What Does Financial Peace of Mind Look Like For Your Family?
Would you describe yourself as financially stressed? Money is a leading cause of stress for millions of Americans, and that stress is heightened during periods of economic uncertainty such as high unemployment rates and a national recession. If you would like to have more “financial peace of mind” there are ways to start even if you’re in a financially difficult situation at present.
Getting a Handle on the Present, Making Plans for the Future
You can start making progress toward your goal of financial peace of mind by first identifying where you are today – your financial reality. It can be difficult to imagine achieving financial peace of mind when you’re worried about paying your bills on time, paying down your credit card debt, or finding a job. But the reality is that regardless of how bad your current financial scenario is, it does not mean that it will last forever. Time, circumstances, and your financial choices can make it possible to be in a better financial position in weeks, months or years.
Once you have settled for yourself what your current financial reality is, next comes choosing what is really important to you and your family. Create a short list of manageable short, medium and long-term goals. Here are a few possible examples:
Short-term goals (should be able to achieve within 12-18 months):
- Open and begin contributing to an employer retirement savings plan
- Pay off one credit card or line of credit
Medium-term goals (should be able to achieve within 1-5 years):
- Have enough money saved to make a down payment on a home
- Pay off all credit card debt
- Launch a personal business
Long-term goals (should be able to achieve in 5+ years):
- Save enough money to retire as a target age
- Pay all or a specific portion of a child’s college education
Knowing where you are financially right now, and then what is personally important to you when it comes to your personal finances, you are in a better position to be able to create a plan to reach those goals – a plan to decide how you will earn, save, spend and invest money - that is built around your financial priorities.
Defining Financial Peace of Mind – Making it Personal
Next comes defining what financial peace of mind would look like for you and your family. Financial peace of mind can mean many different things to people – even people who live under the same roof! Understanding what financial peace of mind means for you can help you more clearly communicate with your spouse or partner, educate your children, plan with a financial professional, and make choices that are in line with your financial goals.
Let’s look at some options for what financial peace of mind might look like for yourself and your family. Think through which one or more of these statements would be true for you:
“For me, financial peace of mind would mean that I could pay my bills on a regular basis.” Do you regularly have to juggle bills, pay late fees and penalties, and deal with calls from collection agencies? For you an important first step toward peace of mind would be to be able to earn and manage an income that would enable you to pay your bills. You can start by creating a budget. Knowing what income you have and what fixed expenses you need to pay can help you make choices about how to allocate the remainder of your income so that you are better able to pay your bills.
If you find that regardless of what you do budget-wise, you still can’t pay your bills on your current income you may want to look for ways to increase your income on either a short-term/temporary or long-term basis so that you can meet your financial obligations. If you can’t find work immediately or if your schedule doesn’t permit you to take on additional work you might want to work with a credit counselor to figure out a plan for working with creditors to negotiate a bill payment plan while you look to trim expenses.
“For me financial peace of mind would mean not having any debt or being able to pay off my credit cards and reduce the amount of my loans.”Carrying a significant amount of high-interest rate credit card debt can be very stressful. If you are struggling with debt your definition of financial peace of mind may include being debt-free. Or perhaps you currently don’t have any debt but you’re worried that you may run into a situation where you’re faced with having to take on debt.
If you currently don’t have debt, then in order to stay debt-free you should make sure that you have adequate emergency savings and insurance (since an unexpected emergency or event could drain your savings and put you in a position of having to take on debt). Use our interactive budget worksheet to figure out where you could carve out money to put into a bank account or investment vehicle for emergency savings, and learn about what types of insurance you might want and/or need to protect your assets in our Insurance & Protection section.
However if you currently have debt to reach your goal of financial peace of mind and freedom from debt, you’ll need to start by creating a budget. That’s the only way you’re going to know how much money you currently have to be able to put toward paying off that debt, and it will reveal to you if it’s going to be worth the time investment to find a way to earn additional income to pay off your debt. Next use our Digging Out of Debt calculator to get a more accurate picture of your debt payoff situation. Depending on the size of your debt and your current assets you may want to consider whether or not it’s worth it to you to sell off property or possessions and use that money toward paying off the debt. But be careful to not put your long-term financial health in jeopardy – and risk incurring penalties and taxes - by liquidating assets like taking money out of a 401(k) plan or cashing in a life insurance policy. If you’re currently relying on credit cards to supplement your income and can’t make it till your next paycheck without using credit cards or payday loan companies, it’s a good idea to contact a credible nonprofit credit counseling agency in your area to get professional help in budgeting and working with creditors to pay off your outstanding loans.
Paying off your debt can be a long process. However keep in mind that once you reach your goal of becoming debt-free you will not only be able to save money you have been paying in interest, fees and penalties but you will be relieved of the stress you’re carrying from having to manage your debt load on a daily basis and still pay your bills. You will also realize the added benefit of feeling less fearful and more financially confident about your ability to manage money and make financial decisions for your own future.
“For me financial peace of mind would mean that I could meet my long-term financial goals.” Do you have long-term financial goals like buying a home, paying for a child’s college education, or having adequate income upon retirement? Reaching those long-term goals requires planning and perseverance to keep taking steps, especially when you think that you can never make significant steps toward that goal and you’re not even sure how to get started. Instead of remaining immobilized by uncertainty and/or fear consider a few possible steps you can take beginning today:
- Get specific. Write down – in as much detail as possible – what your long-term goals are. Having a detailed, specific goal is proven to make it more likely that you will succeed. So, for example, instead of saying you simply want to “buy a home” consider a more specific goal of “saving and investing enough money to have $25,000 in cash to make a down payment on a home within the next 3-5 years.”
- Budget for it. Next use our interactive budget worksheet to see what you currently have saved to put toward that goal and where you could carve out money from your current income to save and invest more.
- Get help. Having a specific goal will help you narrow your focus and find related resources to be able to reach it. For example knowing that you want to save $25,000 for a down payment could help you focus on finding resources toward that goal such looking into an employer-assisted housing program or seeing if you qualify for a local or state-funded program. In addition there are resources and investment vehicles that can help you save money on taxes and get matching funds (i.e. from an employer’s 401(k) retirement savings plan) for your retirement; and you can find vehicles that will help you invest according to your time horizon and risk tolerance for a college education (i.e. an age-based 529 college education savings plan).
“For me, financial peace of mind would mean that I could buy or pay for whatever I want to do now and in the future, for me and my family.” In order to have the financial freedom to buy or do whatever you would like now and in the future, you will need discretionary income above and beyond what you need to save and invest for your future needs including retirement, etc. – money that you do not already have committed for specific purposes (i.e. toward a mortgage payment, taxes, utility bills, student loan repayment, etc.). If you don’t have the discretionary income you would like right now, you will either need to increase your income and/or reduce your current fixed expenses. You also may want to explore whether you really do need to buy all the things you think you want.
While it’s an enjoyable thought that you could have all the money you need to do what you want now, you need to keep in mind that even if you earn enough money to reach that goal you will also need to put money aside for things you want to do later to maintain that goal. For example you will need to earn, save and invest for future financial goals such as having adequate insurance, planning for retirement, etc.
“For me financial peace of mind would mean that I will be able to leave an inheritance for my children and loved ones.” Many people would like to be able to leave financial and real property gifts to people and favorite charities or institutions after their death. Estate-planning and preparing a will is the process of doing just that. To reach this specific goal you will want to work with a lawyer who has estate-planning experience. S/he should recommend that you take important basic first steps such as making guardianship arrangements for minors, creating a will, naming beneficiaries on insurance policies and investment accounts, saving money for end-of-life costs (i.e. burial arrangements), etc.
In addition you should consider working with a credible professional financial advisor who can help you make informed choices about how to best invest your resources now to benefit from tax provisions that can help you reach your estate-planning goals.
“For me financial peace of mind would mean that I have enough insurance to protect my assets in case an emergency occurs.” Having adequate insurance coverage can ensure that you don’t lose important assets like your savings, investments or your home because you have to pay unexpected emergency-related costs. It can also provide benefits to help you avoid taking on debt while you are dealing with the emergency or event, such as money toward rental housing through a homeowners’ insurance policy if you need to live somewhere else while your home is repaired following a natural disaster. The first step toward this goal is learning what your current insurance needs are through our Insurance & Protection section. Next check with your employer to see if there are insurance benefits you can take advantage of through your workplace. If you can’t get, or don’t qualify for, employer-sponsored insurance benefits work through a personal budget to see what money you can put toward purchasing a policy on your own and then research what insurance options might be available through associations and clubs you belong to or through your bank or credit union.
“For me financial peace of mind for me means that I won’t have to worry about my money running out before I die.” According to the Social Security Administration the average American male can expect to live to age 82 and the average American female can expect to live to age 85. If your goal is to fully retire at age 65 then you should plan on having enough money saved and invested to pay for all of your living expenses for nearly 20 years. If financial peace of mind for you means having enough money to fully fund your retirement you will need to have – and consistently stick to - a plan to save and invest money during your working years. To achieve that goal you should consider:
- Evaluating your current employer’s retirement-related benefits and making sure you understand what is available for you to contribute to and what portion of your retirement your efforts will cover.
- Participating in your employer’s defined contribution 401k or 403b retirement savings plan and contributing the maximum amount allowed each year.
- Opening and contributing the maximum amount allowed annually to an individual retirement account (IRA).
- Creating an emergency savings fund so that you don’t have to stop contributing to – or take a loan against - your retirement investment account in the event of unexpected expenses.
- Working with a reputable certified financial professional or advisor to review your current retirement planning, saving and investment choices and the steps you’ve taken to understand if there are other steps or financial decisions or choices you might need to make in order to be more secure in retirement.
Use this list as a first step in determining your present financial reality and then specifically defining what financial peace of mind could look like for you and your family so that you know what you want to work toward. Then start talking with your spouse or partner about what you need to do to make progress toward specific goals. Remember that it takes more than one step to improve your finances in a way to lessen the worry and that short, medium and long-term life goals require different steps to achieve financial peace of mind. This process is life-long but as you are able to see that you can take steps to achieve financial goals you may gain momentum to pick a next goal for financial peace of mind and keep going!