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Financial Wellness

How to Avoid Financial Trauma

With so many calamitous events on the world and domestic stage, the economic situation has become increasingly perilous. But that instability doesn’t mean that your financial situation has to be on a knife’s edge. We all have the ability to take control of our personal economic situation in order to avoid financial trauma. In this article, I’ll lay out 7 key steps to avoiding financial trauma.

Self Examination

The first step in avoiding financial trauma is to step outside of yourself and take a cold, hard, objective look at your personal financial behavior. Does the very thought of your finances cause you to break out in a sweat? Do you dread the 20th of the month when it’s time to pay your bills? Are the majority of your household arguments to do with money matters?

Top view of stressed man holding empty wallet feeling the financial trauma.
Avoidance Of The Problem Will Only Set You On The Fast Track To Financial Trauma (Image Source: Shutterstock)

If your answer is yes to any of these questions, then you need to summon up the courage to confront the problem directly. Avoidance of the problem will only set you on the fast track to financial trauma. Recognize that you have a problem now, while you still have time to do something about it.

Make A Plan

Once you have acknowledged that you have a problem, you need to undertake some financial planning to get your finances back on track. Start by identifying just where you are right now. Create a spreadsheet on which you list all of your fixed and variable expenses. Be sure to include your average food shopping bill as well as what you spend on takeout food and entertainment.

Then record all of your monthly income sources. 

What is the disparity between the two figures? Do you need to cut back on some variable expenses? If so, start with what you spend on takeout food and entertainment. There are some great money-saving apps that will help you cut back.

Money Management

You are now in a position to manage your money by creating a budget. You will never get on top of your finances by winging it. You need a budget in order to control the flow of your finances. Of course, a budget is only as good as your resolve to stick to it. So, go into this process determined to follow through with financial discipline.

Couple managing family budget together.
You Need A Budget In Order To Control The Flow Of Your Finances (Image Source: Shutterstock)

Here are six steps to creating a budget:

  1. Collect your paperwork, including bank statements, bills and 1099s.
  2. Calculate your income.
  3. List your monthly expenses.
  4. Work out your fixed and variable expenses, including savings and debt repayment as fixed expenses.
  5. Total up your monthly expenses and income.
  6. Make adjustments to your expenses as needed.

Prioritize Savings

Building your savings is the key to avoiding financial trauma. As well as providing you with a monetary reserve for emergency situations. Your savings will provide a source of wealth-building that is working 24/7. The power of compounding interest will allow your savings to build upon itself. 

Experts will tell us that we should all have a rainy day savings fund that will see us through between three and six months of living if our income was lost. For most people, however, that may seem unattainable when first building savings. Right now, a more realistic goal would be to build up to having enough savings to support you and your loved ones for four weeks if your income was cut off. After you have saved enough for four weeks, try saving enough for one more week at a time until you have reached your three to six-month goal. 

A mistake that many people make is to turn to their credit card when they get in an emergency situation. But that is like putting out a fire with gasoline! Those future credit card payments are going to make life even more uncomfortable in the future. So, if you do face an emergency and you have savings to cover the situation, make use of it. That is what it is there for. You can worry about rebuilding your savings when things get back on an even keel. 

Reduce Your Food Shopping Bill

Knowing that you should start saving and actually being able to do so are two different things. The first place you should look at to find the money to put aside is your take-out and grocery shopping bill. Try eating out a little bit less and try planning a weekly menu for yourself. You can shave off even more money by planning your meals around reduced-price foodstuffs and in-season produce.

Woman listing things for grocery shopping avoiding unwanted extra items.
Try Planning A Week Menu To Control Extra Expenses (Image Source: Shutterstock)

By combining meal planning, food coupons, and sales, you should be able to save as much as 20 percent on your weekly grocery shopping bill. That’s money that goes directly into your savings account! 

Cut Out Unessential Luxuries?

You do not need to pay a premium price for your entertainment items. There is a whole world of competition out there that provides you with cheaper options. For example, if you are still paying for cable TV, consider ditching it in favor of the host of free and low-cost web-based cable TV alternatives. And, sure, you need a phone, but that doesn’t mean that you have to pay through the roof for the latest iPhone that provides you with features that you’ll probably never use. There are far cheaper options out there—seek them out.

Research Your Purchases

Discipline yourself to slow down, step back, and make purchasing decisions on the basis of objective facts and your financial goals rather than subjective emotion. With the internet at your fingertips, you have the ability to contrast, compare, and investigate to get the very best deal. Be sure to thoroughly check product reviews.

Woman shopping vegetables at the supermarket while researching price comparisons.
You Have The Ability To Contrast, Compare, And Investigate Best Deals (Image Source: Shutterstock)

If at all possible, buy with cash rather than using Afterpay or credit. Make it your aim to reduce your debt level as much as possible and be determined to not allow it to grow again. 

Avoid Financial Stress

Avoiding financial trauma really comes down to one thing; financial discipline. You are in control of the money that flows through your fingertips each month, even if you don’t feel like you are. You always have options that allow you to steadily get on top of your financial situation. If you have the resolve to do it, you can. It may require cutbacks and adjustments to the lifestyle that you’re used to overcome your financial problems—but being able to sleep soundly at night while paving the road to a successful financial future will make it all worth it!

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