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How to evaluate your finances to determine what’s creating financial stress.

During the recent health and financial disruptions, many people have faced increasing levels of stress. Stress can be caused by many issues with money or financial concerns often being a major cause. The stress of finances affects many people and can cause not only poor health but also family complications. Learning to control financial stress is vital to your health as well as the health of your family unit. BakerAvenue recommends evaluating your financial health by following a process that can identify areas of need and provides a roadmap to reducing your financial stress


If you do not know where your money is spent it is impossible to evaluate your financial life to determine what is creating financial stress. Think of every item that you might possibly spend money on during the month and include them in a monthly budget. Start with your “needs”; mortgage, electric, food, household repairs etc. These should be no more than 50% of your monthly income. Second, think about items that are “wants” and make sure to include even items that you may not spend money on every month but will spend throughout the year such as restaurants, clothing, and vacations. The “wants” category should be no more than 30% of your income. Try to estimate the total amount you will use throughout the year and break it down into months.

1. Create a budget!

Once you have created your detailed budget, you will need to analyze it against your monthly income and see if there is a surplus or deficit. If there is a deficit, you’ll want to look at where in your budget you can cut expenses, making each month less stressful to meet your budget and bill needs. To avoid a stressful situation, make sure that your budget balances at the end of each month. Finally, remember to think about the future. Wants and needs should take up 80% of your budget with the final 20% allocated towards savings.

For many people, just the act of creating a budget will allow for a high-level view of their finances and after seeing all of this information laid out, enables them to easily determine the best places to make cuts.

2. Focus on eliminating stressors

Once you have determined what your budget and financial needs are, you now have the information to evaluate what is causing your financial stress. The next step is to determine what changes you can make now to alleviate financial stress. Evaluate your spending through the lens of you own life, essentials can vary widely from person to person. Focus on reducing or eliminating the “wants” first. These are non-necessities from your budget and are an easy place to start. Many people find after evaluating their budget there is plenty of room to make changes and still have a fulfilling enjoyable life. The simple act of taking control of your spending often significantly reduces money related stress. If after paring down your budget to just the essentials you decide that to meet the financial goals you need to make more money, you will need to come up with additional ways to increase your income.

3. Plan for an Emergency

One of the biggest aspects of financial stress is being unprepared when financial needs arise. Unanticipated financial needs are oftentimes the largest single cause of financial stress. This can come from surprise bills or a sudden loss of income. The recent Covid-19 related economic disruptions caught many people by surprise and those who were not prepared suffered significant financial stress.

You can alleviate some of this stress by starting an emergency fund. You should set a goal to build it to cover at least three to six months’ worth of expenses and try to maintain it once you get there. While it may feel as though putting savings into an emergency fund is straining your budget at first, do your best to include this savings as part of your regular bills, a goal of 10%- 20% of income towards savings is a good target. Remind yourself that you are doing this so that the necessary funds will be there when an emergency arises, and you will not have to skip paying bills or accrue additional debt to cover the financial emergency.

4. Don’t Be Afraid to ask for Help

The important thing to realize is not everyone is good with finances and that is OK. If you are having problems creating a budget or getting debt under control, contact a credit counseling service or seek the help of a financial advisor. You can find many services that will help you come up with a plan to address your financial issues and get you back on track. Once you have a plan and begin to implement it, the stress of out-of-control finances will begin to be alleviated.

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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Baker Avenue Asset Management LP. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. All information is believed to be factual and up-to-date as of this writing and is subject to change. Before purchasing any investment, a prospective investor should consult with its own investment, accounting, legal and tax advisers to evaluate independently the risks, consequences and suitability of any investment.

Any suggestion of cause and effect or of the predictability of economic or investment cycles is unintentional. Past performance is never a guarantee of future performance. Baker Avenue Asset Management LP may currently own or have previously owned a specific stock or company referenced, and a list of our past holdings can be found at the SEC website. Click to view full disclosures.