It might be the incessant nagging of an unpaid bill or a stomach-churning plunge in the stock market, but suddenly you don't know how to stop worrying about money. Join the club.
Even having a decent nest egg of savings and a solid financial plan is no cure for money worries because the more you know about personal finance, the more you understand how fragile any plan and any investment program can be. Still, I worry about money less than I used to, thanks to a collection of habits and attitudes that have helped cushion me from obsessing about money. That means I've come a long way, because there was a time when money was a constant worry.
A sobering graduation
Like most people, I am a product of my experiences; and when it comes to personal finances, the most important formative experience was graduating college during the early 1980s, a dismal period for the job market. In fact, my senior year — the time when one is supposed to be making career plans and lining up a job — was marked by the highest unemployment rates of the post-World War II era. So, I spent the first several months after my college graduation caulking windows and scraping paint, stocking shelves in a supermarket, and working as a busboy in a greasy spoon. All minimum wage jobs, and even then the work wasn't always steady.
I had worked every summer during my college years; but up until that point, I had never been a particularly hard worker — and I spent money as fast as I made it. Once I had to support myself on minimum-wage jobs after graduation, I quickly realized two things:
- It's important to save money when you can because you never know when you're going to need it, and
- If things are going to get better, you have to make it happen yourself.
Things did get better for me — much better as it turned out. However, even as my wealth grew, I remained nervous about someday running out of money. This is unfortunate because, while it is appropriate not to take anything for granted, there is not much point in having money if you are in a constant state of fear about losing it. Dialing down that fear is what I've been working on in recent years, and I've found six things that help me stop worrying so much about money.
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6 things that help me stop worrying about money
Here, in no particular order, are six things that I've realized have helped me worry less about money:
- A wife who shares my financial outlook. Very often, financial pressure comes from within the household. If two people aspire to different financial goals, or if one is much more of a spender than another, it can cause tension within a marriage. Fortunately, my wife shares many of the same attitudes I have toward money and lifestyle, and a key to having that kind of harmony is communication. Once a relationship starts becoming serious, having open discussions about how you handle money and what your financial goals are can help you make sure each person's thoughts on these matters are compatible. As time goes on, continued communication makes sure each person understands where the household stands financially, and what expectations to have.
- Early savings. As soon as I started making more than minimum wage, I started saving money. In my early 20s, I wasn't thinking about long-term goals like retirement or even buying a house — but I viewed my savings account as a buffer against the unexpected. Once you know you have a little money set aside to cushion against some financial shocks, the less time you can spend worrying about those shocks.
- A debt-free lifestyle. There is nothing wrong with borrowing money for long-term purchases; and over the years, I've had home mortgages and car loans when appropriate. However, I don't think being in debt should be a constant condition, so I've tried to keep loans as short-term as possible and more often than not I've paid them off early. The real reason for this is that I'm just happier when I don't have outstanding financial obligations, but the side benefit is that, over the years, I've saved thousands of dollars in interest charges by minimizing borrowing.
- Modest tastes. As you might expect, being intent on saving money and minimizing debt requires some financial sacrifices, but I don't really feel like I'm missing much. Part of what helps is that being able to appreciate small luxuries makes one less inclined to yearn for the really expensive ones. Another element is self-knowledge — I know I could never really enjoy something unless I could afford it easily, so often not spending makes me happier than spending would.
- Multiple sources of income. I am a freelance writer, analyst, and consultant; and freelancing can be an unsteady way to make a living. What helps is that I get projects from a variety of different sources, and it often seems that one source will pick up just when another slows down. Working full time for one employer would probably be more steady, but I worry less about job security when I know I have work coming from more than one source.
- A financial plan with a shock absorber. Besides my freelance income, I also live partly off investments, which can make one prone to worrying about the stock market or the rental market — especially when they start behaving erratically as they have in recent years. A few years ago, I realized I was living and dying emotionally with the stock market way too much, so I built what I call a shock absorber into my financial plan. This is an assumption that my assets have declined in value by 15 percent, so any spending assumptions based on those assets are forced to adjust accordingly. This may be a little nutty, but I am more comfortable assuming a decline in value has already happened than worrying that it is about to occur. As a result, when stocks take the occasional dive, I can more or less ignore it because it is already built into the plan.
In truth, I still worry about money, but it has gone from a near-constant state to something that crosses my mind for a few minutes every several weeks. Financial success is as much a matter of perception as it is one of reality, so learning to put concern about money in the proper perspective is an important step.
What helps you stay calm, focused, and happy about your finances? Share your thoughts in the comments below.
Richard Barrington, CFA, is a 20-year veteran of the financial industry, including having served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc.