This is a simple, straightforward concept, but not so easy to accomplish. But financial stress is literally a killer. Not only does it fill your head with painful clutter, but it also drains your energy, and compromises your health. To eliminate financial stress isn?t easy, and you’ll probably never eliminate it completely, but it?s totally necessary.
This is especially important in an era of shrinking options. It?s tougher to earn a living, live a comfortable middle-class lifestyle, and still save money for the future than it has been in a human lifetime. For most people, eliminating financial stress may be the next best option to achieving full financial independence.
I would also add that if you eliminate financial stress, or at least drop it down a few levels, it’s that critical first step in achieving full financial independence. Once you do, both your finances and your head will be better prepared for the climb higher.
There?s no single strategy to eliminate financial stress. Since financial stress comes from different directions, it has to be approached on several different fronts. Let?s take a look at each.
1. If You Can?t be Rich, Get Liquid
Everybody has expenses, it?s part of living. But stress enters the picture when you lack adequate resources to deal with them. While it?s important to be able to cover your living expenses out of your income, there are times when that?s impossible. You get hit with a large bill, a series of unexpected expenses, or even experience an income disruption.
If you have no savings, each of these problems can become catastrophic. It?s a real issue too. A 2016 survey by the Federal Reserve found that nearly half of Americans can?t come up with $400 to cover an emergency.
On a personal level, I?ve known people to be car-less for weeks or even months because they can?t come up with a few hundred dollars to pay for a repair. That?s serious.
If you?re not rich and don?t think you?ll ever be, it?s important to be liquid. That means having savings available to provide a cash cushion. Having just a few thousand dollars saved will probably eliminate about half your financial stress.
If you?re in the unfortunate half of Americans who can?t come up with a few hundred dollars, it?s time to change that situation. I refer to this as breaking the savings barrier, and it?s something all non-savers need to do.
If you have little or no savings, you?re virtually flying through life without a parachute. Having just a little bit of money in savings could make your life a lot easier. This one?s worth the climb, whatever the cost.
2. If You Can?t be Rich #2, Become Debt-free
Having savings is the first part of becoming liquid. Getting out of debt is the second. The two actually complement each other. As your debt declines, and your monthly payments with it, your ability to save money rises.
Not only that, each debt you eliminate cancels one more claim against your income. That means you gain more control over that income. If you can?t be rich, it?s important to have as much control over your income as possible.
Debt is also a major source of financial stress. It creates an excess of claims on your income, forcing you to juggle your budget every month. In essence, debt is about paying for yesterday?s expenses out of today?s income. That?s a situation that has to be overcome.
Unfortunately, there are a lot of reasons why people are in debt these days, and why it?s so hard to get out of it. But as hard as it is, it?s another of those battles that?s well worth fighting. It will likely require financial guerilla warfare, particularly if you?re especially deep in debt.
But once you get out, life just gets easier.
3. Start an Investment Plan ? Even if it?s Only a Small Amount
One of the themes I like to cover is that the popular concept of retirement is gradually dying. Sure, there are literally millions of people who will retire as millionaires, and live the TV version of retirement. But that?s not the case for most Americans, and will be even less so in the future for reasons too numerous to discuss here.
One of the main issues is the lack of ability or motivation to save for retirement. Many give up if they didn?t start saving for retirement in their 20s or 30s, or saved too little. After all, most retirement strategies call for saving and investing for decades to amass the necessary millions that are needed for building a golden retirement.
But giving up is the worst strategy of all, because it?s a non-strategy. You should be saving for retirement no matter how old you are.
In fact, not just for retirement. Truth be told, investing money has become a critical life skill. Investing is the exact opposite of debt. Where debt is about paying for yesterday?s expenses out of today?s income, investing is the process of paying for tomorrow?s expenses out of today?s income And in the future, it will become about paying for today?s expenses out of yesterday?s income.
Don?t get hung up on the amount either. Building a $25,000 or $50,000 investment portfolio may not be anything close to $500,000 or $1 million, but it beats the hell out of having nothing at all.
Even if you can?t invest enough to create a comfortable retirement, you?ll least be giving yourself a bigger cushion for the future. And if the present isn?t too good in your financial life, that alone will be revolutionary.
4. Lower Your Basic Cost of Living
This probably should?ve been number one, but I thought it might be better to start with the end in mind. Cutting the basic cost of living is a radical step, and it takes a large helping of motivation to even consider it. Hopefully the three strategies above ? and the benefits they provide ? will give you all the motivation you need.
But let?s start with this: the most basic source of financial stress is a cost-of-living that doesn?t fit neatly within your income. Millions of people live this way. Perhaps as no other time in history, there?s a general mindset that there?s a right way to live. That often translates into wants becoming needs. You don?t just need a house, you need a certain kind of house. You don?t just need a car, you need a certain kind of car. After all, in America you are what you drive, right?
Wrong. That?s a one-way ticket to financial stress. It?s an imbalance that needs to be corrected as soon as possible.
The mechanics of lowering your basic cost of living
Every other strategy on this list starts with lowering your basic cost of living. With budgeting, most people trim around the edges. They do all the usual trimming ? cut out cable TV, cook more meals at home, and ?clip coupons?.
But the end result of those efforts is akin to saving pennies, when you need to save dollars. I refer to this as micro-frugality vs. macro-frugality. Micro-frugality focuses on cutting a large number of small expenses; macro-frugality is about cutting a small number of large expenses. For most people, macro-frugality will produce a much bigger reduction in the basic cost of living, the kind that can be life changing.
For example, you can almost certainly save more money by moving to a less expensive home, or owning a less expensive car, than you can by clipping coupons or cutting out your cable TV. I know this to be true from personal experience.
And of course, eliminating debt is a fundamental component of lowering your basic cost of living. After all, debt represents a fixed payment, the kind you can?t whittle down. In most cases, the only way to get rid of it is to pay it off.
If you?re having difficulty finding money to save or invest, or to get out of debt, you may have to look closely at your basic cost of living. This is the most difficult strategy on this list, because it can often require a change of lifestyle. But if you think of that change as being only temporary ? it?ll only be until you cure other financial problems ? it may become more doable.
And in addition to free up money for savings and debt payoff, you?ll also be eliminating a financial imbalance that?s the most basic source of financial stress.
5. Gravitate Toward Work You Actually Like Doing
If you only think of work as enabling you to pay your bills, you probably won?t think this is important. But doing work you don?t particularly like is a major source of financial stress.
That?s a connection many may not make. They may classify it more as job stress, rather than financial stress. But financial stress is exactly what it is. After all, if you?re dependent on your job for your financial survival, that automatically makes it a source of financial stress.
If you?re doing work you actually like, job stress ? and the financial stress it brings ? drops. Unfortunately, my wife and I both found this out fairly late in life. We both spent most of our time working in jobs just to pay the bills, but not because we liked the work we were doing (though we did try to convince ourselves we did). It was only when those occupations came to an end that we came to the not so brilliant conclusion that it was time to transition into work we actually like.
That was life changing.
If you have to work for a living, it may as well be doing something you like to do. My wife got out of a lifetime in banking, and went into jewelry sales. She?s always loved jewelry, so selling it was a natural occupation. Not surprisingly, she?s quite good at it. That?s one of the fringe benefits of doing work you like. It just comes more naturally.
For me, the transition was into blogging and writing. I considered being a writer early in my life, but there weren?t many doors open. That all changed when the Internet came into existence. The field opened up, and I jumped in.
Making the transition gradually
Now our transitions weren?t easy. We both started on a part-time basis. My wife took a part-time job in jewelry sales that eventually became full-time (yes, even with benefits). I started blogging and freelance blog writing for other sites on a part-time basis as well. Today it?s my primary occupation.
That?s why I say gravitate toward work you actually like doing. You don?t have to quit your current job to move toward work that you like. You can start it as a hobby, move to part-time paid, and then eventually make it your primary occupation.
Also, don’t worry about the skills and resources you don’t have. When you like what you do, you’ll acquire them as you go along. My wife didn’t consider herself to be a sales person, but that changes with jewelry, and she’s one of the top performers in her district. I knew nothing about websites and HTML, but when you have a passion, you pick it up as you go forward.
Doing work you like doesn?t necessarily mean you?ll get rich, nor does it have to. We both found that when work is easier ? because we actually like what we do ? there?s less stress overall. And when you have less work-related stress, you have less financial stress. Sure, you still have to pay the bills ? that doesn?t change.
But what it is you?re doing to make that happen is just a lot easier.
Final Thoughts on How to Eliminate Financial Stress
If you can work in the other strategies, and transition into work that you actually like, you?ll eliminate financial stress, maybe not completely, but to a large degree. That will create a better life overall.
Your financial life may never be perfect and it doesn’t need to be. But just making it better can eliminate a lot of needless worry.
Even if you?ll never be rich ? and especially if you won?t ? creating a better, less stressful life will give you a lot of the same benefits. Think of it as feeling rich without actually being rich.
Shouldn?t that really be the end game?
Hi, Kevin, great article. Speaking from experience, sometimes, you need to work with a program to get budget wise. I had to learn it during a bankruptcy procedure, but the program was most helpful in making me learn to evaluate the key use of money and develop strategies to eliminate impulse spending. I feel this should be part of the academic courses given to all, especially when how money is spent is rarely discussed at home. I had parents who became adults during the Depression era and they were excellent for being frugal but they didn’t have the right approach to matching spending to income. (I found out much later they used a borrowed from, Peter, to pay Paul routine). When I took the course with the credit budgeting, I learned how to keep a record of all spending similar to a food diary really clears up the mystery of spending habits.
Unfortunately, most people don’t like to face the fact that there’s a real limit to your money income because it eliminates free spending without consequences. We have been acclimated to using credit without thinking about the problem of paying until later and even then, we mostly, push that to the limit. It takes real control to be willing to put down on paper or whatever means one needs all spending expenses and compare it to the income coming in. To be debt-free, one has to spend only one-third of income on all expenses, not as most do every penny. I know it is hard to deny certain pleasures like takeout or the latest fashion, but removing debt has to occur.
By doing so, you will have more discretionary money which you can easily budget part of for impulse buys (we all need rewards). The problem is getting oneself to that point. I compare it to learning how to eat properly. There’s no reason to diet to lose weight if you eat properly all the time. The same thing with spending money, learn to budget wisely. There are enough apps for those who don’t like to actually write things down and they will tell you quite frankly whether or not you are spending properly within your budget with all the bells and diagrams. I use this kind of service with my online banking app which shows me exactly where my money is going, plus alerts when my funds are low if I forget. We all need to do this, plus do this with all credit cards used. A bit of work to setup but worth every minute.
Hi Maria Rose – I think this should be taught in school. Not that kids will necessarily retain it, but it will give them exposure that could be reinforced later on. But the way it’s totally ignored is obsurd. I think you’re right about credit cards too, and credit in general. Today, being able to afford something is mostly about qualifying for a payment. There’s a world of difference between being approved for financing, and being able to understand it. We’ve lost the connection between spending and actual money. It’s like it’s all imaginary. It takes everything you have to overcome that, and that’s why it has to be intentional.
Great suggestions and I?ve used all of these tactics over the last 5 years.
I?d only add that one major cause of stress is having a single source of income in the form of an employer. So, I?d add an additional income source of income. I?ve chosen ecommerce, which my wife and I run together. We now earn plenty away from my job, which I enjoy very much but will some day end v
Great stuff!
Hi Ian – I think that comes under doing work that you like. You can do it as a side business, and not only will it provide an additional income, but it can also get a whole new career going. But I also think it’s an excellent retirement plan. It’s a built in post retirement career, that you can do part-time for extra income and continued social and economic involvement. It’s so perfect on so many fronts!
-9-5!I agree with Ian. My neighbor and I were recently talking about multiple sources of income. We were saying how weve both always worked more than our full time job. We did some kind of a gig on the side-usually to help support kid things but now that has passed. We take that money and sock it away.
I wish I was more knowledgeable on passive income and able to do more of it. Im always thinking of ways to make money, in addition to my regular job:)
You hit on something really important Ruth Ann, creating an extra income stream dedicated to savings. If there’s no room in your budget to save money or pay off debt, creating a new income source is an excellent strategy. There are all kinds of options here, from taking on side jobs to starting an online business. In today’s tight job/income environment, it may be the best way for the majority of people to move forward financially. It’s also always good to have a back up income source. You can never know what’s coming down the pike.
Gotta affirm what you all are already saying. I’ve reached a point in my life where I no longer wish to work 40+ hours a week for a single employer. Why? It’s just too darn risky, especially if you’re not a highly skilled worker who’s in demand! When all your income comes from one job working for someone else, you are giving your employer/boss HUGE control over your financial, and in some cases, even your personal life. Pardon me for being blunt, but why are so many people, including myself sometimes, such masochists about it, knowing that we could be fired or laid off at any time?
A short time ago I was reading another blogger discussing how he and his wife made money via 20 different methods last year, some of them for as little as a few hundred dollars — but, he explained, if they lost their largest source of income, they would have to make adjustments but be able to get by just fine. THAT is where I would like to be — I sure would sleep better at night!
Hi Steve – Yes, it looks like I’ve got to get back to the multiple income streams theme. I’ve gotten comfortable with writing, but we all have to look for income sources from different directions, preferably unrelated ones. One of the real casualties of the decline of the middle class has been the disappearance of stability. Unless you work in government, there is no more employment for life.
What makes it worse is employers often engineer surprise layoffs. In an attempt to play the “everything’s fine” game, they deny what’s coming down until it’s time to pull the plug. After they do, they play the apology game, sending out a sappy email and press release about how “it is with deep regret that we were forced to take this action…but as a result of this effort, we’re ensuring the continued prosperity of our organization for the benefit of our customers and remaining employees…no further layoffs are planned at this time (until they are)…blah, blah, blah”. The remaining employees are temporarily relieved, but suddenly very insecure and justifiably so.
We should all work to avoid that outcome. Having a back-up income source in place is the best strategy. Unfortunately we usually don’t think about that until after a crisis. I often think people are thinking more clearly in bad economies than in good ones.
Hi Kevin, you are do right about the importance of living debt-free. Lol, learn’t my lesson in 2008 when I was laid from a job I had for 9 years 😱 Had gotten comfortable. Ever since paying off my 3 maxed out credit cards, cutting them up and using my 401k to pay off my brand-new car, I have lived debt-free. Now retired and grateful I did.
I’m kind of struggling a bit on the debt front. By the early part of this year we’d paid off all our major debts except our car loan, which we figure we’ll have a car payment for the rest of our lives and we’ve come to peace with that. But after paying off thousands in debt, I had major surgery in August, and another round of medical debts has hit (our out-of-pocket is almost $6,000 per year, per person). The hospital gave a 40% discount (due to COVID) if I paid the balance immediately. Since I don’t like taking money out of savings, I put the balance on a low interest credit card, which I’ve been paying off in big monthly chunks. But shortly after, my wife got hit with big uncovered dental bills. It’s not as bad as in past years, but I have a feeling we’re going to also learn to live in peace with at least some non-car debt. I guess that’s part of life in the 21st Century.