Peace of mind means “a feeling of being safe or protected.” Can money give you that?
Perhaps we could start with what money can’t give us. Money can’t give us happiness, health, or good relationships. There are plenty of unhappy lottery winners, plenty of sick millionaires, and there’s a long list of families that have been pulled apart by money.
Money can give us options and a higher degree of certainty. It gives us more options because we’re not forced into making choices based solely on finances. It can provide us a greater degree of certainty by knowing that all of our bills are paid, and we’ve got money in the bank.
And money can provide us with peace of mind, through knowing all of our affairs are in order. And that’s what I want for you.
I’ve been helping people to find financial peace of mind for the entirety of my 20+ year career as a financial advisor. I’m honored to have been named to Investopedia’s list of the top 100 financial advisors in America many years running.
The key to finding financial peace of mind is to set a strong foundation, and that’s exactly what I’m going to show you how to do.
Here’s what we’ll cover:
- The three stages of your financial life
- Understanding your cash flow
- Keeping a budget
- The right emergency fund
- Debt management
- Credit management
- Essential insurances
- Important legal documents
- Beliefs about money
- Goals and values
Let’s get started.
The three stages of your financial life
We’re all unique individuals, but we go through the same three stages of our financial life: Protection, accumulation, and distribution. In the protection stage, we set our foundation. During the accumulation stage, we save and invest to reach our financial goals. The distribution stage is when we take the money that we saved and turn it into income that will last for as long as we need it.
While there will certainly be cross over between stages, it’s essential to focus on the protection phase first. This is where financial peace of mind begins.
Understanding your cash flow
Understanding your cash flow isn’t complicated, but it requires you pay close attention. How well do you know how much money you earn and spend every month?
At least once a month, log into every financial account you have to make sure everything is as it should be, and that there are no surprises. During my 20s, I did a terrible job doing this. When I finally got back into the habit of monitoring my accounts, I found a lot of recurring monthly charges for things I had forgotten about and no longer used or needed.
Making this monthly check-in a habit will go a long way to setting your financial foundation.
Here’s a blog post if you’d like to dig deeper into understanding your cash flow:
Stop Living Paycheck-to-Paycheck: How to Master Your Cash Flow
Keeping a budget
A budget is a plan for your money. It can help you understand your spending habits, and inform you when you’re spending more than normal in certain areas. Beyond that, a budget can also tell you if you’re on track to meet your financial goals and objectives.
It can also help you know if you can afford things. For example, if you’re unsure if you can afford to take a vacation this year, or if you can invest in Bitcoin, your budget can help you answer those questions.
Like cash flow, I ignored budgeting during my 20s. I felt like it was a restrictive process. Today, I think about budgeting as a much more empowering process because it helps my family and I know how we’re doing financially each month.
As you’re getting started, I recommend you go through your budget on a monthly basis. When you become more comfortable with it, you can certainly move to quarterly reviews.
Here’s are some blog posts if you’d like to dig deeper into budgeting:
Budget Categories: Getting Clear on Wants Versus Needs
How to Become Debt Free Using Goals Based Budgeting
Debt Free: What to Do if You’re Over Budget and Feeling Stuck
If you’d like to dig deeper, check out our Get a Budget course.
The right emergency fund
Your emergency fund has the potential to provide you with immense peace of mind if you approach it the right way.
It’s estimated half of Americans wouldn’t be able to come up with $500 cash in case of an emergency. That means they’re reliant on credit cards or the generosity of others to help should things go wrong. This isn’t a good idea.
Building an emergency fund can be one of the most important, and most difficult, financial decisions. I encourage people to save six months worth of monthly expenses as an emergency fund. What do you think about that?
It can certainly take a long time to make happen, but once you have it, you’ll feel really good about it.
Finally, resist the impulse to have your emergency fund invested. It should be in a fixed account like a savings or money market account. The last thing you want is to need the money, only to find it’s dropped by 30% due to the stock market.
Debt management
Debt is a burden that keeps many of us stuck. It prevents us from pursuing other goals and objectives, is a source of stress and anxiety, which is the opposite of peace of mind.
The process of getting out starts with setting the intention that you’re going to become debt free. From there, it’s getting an accurate accounting of your debt (amounts, creditors, interest rate, payment amounts). Then it’s coming up with a plan for how long it will take to pay everything off.
If you’re in debt, do everything you can to get out of it. In service of helping you to do that, you can access our Get Out of Debt course for free.
Here are two blog posts if you’d like to dig deeper into debt management:
Debt Free: Making it a Priority
Credit management
Credit plays an important role in our lives. Poor credit can limit our options when it comes to where we live, the cars we drive, and even where we work. Good credit can make life easier and less expensive.
To properly manage your credit, you need to make a habit of two things. Check your credit report, and your credit score every year.
You can obtain a copy of your credit report for free from sites like FreeCreditReport.com. It’s estimated 40 million Americans have something on their credit reports that shouldn’t be there. Look for any red flags like names and addresses other than yours.
You can get your credit score by reaching out to one of your existing lenders (car loan or credit card companies). Work to get your credit score to at least 620 as quickly as you can. That will allow you to qualify for a conventional loan which will save you a lot of money over the long-term.
Here are two blog posts if you’d like to dig deeper into credit management:
What Should My Credit Score Be Before Buying a House
If you’d like to dig deeper, check out our Improve Your Credit course.
Essential insurances
We buy insurance because the consequences of having something bad happen without it would be catastrophic. It’s important to have the proper coverages in these areas:
Health insurance
We most commonly get out health insurance through our employer. Take some extra time to research your coverage options to make sure you’re making the right choices.
Auto insurance
Most states compel us to purchase car insurance. Even if you’re in a state that doesn’t, it’s imperative to own this coverage.
Homeowner’s or renter’s insurance
This type of insurance does a lot more than simply protecting the actual structure you live in. Work with a professional agent who can explain the coverage options.
Umbrella liability insurance
You can get this additional coverage from the same people who you get your homeowner’s and auto insurance through. It provides an additional layer of coverage at a very affordable price.
Life insurance
The odds of you dying before you’re supposed to are very low, but the consequences are too high not to own this coverage. When you’re getting coverage for the first time, consider 20 year level term insurance with a death benefit of at least 10 times your annual income. The person you purchase it from can help you tailor your coverage to your specific situation.
Disability insurance
We spend a lot of money insuring our stuff, but think to insure our ability to earn an income. That’s what disability insurance does; it protects our income. We commonly get this type of insurance through our employers.
Identify theft protection
In today’s world, this is an essential form of insurance.
Long-term care insurance
Long-term care insurance pays for the cost of skilled nursing care should you need it later in life. When evaluating this coverage, it’s wise to speak with someone who is well versed in it.
Here’s are blog post if you’d like to dig deeper into life insurance:
If you’d like to dig deeper, check out our The Right Coverage course.
Important legal documents
There are a handful of important legal documents that help to solidify your financial foundation. Everyone should consider having powers of attorney which will name someone who will make decisions on your behalf should you become incapacitated.
When you have children, it’s important to name a legal guardian should something happen to you (and your significant other).
Finally, you can consider a will and or trust when the time is wright.
Here’s a blog post if you’d like to dig deeper into estate planning:
A Family Trust: How to Get Your Estate Plan Done Without Breaking the Bank
If you’d like to dig deeper, check out our Plan Your Estate course.
Beliefs about money
Just like our phones, we all have an operating system which is constantly running in the background. A key part of your operating system are your beliefs about money. If you have positive beliefs, you need not concern yourself with this. Unfortunately, many of us have limiting or negative beliefs which keep us from reaching our ultimate financial potential.
Here’s a blog post if you’d like to dig deeper into your beliefs about money:
Goals and Values
One of our most profound skills as human beings is our ability to envision and work towards creating the futures we desire. We do this by thinking about and setting goals, then making plans and executing them.
Our values are the lenses through which we see the world. When we’re clear on what we value, we can easily make decisions about what we spend our time, attention and money on. If we’re not clear on that, we’re susceptible to somebody else’s priorities.
You can access our Goals and Values Courses at no cost.
Conclusion
Money can in fact help you to feel safe and protected. It can give you peace of mind. I know we’ve covered quite a bit of ground, and that can be overwhelming. The first step is to set the intention that you’re going to get all your affairs in order. From there, get to work creating a plan for each of the areas we talked about.
Connect with one of our Certified Partners to get any question answered.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
Take advantage of our three free courses: Our Goals Course, Values Course, and our Get Out of Debt course.
If you’d like help getting on the same page with your partner, check out our Same $ Page Course.
If you’d like to help your kids get good with money, check out our Teaching Kids about Money course.
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