We all want to have a healthy relationship with money, free from worry and financial stress, and ideally, free from debt. However, few of us have such a relationship. We let money have some control over our lives, and over us. Many people desire financial freedom, but only a few achieve it.

A key step to attaining financial freedom is to shift our mindset and beliefs about money. Money is not inherently good or bad, but it is simply a tool that we can use to achieve our goals and dreams. We need to stop seeing money as something that controls us, but rather as something that we control.

As with many things in life, the path to a healthy money relationship is not difficult to traverse. How we get there, naturally, depends on where we start from. Some people have an unhealthy relationship with money where they act irresponsibly, spending money they don’t have, building a mountain of debt and living in the grips of financial insecurity. At the other extreme, some people hoard every penny they can, skimping on even the barest of necessities, and living in fear of a bleak future without enough. They too live in the grip of financial insecurity, it is just a different manifestation.

Ultimately, the path to financial freedom requires discipline, patience, and commitment. It may take time to make changes to our financial habits and mindset, but it is worth it in the end to gain control over our finances and create a secure future for ourselves and our families.

Those with a healthy money relationship are not found at the extremes. 

They live in balance with their money, taking care of the future, while also taking care of themselves today. They may not have everything they could wish for, but they do the best they can with what they have and do not suffer unreasonable fears of anxieties over financial matters. They are in a positive – healthy – relationship with money.

And you can be too, if you’re not there yet. Here are the seven steps to build a healthy relationship with money.

Step One: Assess

Step one is to assess, to access your current relationship with money, and to assess your current financial situation.

To assess your current relationship with money you consider your thoughts and feelings about money and about saving money and spending money. Look at where you might experience anxiety, or other feelings such as guilt. What drives these thoughts and feelings? What would have to change to no longer experience them?

Also, assess whether you’re headed where you want to go – are you moving forward financially or sliding backward? Consider your sources of income and expenses and get a clear picture of where you currently stand financially.

Step Two: Set Intentions

Step two is establishing intent for your financial decisions and actions. Where step one helped you see where you are, step two is about where you want to go.

Consider your future, and write a list of goals and their priorities. Oftentimes, we may have a longer list than means to accomplish everything on it, so we need to make some honest decisions about what is most important, financially, to accomplish. If we have strong feelings about the importance of our financial future, it can serve as our north star, guiding and motivating us on our financial journey.

Step Three: Plan

Step three is to create a plan for making the most of your money. Some people call this a spending plan, some call it a budget. Everyone needs a plan in order to do the best with what they have to work with.

One of the great financial ironies is that many people don’t want to budget because they don’t want to feel locked in and trapped by their money, yet those who budget experience greater financial freedom, have lower financial stress and accomplish more with their dollars. So much for feeling trapped and locked in, a spending plan allows for maximum intentional use of funds which produces the greatest results and creates the ancillary benefits of financial freedom and lower financial stress. Budgeting doesn’t cause stress, it removes it.

Step Four: Short, Mid, and Long Terms

We tend to work from the short term out, at least when we are running tight with money. People tend – naturally – to be more concerned about a crisis next week or next month than they are about funding retirement in 30 years. But all need to be addressed, lest they become a source of stress.

In the short term, we need to know how our bills are getting paid in the coming weeks and months. This is a major aspect of budgeting.

For the mid-term, we need to know how we are addressing goals that we need to address within the next few years. This may include vacation funds, vehicle replacement, and possibly children’s education.

For the long term, we need to address our eventual financial independence, where work becomes optional and not working becomes affordable.

The needs for the short-, medium- and long-term goals need to be incorporated into the spending plan from step three.

Step Five: Buffer

Step five is to build a buffer, a source of funds against unexpected expenses, against unexpected interruptions in income, and to take advantage of unanticipated opportunities. This is commonly referred to as an emergency fund, although many financial advisors call it a cash reserve, as it’s for opportunities as well as emergencies.

The typical range for the size of this buffer is three to six months’ worth of expenses. If that seems like a big range, it is. It’s a big range to accommodate variables like job security, where someone with a less secure job might want a bigger buffer; to accommodate specific risks, where someone who drives an older vehicle or who lives in an older house might want additional cushion against emergency repairs; and to accommodate personal risk tolerance. Some people would be comfortable having less than what is prudent, even though they should have a sufficient buffer. Others wouldn’t be comfortable having even a couple of years’ worth of expenses even though they have a guaranteed job and extended warranties on everything they own.

You do you. A buffer provides peace of mind and reduces stress during difficult times. It’s like money in the bank because it is money in the bank. And it is a component of having a healthy relationship with money.

Step Six: Protection

Step six is protecting that which we cannot afford to lose. We need insurance on our home, or renter’s insurance if we rent. We need to insure our cars, we need to have a source of income if we are sick or disabled and unable to work. And we may need to provide some capital to the surviving family if we pass prematurely.

This step involves insurance but also managing risk, which helps reduce our need for insurance. When we have a risk, we can, in some cases, avoid the risk, in some cases, we can reduce or manage the risk, and in other cases, we can transfer the financial consequences of the risk to another party through insurance.  

Failing to address risk can cost us, it can cost us financially, and it can cost us emotionally through stress and difficulties we didn’t need to go through.

We all face risk, managing risk is a key element to having a healthy money relationship.

Step Seven: Review

Step seven is about keeping up with our ever-changing lives in our ever-changing world. We can plan for what we think will likely happen, but the world around us changes, and our desires and goals change over time as well. We need to adjust to keep our money working towards what we most want to accomplish.

This makes sense intuitively. A healthy relationship with money is an investment: we put in, and we get out. If a relationship is worthwhile we tend to be willing to put some degree of effort into maintaining the relationship. We need to be sure we’re on the same page with our money. The good news is that our money will go along with our plans if we plan in advance and don’t ask too much of it. It’s a good friend that way.

Once we have built a healthy relationship with money, we need to address issues as they come up, and keep the relationship healthy and ongoing. Of course we do.

The Bottom Line

It may be apparent that we can work steps three through six simultaneously. We don’t have to finish each before moving on, we can do them together over time. Many people find that an easier approach.

It’s not unrealistic to have a healthy relationship with money, no matter where you’re starting from. Most of us develop our core money attitudes early, much is set by the time we’re five or six years old. That may not reflect how we would choose to solve our problems and build our relationships today. If you find you have any stress or anxiety around money or finances, or trouble meeting your financial goals and objectives, working towards a positive and healthy relationship with money is a great place to start.