Many in the U.S. live in fear of an unexpected expense—only 39 percent of households have enough on hand to cover a $1,000 mishap. Yet such things happen with regularity: A tree falls on your roof; your kid breaks his arm; your car breaks down.
Becoming one of those people who can handle such eventualities with ease is not magic. It all comes down to being thoughtful and careful about how you use your money. That includes controlling your spending, knowing how to save for the future, and investing wisely.
Understand your financial emotions
Before you bust out the calculator and start tabulating numbers, contemplate your feelings about money.
“What you think and say to yourself about money has a huge impact on what shows up in your life,” says Ellen Rogin, a Chicago-based certified financial planner and CPA.
Do you presume that being concerned with money will make you materialistic? That enjoying it will make you self-indulgent? Do you associate money with stress and anxiety? Do you fear there won’t be enough of it? Or assume there always will be? Do you know how much risk you’re comfortable with?
Once you have a better sense of your internal relationship with money, you can take steps to make managing your money a more positive—and ultimately successful—process.
Be honest with yourself. It’s very normal to have tumultuous, confusing, and negative emotions related to money. You learned these associations in your earliest years as you absorbed how your family discussed, spent, saved, and used money.
“The common denominator that I’ve found over my more than 30 years in financial services is that, when it comes to money, we are often gripped by our emotions,” says Jill Schlesinger, a former Wall Street trader and current financial advisor. “There’s no getting around that we are human beings; we’re not always rational.”
Set some goals
Once you’ve uncovered what’s making you tick internally, it may be easier to break through the noise and figure out some goals with a clear mind. Knowing how to approach managing your money depends on what you need it for, which requires planning. The answer will be different for every person and household.
If you’ll need all your money in the short term, saving is probably the best course of action. But if you have funds you don’t need to access for a long time, you can invest it and reap the potential rewards of the stock market. Knowing what goals you have for your money will dictate how to balance these two strategies.
When setting your goals, think broadly about all the things in your life you’ll need to spend money on. A good strategy is to write out all of the things you want to accomplish in life, from buying a house to sending your child to college to visiting Tahiti.