on Stress in America states that money is one of the top causes of stress in the daily lives of Americans. Long-term financial stress can lead to decreased health and even physical pain. The feeling of hopelessness can lead to depression and substance abuse.
At this point in a person’s life, there are still best practices for feeling in control of your finances. Some will be helpful for your mental and physical health, and others will benefit your continued financial health.
You may or may not be prepared for unplanned obstacles in your life, but beating yourself up for them isn’t helpful. Throw a quick pity party, and then move on to resolve what you can.
Comparison is the thief of joy
Teddy Roosevelt said that comparing your life and situation with another’s will make you unhappy. Heed these words if you find yourself feeling down or frustrated with your current situation.
Ask for help
If you haven’t worked with a financial professional before, consider starting now. Even without unexpected financial challenges, a financial planner can help make the most of your retirement and work with you to increase your savings for other goals.
Continue healthy spending habits
Keep adding to retirement and living within your budget. Examine your goals and prepare for the unexpected.
Be mindful about your finances
Pay attention to how your spending makes you feel. Do you want to pay off your house or sell it? Do you picture more travel in your future? Do you want to live near your grandchildren someday? With your financial house in order, you can enjoy making plans for your life.
Looking closely at your spending habits throughout your life will help you feel a sense of control. Consider your childhood and what you heard about money from your parents, spouse, family, or friends to better understand your mindset and take control of it. Your money mindset can affect your level of financial stress if you’re continually worried or feeling guilty about your spending, so look back, get perspective, and maintain mindfulness when it comes to your money.
Also, there’s no need to bury your head in the sand or feel ashamed to talk about debt or your finances. When you keep the conversation open, you’ll realize you’re not alone. With practice and time, you can develop a positive relationship with money and debt.