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3 Powerful Ways To Decrease Your Financial Stress
| December 7, 2011 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
These days people are fraught with economic stress. The mere thought of aspiring to financial peace seems radical and even delusional for some people. Sixty-one percent of people live paycheck to paycheck, meaning it does not take much to push them to the brink of financial cataclysm. It certainly doesn’t have to be this way, but somehow we have been convinced to accept this foul bag of goods. Here are 3 powerful ways to decrease your financial stress.
1. Decrease Financial Stress By Knowing What You Really Value
What do you really value?
All too often we pursue and stress out about financial matters that don’t matter, at least not in meaningful way. That’s because they don’t reflect our true values. There is nothing wrong with wanting nice things, but things don’t define us.
In fact, if your contentment is based on materialism, then money is the least of your worries.
Focusing your resources on items, experiences, and relationships that compliment your core beliefs and values is infinitely more fulfilling than simply buying stuff. That could mean taking the trip of a lifetime over buying the dress or flat screen of the minute.
In your quest for great wealth, remember that there are many things that you may value that cost little to no money, such as a warm embrace from a loved one; a phone call from an old friend; kind smiles from your children, nieces, or nephews; attending a religious service or a motivational conference; playing with your puppy etc. Indeed, Thomas Stanley’s data suggest that millionaires are consistently more likely to participate in “cheap date” leisurely activities emphasizing relationship building and wealth building versus more “costly” activities. While I would never suggest that this is always the case, this correlation hardly appears incidental.
In short, by focusing our money on value-oriented spending rather than keeping up with the Kardashians Joneses, we decrease stress by relinquishing the constraints of materialism.
2. Decrease Financial Stress By Stopping The Insanity
Recognize that when someone gives you a loan, he or she is NOT doing you a favor.
We must break the self-defeating cycle of consumer debt in our lives. Borrowing one’s way out of trouble is extraordinarily difficult. People can go on about “good” debt and “bad” debt. After all, labeling debt to make it more palatable is quite common.
My primary concern with debt, particularly consumer debt, is that with it comes risks that typically nullify any leverage advantage received by using the debt in the first place.
Earlier this week, I read about someone thinking that getting a $500,000 loan to purchase 8 rental properties with nonexistent cash flow was a good idea because he was “getting over on the banks through the power of leverage.” With the numbers he shared, he would be a bankruptcy waiting to happen. Remember, a plan that only works if everything goes right is hardly plan at all.
Without belabouring this point, let’s keep it simple:
- Debt equals risks.
- Risks cause stress.
- No debt equals decreased financial stress!
A major shift happens when we stop trying to use debt to solve our problems. The choice is yours, but when I made the decision to live debt free, my financial life instantly simplified and my stress decreased precipitously.
3. Decrease Financial Stress By Rethinking Budgeting
Budgeting is NOT the enemy.
Personally, I used to think of budgeting as limiting, but I now see it as liberating. That’s because budgeting enhances economic productivity, which is something we can all used more of. Regardless of whether one makes $40,000 or $400,000, he can still be broke if his money is mismanaged. This is ignored by those who only focus on the income side of the equation. Perhaps this is the reason most millionaires budget. Budgeting is the tool that helps you reign in your income.
However, I can certainly appreciate that some people find budgeting stressful. Dealing with money can be inherently unpleasant. The very act of budgeting forces acknowledgement of money’s limitations and possibly confrontation of misbehavior. Additionally, despite the fact that we deal with money on a daily basis, there is a lack of personal finance education. Some of the very courses that supposedly aim to increase our financial intelligence are little more than cleverly packaged marketing tools for companies that are far more concerned about their profit margins than serving us well.
Given those facts, it is unsurprising that many find proper money management particularly difficult. If you fall into that category, then perhaps it’s time to rethink budgeting. See it as a mechanism for your freedom, and use it to your advantage. Here are some tips to help you do just that:
- Pay yourself first. Even if you simply create an artificial sense of economic scarcity by “paying yourself first” and using the remaining money to cover all other expenses, that would be a great improvement over ignoring budgeting altogether. At least this way, your savings and investing would be taken care of.
- Use technology to assist you. Consider employing tools to make it easier, such as using automatic drafts into your savings and brokerage accounts and using the “envelope system” for groceries.
- Eradicate the idea of a “perfect” budget. Let your budget change as your life changes. Perhaps you are not yet in a position to allocate funds to every single line item. That’s perfectly okay. Few are.
- Note, a more detailed discussion on the power of budgeting is available in my FREE eBook.
I think the old adage of “don’t throw the baby out with the bath water” is particularly relevant with respect to budgeting. Embrace a system that works for your household and use it prudently.
Closing Thoughts
Financial peace are two words that typically do not go together. That doesn’t mean that it’s unachievable. When your purchases are aligned with your values rather than the values of clever marketers, when you free yourself from the madness of robbing tomorrow’s prosperity for today’s pleasures, and when you develop and live by a sound spending plan that works for your household, you are taking ground financially. You are on the road to prosperity. You are reclaiming your financial peace!
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Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.
Your post reminded me of an interview with Jim Rogers I saw yesterday on CNBC. He made the observation that Europe has a debt problem and that markets are enthusiastic over their taking on even more debt. He made the commonsense observation that a debt problem isn't solved by taking on more debt! In the long run it gets you.
It would be interesting to see a world where people didn't get carried away by debt and leverage. The powerful free market system could then create wealth to the fullest extent.
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What an AWESOME example! When I think about these issues, I so miss academia (don't tell anyone though because I'm having fun in the private sector too 🙂
It's common sense, which apparently isn't so common.
I'm with you, if people would truly embrace fiscal solvency and maintain sound financial foundations while focusing on innovations and bringing value, I believe we would have so much more prosperity. Debt obfuscates the real issues.
My recent post 3 Powerful Ways To Decrease Your Financial Stress
The simple truth is debt doesn't go away. Taking on debt should be a last resort, not the first. If you think you can't live within your means, the solution is not taking on more debt but figuring out ways to earn more.
Thanks for the hard-hitting post Roshawn!
My recent post If you are happy with your Big Bank, should you still switch to a Credit Union?
I'd like to read more about the person who took on 500k debt. 🙂
If you can't get positive cash flow in a year or two, then the investment is difficult to maintain. We have no idea when the housing market will recover and it's too much risk to maintain negative cash flow.
Great tips!
My recent post November 2011 Cash Flow
@Joe
Unlike you, he didn't have good earned income either nor a fully-funded emergency fund. His plan for difficulty was to see if he could BORROW MORE. YIKES!!!!!
It was equally parts scary and depressing 🙁
Thanks for the comment.
My recent post 3 Powerful Ways To Decrease Your Financial Stress
I would add one: "have cash on hand for emergencies". It always surprises me to hear that people have literally no-cash in the bank, yet they have money in an employer-sponsored 401k. How do people sleep at night with $100 balance in bank and that's it? Build a reserve and don't touch it, you will get to sleep at night a whole lot quicker, I guarantee it!
My recent post NWP Model Investment Portfolio Update #7, Plus My Favorite Financial Posts of the Week
I suppose that would-be real estate magnet you wrote about must have spun a credible yarn with the bankers.
I really like point number 1 about value. So many people try to buy happiness but what they have wrong is that they don't know what they need. They are literally just throwing their money away.
@Neo I am totally with you. In fact, I wrote a ~1500 word post on this same topic for another site, and you better believe that an EF was on it. While I agree an EF is needed, how do you get someone to save 6-8 months worth of expenses or a years worth of income if they haven't committed to stopping debt, spending smartly, and value-oriented purchases.
I need an EF, and you need an EF, but honestly, many of the very people who need it the most don't stress about it. That's the problem to begin with. Cheers man!
@101 Eventually someone would have stopped him but likely not before he ruined his life. It's downright frightening that this is what passes for "savvy" nowadays. This is an example where hindsight is not needed to see the stupid from a mile away.
Yeah, I definitely did a post on the same topic with purely financial components. More and more, I will be focusing on some of these other factors that due indeed affect our finances in a tangible way.
That's right: happiness can not be bought; it's internal.
Materialism is OK if it's used to benefit your life, like a well-kept car, a comfortable home, or even the occasional gadget that brings you additional happiness. In the end, EVERYTHING is about experiences. It's just when your experience becomes one of "have to keep up with appearances" that you can start to run into trouble, especially when debt is involved.
… and, I just realized I misspelled "magnate". You're right, the eventual backstop to this guy would have been bankruptcy court.
Yep, and he would then claim that he did everything he could to get ahead, but the "man" wouldn't let him. I try not to be cynical, but sometimes…
Are the things that you describe "well-kep car, a comfortable home, or the occasional gadget" truly materialism? When I discuss materilism, I am referring to a preoccupation with things rather than having nice things. In no way am I against nice toys, but I would hate to be controlled by my toys. People who buy to keep up appearances are being controlled by the perceived status that they get by owning those possessions. That can be very addictive and dangerous, regardless of whether debt is involved, and that's why I believe materialism is bad. I guess it's more a worldview than a true black and white financial issue though, but in some ways I think we're saying the same thing 🙂
Roshawn, I keep an attitude of gratitude and consciously focus on the many gifts I have in my life apart from money. It's so easy to forget!! I agree with every single thing you said! I love the idea of equating spending with values.
Fabulous advice Barb! It is really easy to forget what really matters!!! Aligning your spending with your values is being true to yourself, and that is so important to leading a meaningful life.
I found your post by way of One Cent At A Time. I now know why he picked you as his Editor's Pick. Nice job! I liked your advice about knowing what you want. I know you are focused on the financial aspect, but I believe a whole lot of stress can be eliminated with this simple step. Too often people chase after things and have no idea why!
Thank you. I agree that the some of the points, such as knowing what you want, have implications beyond personal finance. While I hope that doesn't turn off readers who come here for PF-oriented posts, I feel ignoring these other aspects do them a tremendous disservice.
"Too often, people chase after things and have no idea why."
That is very insightful, but not particularly obvious. We have all sorts of superficial reasons for why we choose one path over another, but at the root of the decisions, we often are mindlessly following someone else's script. In other words, we are utterly clueless.