Top 10 Ways to Lower Your Financial Stress

At a swanky sundries shop in Menlo Park, a team of researchers led by Sheena Iyengar set up a simple experiment that has become legend among psychologists, pundits, economists and business leaders. They displayed a selection of high-quality jams on a table. On one table, they offered six flavors for sampling. On another, they offered 24. Though shoppers flocked to the table loaded with 24 jam flavors, they were 10 times more likely to actually purchase the jam from the table with fewer available options [source: Posterel].

It's all too easy to allow fear of making a bad choice keep you from making any choice at all. Maybe you have a finite amount of money to invest, or you're stressing about making a big purchase, or you can't make up your mind which is more important -- college savings for the kids or retirement savings for you. If you find yourself at your desk with your hair in knots, Suze Orman's white teeth blinking at you from your computer screen and the most recent issue of Money Magazine crumpled in your hands, remember this: You don't have to make the "right" choice. You don't have to make the "final" choice. You simply have to make a choice, the choice to act.

There are tools to help, and we're going to show them to you. But first, let's tackle another mental obstacle that may be keeping you financially stressed out. Learn how to ditch your defeatist attitude next.

If fear of making the "wrong" choices about your finances has left you mired in indecision, imagine how people who think they have no choice at all must feel. John Caskey, an economics professor at Swarthmore College, interviewed residents in two of America's poorest communities. "They instead talked about the stress," he said. "In many cases, people didn't save not because they actually couldn't, but because they believed they couldn't" [source: Snyder].

When you're late on the rent and can't keep the utilities on, the idea of opening a savings account may seem as far-fetched as a picnic on the moon; but the truth is that all of us, even the poorest, have financial choices. Finding those choices may feel impossible: the second you get ahead, you're defeated by relatives needing loans, kids wanting designer sneakers, downsizing, layoffs, unexpected medical expenses and a myriad of other obstacles.

The trick to ditching your defeatist attitude is finding a way to believe that somehow, even in the most untenable of circumstances, there is hope. Organizations like America Saves exist to help you find that hope. Simple things like making a gratitude list or visualizing yourself free of financial stress can also help you feel more hopeful.

Now that you're feeling decisive and undefeatable, you're almost ready to receive practical strategies for lowering financial stress. But first, let's discuss how to overcome another mental obstacle to lowering financial stress: your life partner.

When it comes to finances, picture each household as a boat. If you're on your own, you'll need to pull your own weight to get to where you want to go. If you have a family to support, your journey can be easier or much, much harder depending on whether or not your oarsmen are rowing together.

Take hypothetical couple Tanya and Terrance as an example. Terrance, a notorious spendthrift, studies advertising circulars and berates Tanya for paying $.50 more than necessary for soap. "But I would have had to go to two stores to get that discount!" Tanya protests, frustrated.

Even in relationships where couples are basically on the same financial page, differences in priorities (she wants to send the kids to private school; her partner wants to save for college) can set the boat spinning in circles. To move the boat forward, the partners must learn to communicate and row together.

Terrance and Tanya swapped lists of financial priorities, putting check marks next to items they agreed upon and question marks next to items for compromise. They both agreed that retirement savings was key, while Tanya acknowledged areas where she could cut costs and Terrance agreed that an annual vacation was worth the expense. Pretty soon, their little boat was moving swiftly toward a unified financial future, and they were ready to make a budget they could both live with. We'll talk about how budgeting lowers financial stress next.

Now that you've eliminated certain mental obstacles that keep you financially stressed out, you're ready to educate yourself about real solutions to financial stress. There are four basics to revamping your financial life: Stick to a budget, cut expenses, reduce debt and start saving.

Budgeting isn't rocket science. In the simplest terms, you put your income at the top of the page, and from that number, you deduct your expenses. The amount left over is what you can spend on other things, such as reducing debt and increasing savings.

Having a written budget gives you confidence in your personal financial strategy, which can help you dramatically lower your financial stress level. There are literally hundreds of apps and tools you can use to create a budget -- from good old pen and paper to phone apps and desktop solutions. The Wall Street Journal recommends the following free online budgeting sites and financial networking tools: Mint.com, Geezeo.com and Wesabe.com [source: Banjo].

Even folks who acknowledge that budgeting is important, however, may find themselves slipping, rather than sticking to, a budget. Not only do unexpected expenses -- car repairs, price hikes and Cub Scout dues -- waylay us; we can also get sidetracked by fun things like invites to dinner, pit stops at Starbucks and "two for one" sales on items we may or may not need. Discover tools for cutting expenses on the next page.

While making a budget, you may uncover some unwelcome truths about your financial situation. Luckily, the skills you learned for conquering mental obstacles that keep you financially stressed out will serve you well when it comes to meeting the challenges that budgeting can present. When your budget shows you that you have more month than money, the solution is to cut expenses.

With the right attitude, cutting expenses can actually be fun. Make a game of it. Encourage little Robby to earn his own scout dues by mowing lawns. Allow teenager Janie her own smartphone -- if she gets a Saturday job to cover the bill. Divide up the grocery list and have the family split up to see who can find the biggest bargain. (Winner gets to enjoy Dad humiliate himself by breaking into a rousing chorus of "King of the Road" in the checkout line.)

There are also free online resources to help you save; we'll talk more about those later. With a little ingenuity and a hopeful attitude, you can and will successfully cut your expenses, leaving you with more money at the end of the month to devote to other financial planning basics. We talk about eliminating debt next.

While debt elimination, retirement and emergency savings are all essential to eliminating financial stress, getting rid of debt should be your number one priority. Certain kinds of debt (mortgages, student loans, etc.) can actually be good in the sense that they help you build your credit rating. If you have excellent credit and you feel like your rates are too high on your "good" debt, you may be able to cut costs simply by restructuring your "good" credit loans at lower rates.

When it comes to "bad" credit -- revolving credit or credit cards -- however, the only solution is to pay it off as quickly as possible. Here are some tips for accelerating debt reduction:

Once you've tackled your debt, you should find yourself, finally, with extra money at the end of the month. We talk about saving strategies next.

401(k)s and Roth IRAs are two unbeatable strategies for retirement savings. 401(k)s are retirement savings plans available through your employer. You defer paying taxes on the amounts you contribute until you withdraw the funds at retirement. A Roth IRA is an individual retirement account you can set up for yourself, in which you can set aside after-tax income up to $5K per year; earnings on the account are tax-free.

Some employers will match all or a percentage of what you contribute to a 401(k) or Roth IRA. Although reducing debt should be priority number one when it comes to lowering financial stress, you should make an exception if your employer offers any sort of matching against your 401(k) or IRA contributions.

If you can't decide how to invest the money you put in your 401(k) or IRA, consider stashing it in a targeted retirement fund. You tell these funds the year you plan to retire, and the fund chooses a mix of stocks and bonds that will deliver the best return with the least risk based on the amount of time you have until your projected retirement date.

Now that you've shifted your attitude and mastered the basics, you should feel less stressed out and more in control of your finances. At this point, its time to have a little fun. We talk about ways to juice your credit score next.

Your true credit score is your FICO (Fair Isaac Corporation) score. Creditors with scores of 760+ have access to the best rates. To get your FICO score, you'll need to request your credit report from each of the three main credit bureaus -- Equifax, Experian and TransUnion. The average of these three FICO scores is your real FICO number.

Pulling up a low credit score is a long, painstaking process of paying your bills on time, building equity and repaying debt. It takes years, and there are few shortcuts. However, there are a couple of things you can do to juice your score.

If your credit score stresses you out, turn improving it into a game, the same way you turned cost-cutting into a fun, family activity. And speaking of cost-cutting, we hinted earlier about free online tools to help you save -- get the details on the next page.

Remember Terrance from our hypothetical couple Tanya and Terrance? Rather than scanning advertising circulars for bargains that would have saved only pennies (which would have been burned driving to a second store to shop), Terrance would do well to investigate some of the new cost-cutting and cost-comparison sites on the Internet.

Sites like billshrink.com, billeater.com and validas.com are free, cost-comparison search engines that save you money. You input information about how much you're spending for gas, cell phone bills, television service, credit cards, utilities, insurance and a host of other consumables, and these sites spit out alternatives that can save you money. For instance, if you tell Billshrink that you're paying $3.65 per gallon for gas at Station X on Y Road, the service will let you know if there is cheaper petrol nearby. Blogger Neil Patel tried Billshrink and discovered he would save nearly $3,000 over a two-year period if he broke his cell phone contract with Verizon and switched to AT&T [source: Patel].

Sites like Billshrink cost you nothing and take the stress out of cost-comparison shopping by doing most of the time-consuming research for you. Knowing you're saving money will give you confidence about the purchases you're making, which brings us to our number one stress-busting, money saving tip. Coupons are up next.

Legend has it that Coca-Cola company owner Asa Candler created the world's first coupon when he handwrote tickets for a free glass of Coca-Cola back in 1887 [source: Tuttle]. Since then, coupons have become a mainstay of American consumer life. They're all over the Internet now with sites like Coupon Sherpa and phone apps like Pushpin. You don't have to become an "extreme couponer" to enjoy the benefits of coupons. Here are a few tips for stress-free couponing:

Clark Howard has an extensive list of coupon sites on his Web site. Discovering these bargains can feel like finding free money -- and there's nothing more stress-busting than free money.

Click over to the next page for more stress-free ways to invest, earn and save.