Money Management

Feeling strained financially? Read on for some tips on improving your outlook. 

It’s natural to experience financial stress from time to time, such as when you find out your car needs repairs or you get stuck with a sudden medical bill. But unfortunately, 74% of Americans say they’re stressed about their personal finances these days. And 37% say they’re “very stressed,” according to a recent CNBC survey.

If you feel similarly, it’s important to try to break that cycle. Here’s how.

1. Know what your bills look like

Having a handle on your bills could help you maintain a more positive outlook on your finances. This doesn’t mean you have to obsessively stick to a budget and track every single expense of yours. Rather, just take some time to audit your finances so you have a general sense of what you’re spending every month.

You probably know how much you’re paying in rent and what your car payments look like, since those are larger bills. But comb through recent bank and credit card statements to see what you’re spending on expenses like groceries, utilities, and streaming services. You may decide that it’s best to cut back on a few smaller bills, so you’re less financially squeezed.

2. Build an emergency fund

The knowledge that you have money in the bank to tap in a pinch could help alleviate some of your financial stress. So from this point onward, make it a priority to build up an emergency fund.

Most financial experts will tell you to try to sock away enough money to cover three months of essential expenses at a minimum. But let’s be real. If you have no savings right now, it will take a while to save that much. And that’s OK.

Rather than set a large but daunting goal, set small ones. Tell yourself you’re going to try to save $500 over the next six months. Or aim for $600 if that’s doable. As you see your savings account balance slowly but surely tick upward, you might start to feel better about your financial picture.

3. Make a plan to pay off your credit cards

If you’re carrying credit card debt, that alone could explain why you’re feeling stressed out financially. Now you can’t just snap your fingers and make that debt go away. And it might take a bit of time to get rid of that debt for good. But you might start to feel better about your finances if you at least come up with a plan to eliminate your debt.

Start by seeing how much you owe on your various cards, and how much interest each one is charging. Then, figure out how you’ll attack that debt. You may decide that it’s best to do a balance transfer to a new card with a 0% APR period, which may be an option if you have decent credit and can qualify.

Or, you may decide it’s better to consolidate your debt into a personal loan that gives you the benefit of fixed monthly payments over a period of time. Simply knowing how you’ll tackle your debt might give you peace of mind — even if you know it’s going to take a few years to dig out of that hole.

It’s normal to feel stressed about your finances. But if those worries are impacting your overall quality of life, it’s time for a self-imposed intervention. These moves could work wonders for your outlook, so aim to act on them as soon as possible.

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Like the idea of a $40,000 retirement income? Read on to see what balance might allow for that. 

Many people find they’re able to live on less once they stop working and enter retirement. This could be due to a combination of factors, such as not having to spend money commuting and having more time for cooking and home maintenance, rather than paying to outsource those tasks.

That said, you’ll still want a decent amount of income so you’re able to live comfortably as a retiree. And for you, that might mean needing an annual income of $40,000.

You may be curious as to what IRA balance it’ll take for you to have that annual income. The answer depends on different factors, but here’s a basic overview.

Your IRA probably won’t be your only source of income

Let’s get one thing out of the way. Your IRA most likely will not be the only income source available to you in retirement.

Chances are, you’ll at least have some benefits from Social Security. And you may have other income at your disposal, such as earnings from a part-time job you opt to hold down so you can keep busy.

But let’s assume you want $40,000 a year out of your IRA alone. In that case, the balance you need will depend on the withdrawal rate you’re comfortable with.

For years, financial experts supported a 4% annual withdrawal rate. If you go with a similar rate, it means you’d need $1 million in your IRA to withdraw $40,000 a year from your savings.

But you may want to go with a lower rate than 4%. When that guidance was established, bonds were paying a lot more money. Bonds are a common investment for retirees since they’re less volatile than stocks. But since they’re paying less these days, a 4% withdrawal rate might be too aggressive — meaning, it could put you at risk of depleting your savings in your lifetime.

In that case, you may decide to go with a 3% annual withdrawal rate instead. That means you would need about $1.33 million in your IRA to receive $40,000 a year.

What to do if your IRA needs work

Let’s say you’re midway through your career and only have about $50,000 in your IRA. There’s a good chance that with the right investments, your balance could grow nicely over time — but not necessarily to $1 million or $1.3 million.

Let’s say you contribute $200 to your IRA over the next 20 years on top of that $50,000, and your investments deliver an average annual 10% return, which is in line with the stock market’s average over the past 50 years. That means you’d be looking at a pre-retirement balance of about $474,000.

A balance like that is impressive, but it’s not going to allow for $40,000 a year of income by itself. So in that case, you’ll need to boost your monthly contributions to get to where you want to be.

One option is to prioritize your spending. This doesn’t mean cutting back on every single expense you spend money on today. Rather, decide which things are most important to you and spend more of your money there. Then, spend less on things that mean less to you.

For example, let’s say you want to find another $300 a month for your IRA. If it’s important to you to have a comfortable home, don’t move to a cheaper rental. Instead, dump your car with a $700 monthly payment and replace it with one with a $400 monthly payment.

Another option is to take advantage of the gig economy. Traditional IRAs are funded with pre-tax dollars. So if you earn $300 a month from a side hustle, you can use that entire $300 to help fund your IRA every month. If you’re able to contribute $500 a month to your IRA on top of your $50,000 balance for the next 20 years, you’ll end up with around $680,000, once again assuming a 10% average yearly return in your portfolio.

The numbers might work out more easily than expected

A $40,000 income might make for a comfortable retirement, especially if you have lower expenses at that point and a paid-off home. But if you want $40,000 a year out of your IRA, that may be a tall order. And you might have to do some serious ramping up to get your balance high enough to allow for such large withdrawals.

That said, the average Social Security benefit at the start of 2024 is estimated at $1,907 a month, or about $23,000 a year. So if you’re factoring in that income, it could take some of the pressure off of your IRA.

If you only need $17,000 a year to come from your IRA, at a 3% annual withdrawal rate, that means you’d need a balance of about $567,000. That’s still a large sum, but it may be more doable.

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Gearing up to start a business? Read on to see what legwork you should do first. 

Starting a small business isn’t for the faint of heart. It takes a lot of time, effort, and passion to run a business. And if you don’t know what you’re getting into, you might sorely regret your decision to start a business.

A recent Incfile survey found that some small business owners have regrets. A good 65% say they should’ve done more research and prep work before kicking their ventures off. And 10% said they should’ve chosen to start a different type of business that would better fit their lifestyle and needs.

If you’re gearing up to start a business, it’s important to go in equipped with the right information. Here are some key steps to take before diving in.

1. Research your costs

There are different costs you might encounter in the course of starting and maintaining a business. And you don’t want those to catch you by surprise. So before you start a business, do some research. See what the financial obligations are and what the rules look like in your state.

You might, for example, have to maintain a workers compensation policy even if your business doesn’t have outside employees. And there are certain filing fees that you may owe to your state in conjunction with reporting requirements. Crunch all the numbers so you know what to anticipate.

2. Talk to other small business owners about their experiences

It’s easy to romanticize the idea of owning and running a business. But the actual ins and outs of running a business might end up constituting a harsh reality check if you don’t really know what to expect.

Before you start a business, have a heart to heart with people who have owned their own companies for quite some time. Talk through the pros and cons and listen to the challenges they’ve faced — financial and otherwise.

Starting a business can be a lot of work. But so can dissolving a business. You don’t want to end up going the latter route simply because you didn’t realize what you were getting into.

3. Meet with an accountant

You might think you’re in a strong enough financial position to start your business. But what if you’re likely to run out of funds in short order, and you don’t even realize it?

Before starting a business, sit down with an accountant who can review your finances and anticipated expenses. A professional can assess your savings account balance and other assets you’re bringing into the business to see how long your money is likely to last.

Remember, it can take a long time for a business to turn a profit. You’ll need to manage your money very carefully until you’re solidly adding cash to your business’ bank account.

An accountant can give you a realistic view of how long your resources will last. They can also advise you on cost-effective ways to scrounge up capital for your business, whether it’s by borrowing against your home or applying for a small business or personal loan.

You may be excited about starting a business, but it’s essential that you go in prepared. Take these steps ahead of time so you don’t wind up lamenting your decision or getting in over your head.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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