23 Jan 4 Smart Money Decisions That Will Help You De-Stress About Finances
When you think about your personal relationships, your relationship with money may not be the first that comes to mind. But it’s an important one that impacts your life in more ways than you might assume, affecting both your physical and emotional well-being. According to the American Psychological Association, money is a somewhat or very significant source of stress for the majority of Americans (64%). Constant worry and stress over finances can literally cause pain your muscles, headaches, even stomach problems. What’s more, as Dr. Robert Lustig, emeritus professor in pediatric endocrinology at the University of California, San Francisco, noted in The New York Times, “every chronic disease we know of is exacerbated by stress.” To help you reap the well-being benefits of reducing financial stress, here are 4 strategies that can significantly help reduce the source of stress:
Put on your financial oxygen mask first
Rianka Dorsainvil, a Certified Financial Planner and founder of Your Greatest Contribution, saw firsthand how personal finances can have a ripple effect on not just our emotional health, but also our physical health. Watching her aging grandmother become ill and need dialysis, Dorsainvil assumed retirement would be an option. “I said, ‘Nana, you’ve been contributing to your retirement fund throughout your entire life, so now you should be able to take money out and live off of it. But I had assumed wrong.’” Her grandmother, who was the first to give of herself — and her bank account — her entire life, couldn’t retire because she wasn’t prepared financially for it. Witnessing that was difficult for Dorsainvil, but led her to develop a mantra she regularly uses with her clients: “Put on your own financial oxygen mask before assisting others.” When it comes to saving and planning for retirement, stop thinking of it as something you’ll do if there’s any money left over, says Dorsainvi. Make it your default to “pay yourself first” — before you dole out funds elsewhere. And ditching the “it’s too late” mentality is key to moving forward. “It’s true that the best time to start investing in a 401(k) was yesterday, but if you haven’t started, anything that you can start contributing today is going to help you tremendously in the future,” notes Dorsainvil. You can start by allocating as little as 2% of your paycheck to your employer-sponsored retirement plan. If your employer provides a match, even better! And if you do already contribute, look for opportunities to amp up the amount.
Know when your budget needs adjusting
Several years ago, when Dorsainvil contemplated quitting a job to embark on launching her own business, she knew that it would be too stressful to jump ship without first determining if she could make ends meet. Knowing that new businesses can take a while to become profitable, Dorsainvil said it was important to go through a “test run” of tightening her belt. “Before I quit my job, I started moving my income into a cash money market account (that way, I could earn a little bit of interest on it), with a goal of getting a feel for what it would be like if my husband and I just lived off of his salary. The good news: It felt OK!,” recalls Dorsainvil. Lowry found herself in a similar phase of belt-tightening while on her book tour, when bringing in income took a back seat to publicizing her book. “I was not bringing in money and spending a lot of money, and my salary covers a lot of our expenses (I’m married), so that was incredibly stressful.” Lowry and her husband got through it by consciously adjusting their spending. “We had to pare way back for a period of time.”
Rethink your emergency fund M.O.
An emergency fund is important — but not solely for the financial security it provides. Living with the fear that you won’t be able to cope with an unforeseen money hurdle causes stress that can affect your physical and emotional well-being. One reason your health could take a hit when you’re stressed about money? When cortisol (the stress hormone) is chronically elevated, you’re at an increased risk of problems including depression, obesity, metabolic syndrome, Type 2 diabetes, and high blood pressure. Building up an emergency fund is one of the ways to prevent stress about money. Still, people are often discouraged when they hear the common advice to set aside three to six months’ worth of living expenses (or even up to a year’s worth) — especially if they’re paying off loans or not earning a lucrative salary. In that case, Dorsainvil recommends starting small (but still contributing something). Even $25 per paycheck adds up, she says, noting that when you automate your savings, you’re more likely to be successful in building an emergency fund. “The idea is, ‘set it and forget it.’”
Consider your credit score
One source of stress for people who don’t have much of a personal credit history is figuring out how to make themselves appealing to lenders — say, for a car loan or a mortgage. And, unfortunately, only using a debit card does nothing to improve that situation. While building a strong credit score takes time, and all sorts of factors — from your credit history to the types of credit you have — impact the strength of your score, “using a credit card is the only way to build a credit score without actually having debt. If you use a credit card wisely — like by paying it off on time and in full every single month — you’re going to develop a strong credit score,” says Lowry. The problem is, “a lot of people were never properly taught how a credit card works, so they’re freaked out. Or there are those who say having a credit card means you have debt. No, if you pay off the balance every single month, you never pay a penny of interest and you’re never carrying debt.”