End Financial Stress Now

Immediate Steps You Can Take to Improve Your Financial Outlook

Emily Guy Birken

• Publisher: Adams Media
• Year: 2017
• ISBN:
  9781440599149
• Topic: Développement personnel
• Subtopic: Finances personnelles

End financial stress for good and learn how to manage your money—without a change to income!Studies have shown time and time again that money is a leading cause of stress—but a life free from financial worry isn't exclusive to the rich and powerful. End Financial Stress Now gives you practical, actionable instructions you need to improve your money management—no matter what your income level is. You can learn how to achieve the mindset of financial flexibility, which can help you navigate any money issues you face.These practical, step-by-step instructions on budgeting can help you track expenses, pay off debt, and save money. Featuring straightforward advice on how to increase self-discipline so you can stick to your budget as well as techniques to help you identity misinformation and false beliefs you have about money, you can follow this guide to create a fulfilling life free of financial stress.

PART ONE

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Redefining Money

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We rarely take the time to really think about what money is, what it means, and how we use it. This is especially troubling because many of us have faulty assumptions about money. This section examines the ways that we value and assign meaning to money, and you will learn how those valuations and meanings may lead you to make poor financial decisions.

CHAPTER ONE

What Does Money Mean to You?

WHAT YOU’LL LEARN IN THIS CHAPTER

• The rational view of money described by classical economic theory is overly idealistic, although it can still be of some use.

• When we assign emotional meanings to money, those meanings can cause us to act irrationally.

• When you identify the emotional meaning money has for you, you can better understand some of the ways that you might act against your own financial self-interest.

According to classical economic theory, human beings are rational economic agents who always make the best choices for their own self-interest. Such a rational individual—dubbed homo economicus by economists in the late nineteenth century—always has the full information necessary to make cost-benefit analyses on any particular financial matter, from determining if a car’s expensive repair is worth the money to knowing where to invest retirement funds. Homo economicus is never caught flatfooted by any financial decisions, and he is able to methodically and logically maximize the bang for his buck in every situation. He never puts off financial decisions, never spends money for emotional reasons, never holds on to depreciating assets, never invests in terrible business ideas, never pays more than what something is worth, never gives money to untrustworthy relatives or friends, never throws good money after bad, never buys a latte when he can brew his own coffee, and he never makes any mistakes.

He’s kind of a jerk, actually.

However, it’s heartening to learn that the field of behavioral economics has determined that homo economicus is more myth than reality. Behavioral economists, who study how people react to economic situations in the real world, have shown again and again through experiments and observation that human beings simply do not have the ability to separate their emotions from financial transactions. In an ideal world of classical economic theory, human beings behave with unyielding rationality; but in the real world, human beings are irrational, emotional, and easily overwhelmed.

Despite the fact that the idealized figure of homo economicus is about as realistic as the tooth fairy, there is something that we mere mortals can learn from this model. In fact, learning to be more like a rational person is one of the things you can do to help ease your financial stress.

That’s because the rational homo economicus does not feel stressed when faced with difficult financial decisions. Nor does he overreact to financial stress triggers. Instead, he weighs his options and chooses the one that will maximize his money, time, or utility. Though no human being will ever become the completely emotionless robot that classical economic theory assumes the ideal worker and consumer to be, we can work to put some space between our finances and how we feel about our finances. When we can provide even a little separation between our emotions and our financial decisions, we can be better able to both improve our financial decision-making skills and gain some much-needed financial stress relief.

To create this necessary space, we need to start with an understanding of the various things that money means, beyond just dollars and cents.

What Does Money Mean?

If I were to ask you to write a comprehensive and universal definition of money, you would probably be annoyed at me for giving you an essay question as homework—and you might feel a little flummoxed by the task. That’s because money is maddeningly difficult to quantify. Even though it is a mundane part of our everyday lives and something that affects every one of us, money is ultimately nothing more than a huge and amorphous idea that we all share.

Here is the truth: Money is valuable, but that is only because we have all agreed that it is valuable. You cannot eat money, wear money, build shelter out of money, or even spend your money outside of the places that accept it as legal tender. Its value lies solely in our social agreement about its value.

This means money takes on the philosophical, psychological, emotional, and moral meanings that we assign to it, which are hardly universal. Often it is these assigned meanings that direct our choices rather than the deep thought or the rational cost-benefit analyses that are necessary to come to the best decision. Here are several of the common meanings you may associate with money.

MONEY IS A SOURCE OF SHAME

Money is morally neutral, despite the oft-misquoted Bible verse about money’s relationship to evil. (The actual quotation from Timothy 6:10 is “The love of money is a root of all kinds of evil.”) Being without money is neither a good nor a bad thing, just as having money is neither a good nor a bad thing. It just is.

Yet, we have a tendency to moralize money, poverty, and wealth, and we therefore experience shame in relationship to money. As a society, we often vilify the impoverished (and the wealthy), as if their morality is tied to their net worth. Those without money often feel shame—and are sometimes shamed—for their situation.

This shame manifests itself in poor decisions. For instance, someone who feels ashamed of her lack of resources might avoid opportunities to better her situation, such as budgeting/finance classes at her church or financial aid seminars offered by her local community college. Her shame at not having money and needing help can keep her stuck in the same financial position.

MONEY IS RESPECT

Money merely represents the amount of goods and services its possessor can purchase, but many of us assume a thick wallet means greater respect. There is a good reason for this assumption: When you appear to be wealthy, daily interactions with strangers do tend to be more respectful.

For instance, when I was a student teacher in 2006, I dropped by a local mall after school one afternoon in order to buy a gift for my cooperating teacher. I was dressed professionally and carrying a briefcase—and every single salesperson I passed attempted to get my attention and called me “ma’am.” I was given much prompter service than I was used to in the store where I bought the gift. But other than the thirty bucks I had already set aside to spend on the specific gift I had come to buy, I had no money whatsoever to spare. In fact, since I was living on savings and a student loan and paying for the opportunity to student teach, I was in pretty dire financial straits. My professional clothing just gave me the illusion of wealth.

That kind of illusory respect can be enticing to anyone who does not feel respected elsewhere in his life. Such a person might get into debt in order to appear wealthier than he is, just to experience the sense of respect that the appearance of money offers him.

MONEY IS SECURITY

Living without enough money is a nerve-racking and crazy-making experience, wherein you feel at all times as if the rug can be pulled out from underneath your life. Individuals who see money as security believe that having more money will provide them with the sense of safety they need. For some such individuals, spending any money—even on necessary items or services—can seem foolhardy, because it is eating into their security.

While it is true that living without much money can be an insecure existence, money itself cannot provide security. That’s partially because there is no specific amount of money that can offer complete and total financial security in the face of certain problems. Although the fear underlying this belief system may have a rational motivation—the desire to avoid living from hand-to-mouth—it can be applied irrationally. Individuals who believe money is security might be afraid to spend money on higher education or to start a business, even though those expenditures could greatly improve their lives.

MONEY IS FREEDOM

Anyone who has ever hated her job or felt stuck in a terrible relationship because she couldn’t otherwise afford the rent has experienced the sense that more money buys freedom. The lifestyle available to someone who does not have to work for a living or who does not have to rely on others to get by certainly does look like freedom to anyone stuck in untenable positions. A sudden influx of cash would allow you to tell your boss, your boyfriend, or your landlord where to stuff it, and provide you with the opportunity to live the life you really want.

But even though that sounds very much like freedom, it’s actually just “options.” Money does not truly buy freedom—but the more of it you have, the more choices you have available to you. When your life feels constricted it’s perfectly rational to dream of the greater options money could give you.

Unfortunately, believing that money offers freedom can lead to any number of irrational financial behaviors, including susceptibility to get-rich-quick schemes, gambling, indebtedness, and even hoarding.

MONEY IS SUCCESS

Other than recognition, money is often the only indicator of success that we can all agree upon as a society. If a professional is making good money, we describe him as successful, even if he is miserable in his job. The money is the marker for success, and his life satisfaction does not come into the conversation.

As with many other money beliefs, believing that money equals success has some merit. According to the social agreement, our economy is nominally set up as a meritocracy, wherein the free market awards money to those who are most successful. Make the best product and/or offer the best services, and you will be rewarded with the most money.

While there is a grain of truth to this idea, it does not reflect the whole of what it means to be successful.

This belief can be problematic since it ignores the aspects of a successful life that offer no financial reward, such as strong, positive relationships. Individuals who believe that money is success may be prone to workaholism, and as a consequence may neglect their nonprofessional relationships. They may chase dollar signs without enjoying any part of the journey.

MONEY IS LOVE

Being able to financially take care of your family can be a major point of pride for many people. In many cases, that’s because money is equivalent to love. For these individuals, the surest way to show their family love is to provide for them financially—with anything from the latest toys and clothes to private school tuition to family vacations to a beautiful home to lavish gifts.

The problem with this belief is the fact that many family members would prefer to spend time with the overworked individuals whose bank balances may be full of love, but who leave an empty spot at the dinner table every night. Believing money is love also leaves such individuals feeling unlovable if they lose their jobs or are unable to provide at a certain level.

MONEY IS TIME

The old saying may be “time is money,” but if you have ever worked multiple jobs to make ends meet, then you know that the opposite is true. Though money and time are both finite resources, time is the only resource that is allocated evenly—every person receives the same twenty-four hours in each day. However, individuals with more money are able to use their time more efficiently by spending money to save time.

For instance, a 2014 study found that commuters in five major U.S. cities wait approximately forty minutes per day for public transportation—which adds up to 150 hours per year. Having enough money to afford a car would free up that time for those commuters, meaning they could spend those 150 hours per year doing something they like better than waiting for a bus or train to arrive.

Believing that money equals time is eminently reasonable. In most transactions, you will either have to spend money or spend time in order to get what you want. That is, for dinner you could pay for burgers and fries at the Golden Arches, or you could spend time (and less money) grocery shopping, cooking, and cleaning up. The problem is that many of the financially poor are also time poor, meaning they cannot easily get ahead with either currency.

Living with this financial belief can lead to shortcuts in order to try to save time. For example, a time- and money-crunched individual might buy a cheap car to reduce her public transportation wait time, only to find that her inexpensive car needs pricey repairs, costing her even more time and more money.

Figuring Out What Money Means to You

Just reading through the common beliefs that we assign to money can be an eye-opening experience because our beliefs surrounding money tend to reside outside of our awareness. Recognizing yourself in any of the previous belief systems can be incredibly helpful, but if you want to build up some real space between your beliefs about money and your reactions to money, then you will need to dig a little deeper. It starts with a fun exercise: figuring out what you would do if you suddenly received $1 million. Answer the following question quickly and without thinking too hard about it. The goal is to access your gut reaction to the idea of sudden wealth.

If I had $1 million, the first thing I would buy would be:

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Answering this question can either be a fun way to daydream or a frustrating exercise in remembering what you don’t have. Either way, probing a little deeper into your immediate reaction to a sudden windfall will help you to better understand what you feel about money.

The Five Whys

Let’s dig into what your $1 million response means about your money beliefs. A great way to do this is by using a tool borrowed from the world of engineering, known as the Five Whys. This tool, which author and blogger Ramit Sethi of the site I Will Teach You to Be Rich (www.iwillteachyoutoberich.com) recommends for diagnosing personal finance problems, was originally developed by Sakichi Toyoda of the Toyota Motor Corporation in order to help diagnose the root causes of engineering problems. In the automotive world, a Five Whys technique might look like this example from Wikipedia:

• Problem: The vehicle will not start.

• Why? The battery is dead. (First why.)

• Why? The alternator is not functioning. (Seco...

Table of contents

• Cover
• Dedication
• Acknowledgments
• Introduction: The End of Your Money Worries
• Part One: Redefining Money
• Part Two: Economic Reasons Why We Struggle with Money
• Part Three: Psychological Reasons Why You Struggle with Money
• Part Four: Achieving a Stress-Free Financial Life
• Conclusion: There Is a Path Out of Financial Stress
• Further Reading
• About the Author
• Index
• Copyright