7 Basic Financial Steps to Avoid Psychological Stress
Hey everyone! In the field of psychology and counseling, I think many clinicians are quick to overlook the role of financial stability on the psyche. That’s why I wanted to share with you 7 basic rules that everyone should follow! While I am not a financial advisor, I do provide a lot of counseling when it comes to the impact of money on love and personal psychology. Don’t allow money to drag you down. Start small and make sure you hammer out these 7 things.
The earlier, the better. The most important thing in investing is to start as early as possible. The earlier you start, the more beneficial it’s going to be. This is because you can advantage of compound interest, which Albert Einstein called the 8th wonder of the world.
Pay yourself first. The first thing you will learn in many investment books is to pay yourself first. If you don't know much about the stuff you are investing, invest in your knowledge. Read books, watch online courses, learn about a specific investment that you like (dividend stocks, Exchange Traded Funds (ETFs), precious metals, Real Estate Investment Funds (REITs), an online business, etc.
Income > Expenses. You should never be in a position in which you are living paycheck to paycheck ( Income = Expenses). Also, do not fall into lifestyle inflation (increasing spending when your income goes up).
Budget. You need to know how much you are earning and spending every month. Especially the expenses part. This is vital for your financial independence. A very small percentage of people do this, and you’ll already be way ahead of the game.
Emergency fund. It’s absolutely vital to have an emergency fund of at least 6 months’ worth of expenses. Who knows what can happen in life.
Investing. Let’s say you start being interested in ETFs, low fee instruments that track a certain index fund such as the S&P 500, all you need to do is invest on a monthly basis without trying to time the market and taking advantage of Dollar Cost Averaging, some months might be higher, others might be lower – but on average (with dividends reinvested) you´ll get a decent return of around 7% per year over the long term.
Understand the psychology of your behavior. The behavior gap describes the difference between the higher returns that investors might potentially earn in a diversified portfolio and the lower rates of returns they do actually earn because of their behavior. If you understand the market and you know that it has ups and downs and just wait for the long term, you will be guaranteed a decent yield of return. So do not panic and do not follow the masses.
Please remember that this is not certified financial advice. We are not financial advisors, planners, CPAs, or anything of the like.
