Consider this scenario:

It's only the first week of the month yet you barely have more than a couple of dollars in the bank. You just received a notification from your credit card company reminding you to pay last month's bill. Your rent is due this week. As the rest of the week passes by, you distract yourself from these bills by enjoying a cup of coffee at Starbucks and going out with your friends for drinks on Friday night.

Debt denial is a common reaction when we're saddled with mountain-high piles of bills. And when we start thinking of how our peers have gotten ahead of us—buying their own cars, signing their names on a house contract while we're still renting a small apartment space—we become depressed, discouraged, and even more prone to spending our little money for small rewards and self-gratification.

But dealing with money woes requires a two-pronged approach. It's a matter of psychology, of rejigging our mind-sets and perspectives on things, money included. But at the same time, it's also about making sustainable lifestyle changes.

Changing the way you think about money and money woes

Calm and focused in a sea of stress
Image by Anastasia Yevtushenko for MoneyWise © 2576250 Ontario Inc. 2017
By changing the way we think, we can actually make smarter decisions and decide on healthier actions. So, we need to reframe the way we think about money and our financial concerns.

They say in psychology that sometimes our worries are all just in our heads. By changing the way we think, we can actually make smarter decisions and decide on healthier actions. So, we need to reframe the way we think about money and our financial concerns. An article from Forbes shares some of these money-thinking traps that might be messing with our minds and actions more than we know:

Personalizing versus externalizing

If you miss getting a promotion that could have boosted your income significantly, do you say, "It's my fault; I wasn't competitive enough" or do you shift the blame to your hard-to-please boss? Stress consultant and author Andrew Shatte identifies the first thought as a form of personalizing and the latter as externalizing.

There are circumstances for which we can take full responsibility, just as there are situations that we simply can't fully blame on others. There are also instances that are neither fully our fault nor others'; other external factors are involved. For this reason, it really doesn’t pay to form hasty conclusions.

When we personalize, we need to be careful not to be pessimistic or to beat ourselves up too much. At the same time, when others are to blame, it's important to reflect on how our actions could have contributed to people’s decisions in some way.

Magnifying versus minimizing

People tend to focus and magnify the negative and minimize and disregard positive things in their lives. You might focus on the idea that you don’t have a retirement account (yet), but fail to appreciate the fact that you don’t have massive, overwhelming, and overdue credit card bills to settle.

This unhealthy tendency to focus on what don't have can eventually turn into a stumbling block. You think, "I'll never achieve this" or "It's so difficult to meet this target" that you might end up discouraged and unmotivated until you find yourself giving up on your goal.

Comparing and generalizing

The worst form of injustice that we can do to ourselves is to compare ourselves to others and over-generalize. This is especially true when we don't have enough context to base our comparisons on. The friend that has her own home might also have an overwhelming credit card debt to pay off. You may not have an emergency fund and you're still paying off student loans- and others are probably also be in the same boat, plus they have car payments to settle every month. Comparing and generalizing can become a source of discouragement that can prevent you from working on your own goals.

Justifying actions with emotions

There's an important rule when it comes to money: don't let emotions rule your decisions. A classic example is going on a shopping binge because you're depressed and just need something to make you feel better. Or, when the market gets a little shaky and you go into a full-out panic and sell all your stocks at a cheap price. Rash decisions like these can assuage a moment's panic or sadness, but in hindsight, they can prove to be a major loss for you in the long run. Relying on objective facts is crucial when making major financial decisions, so think twice before buying or selling something big.

Changing money habits (and then some)

Autumn dock calm
A vital part of coping and managing financial worries is proactively doing something to address the issues that worry you

All the worrying over how to make rent or credit card payments is warranted, even expected. But there's a far more important issue at hand: what do you want to do about it? We know that staring at a credit card bill will not solve the problem, and that thinking about starting an emergency savings won’t make that first deposit into the fund by itself.

A vital part of coping and managing financial worries is proactively doing something to address the issues that worry you. Anxiety brought on by money concerns is usually largely driven by a feeling of helplessness. So, what better way to combat this than by doing something—no matter how small—to relieve this anxiety, rather than ignoring the issue, or worse, denying it? Denial is one of the least productive and most damaging actions, especially when it comes to credit card debt.

Here are some little changes that you can start incorporating into your habits and lifestyle to help you feel more in control of your situation and your financial future.

1. Set a realistic and manageable budget

Creating a budget is one of the first pieces of advice any financial advisor gives. But what’s also important to stress is that this budget should be a realistic and manageable one that reflects your living needs. There will always be standard, constant expenses like rent and gas or transportation and utilities like electricity and water. Count up how much it costs to fill up your car every week and multiply by four to get your monthly costs, and take a look at your most recent utilities bill and use that number for your budget.

There are also variable expenses, and this is where we tend to underestimate the costs and overspend on food, entertainment, phone bills, clothes and other shopping, etc.

When it comes to these items, it's essential to be realistic but also flexible when setting a monthly budget. For example, you don't have to scrimp on food (meaning you can buy high quality ingredients to cook at home but reduce how many times you eat out each week), but the budget for clothes shopping and entertainment might need to be reduced.

Making and sticking to a budget gives you a feeling of control and direction as you see that your money is going where it's supposed to go every month. Generally, panic attacks over money comes from the feeling that we don’t know where we’re spending the money that we get every payday. With a budget, it's easy to track where the money is going, and you can also begin to identify what needs to change as far as your spending habits and patterns go.

2. Identify things you can change

A budget will only work if you commit to it and then commit to taking a good, hard look at your spending habits. If the goal is to actively address your biggest financial concerns, like paying off that $%&*#% student loan, then you might have to make serious changes in your spending habits.

Using your new budget, identify what you can change. For starters, you probably don’t need that cable subscription anymore—there's Netflix anyway. If you work from home and/or have access to wifi throughout the day on most days, then you might do well to switch to a cheaper mobile plan with less data. Even deciding to cut down the frequency of getting a fancy coffee in the morning and moving restaurant and movie nights with friends to your own place can significantly cut down on expenses and add to your savings plan.

3. If you do nothing else, start an emergency fund

A retirement fund may be too big a goal for now, but at least start with an emergency fund. This is money you stash away for unexpected expenses like hospitalization or home repair, and it will provides a good safety net from having to borrow money to cover an emergency. Even depositing small amounts of money from each paycheck will do as long as you deposit it as regularly and frequently as possible.

4. Monitor your savings progress

There are many ways you can do this, but handy mobile apps like Cleo and Qapital are great no-fuss, user-friendly tools that can make saving easier for you. There are banking and financial apps that basically help you automate your savings and curb your spending.

A big challenge in saving is making sure that not to touch the money you're tucking away. Unfortunately, it's so easy to take out a couple of bills you've supposedly stashed for your emergency fund when it's sitting inside an envelope in your bedside drawer. These apps are designed in a way that your emergency savings is accessible but with that extra layer of "inconvenience" so you can't touch it too easily. These steps include things like having to log into your account, transfer money to another account, etc., so that you don't want to eal with this unless it's absolutely and completely necessary.

The automated saving function also means you don't have to worry about depositing or transferring the money into your savings account because the app does it for you. There's simply no excuse not to save even a penny at a time!

5. Search for other income streams

Achieving financial goals that require a significant amount of money — whether it's paying off a loan or saving for a house down payment—also requires extra cash flow. If getting a higher paying job is out of the question for now, then finding additional income streams is the next best option.

Get active with freelancing gigs that you can do on weekends or after office hours. Reach out to people your network to see if they know of new projects and assignments that are up for grabs. These freelance gigs may not always pay much, but they can definitely increase your cash flow and your savings, even temporarily.

6. Find clarity by engaging in other activities

Money issues can cause serious levels of physical, emotional, and mental stress, and the anxiety and worries we feel over our financial situations can easily seep into the other areas of life, including work, play, and relationships.

That's why it's so important to give yourself breathing space from these worries, and force yourself to take time to step back and focus on other diversions. Oftentimes, it's easier to find clarity when we're not too absorbed in the issue and can take a look at it from a more detached perspective.

Take a walk. Spend a day doing something productive like working on a freelance project or updating your CV or resume. These personal projects help you feel like you’re moving forward and making important steps in other areas of your life outside of the daily grind. Chat with a friend you haven't talked to in a while, or volunteer for a day. These small actions can take your mind off things while boosting your feelings of self-worth and personal value.

A credit card bill and overdue rent are real concerns, and half a million dollars' worth of student loans can be daunting and overwhelming. These and other issues are serious issues that need real and concrete solutions. And we know better than anyone that working towards solving these problems is a difficult daily task.

What we're trying to get across here is that no matter how hard it is, allowing your mind to get stuck in the frightening possibilities around these financial concerns is futile and counterproductive. We encourage you to work to get over these hurdles and get out of the red — but don't let it get you down emotionally.

The mind is a powerful organ that you can use to turn around the way you think about your financial situation. When you're able to shift the way you think, then the right actions will follow. The truth is that any obstacle is surmountable with conscious action.

More: Do you know someone who could use some help coping with financial stress? Share this article and give them a push to thinking about money in a more positive way!

About the Author

Richard Glunt

Richard Glunt

Freelance Contributor

Richard is a personal finance enthusiast and freelance contributor to MoneyWise. He lives in Milwaukee with his wife Eugene and two children Cole and Abby.

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