Don’t Worry, Be Wealthy
Financial stress can be overwhelming. But research suggests that fear blocks everyday opportunities to create financial freedom. Here’s how to break away from ‘broke thinking.’
I recently fell victim to a scam. I was shopping for some equipment for my work-from-home setup. Not wanting to spend tons of money, I zeroed in on a webcam that was about half the price of others. I assumed it was cheap because it was a discontinued model, and I quickly made the purchase. Within 24 hours, the website where I placed the order disappeared.
I feel a bit stupid for making this mistake. Had I just taken a moment to Google the website, I would have discovered it was fraudulent. But I didn't have time for that. I was stressed that day, juggling kids and work and a long to-do list. I just wanted to make my purchase and be on my way. Now I’m out money, and I have no camera.
I let stress and shortsighted thinking cause me to make a mistake. And I’m not alone. A study published in January from Capital One and the Decision Lab explored the poor financial choices we make under stress. Since the study was conducted, the pandemic has tanked the economy, causing a spike in financial woes, as well as concerns about health, safety, jobs, loved ones and overall well-being. Studies from the last few months indicate that the vast majority of Americans — as many as 90 percent — are stressed about money. Rapidly developing news events continue to put us on edge.
“One way to break the damaging cycle of ‘money stress — poor choices — money stress’ is to focus on the big picture.”
All of this stress can undermine our financial security. We worry that we won’t have enough to retire. We’re anxious about how much debt we have. We’re concerned that we can’t keep up with the cost of living. The Capital One study revealed that when we’re anxious about our finances, we’re less likely to practice healthy money habits like saving, budgeting and planning for emergencies.
Instead, we engage in damaging behaviors like impulsively spending our paychecks. Or we allow things like procrastination and indecision to hold us back. I recently referred a friend of mine to a certified financial planner (CFP). But she was so overwhelmed after the consultation that she gave about 17 excuses why “now is not a good time” and said she would circle back to it later. You and I both know what “later” means.
Even when we know better, it can be hard to do better when we’re stressed and overwhelmed. I once let procrastination get the best of me by letting an old 401(k) sit with my previous employer for years — earning nothing. When I finally got around to rolling it over into an IRA, I came down with a case of analysis paralysis and let the money sit in cash rather than picking a mutual fund that could allow it to grow. I allowed indecision to lead to no-decision. Can you relate?
One way to break the damaging cycle of “money stress — poor choices — money stress” is to focus on the big picture. The study showed that when participants thought about their long-term goals, the negative effects of stress began to lessen. And people were more likely to save and budget and feel more confident about handling their finances. Focusing on our goals improves our overall thoughts and attitudes about money. It can help us move into a more positive decision-making cycle. “A person's money mindset has everything to do with how they manage money,” says Tania Brown, a Georgia-based CFP.
Changing your money mindset is no small task. But it’s possible. Here are some practical ways to do it:
1. Keep your goals in front of you. Make sure those long-term goals are front and center by writing them down. And be sure to review them regularly. Reminding yourself of your goals will help you resist the behaviors that prevent you from reaching them.
2. Avoid making financial decisions when stressed. Making any kind of money decision — whether it's investing or shopping — when you’re stressed or emotional is not a good idea. So be aware of the times that you’re typically stressed or tired and plan your decision-making strategically.
3. Focus on the things you can control. We can’t control the direction of the stock market or decisions that lawmakers and our employers make. But you do have control over creating a budget, paying your bills on time, calling your creditors if you cannot pay and living within your means, Brown says. Focusing on what you can control will improve your outlook on your finances.
4. Don’t dwell on mistakes. If you make a mistake or have made significant money mistakes in the past, acknowledge them and move forward. Beating yourself up may cause you to feel defeated and can keep you in the cycle. Commit to do better and move on.
5. Find a like-minded community. We sometimes avoid talking about money with our inner circle, but this habit could do more harm than good. Sharing your financial goals with someone you trust or who has similar goals can increase your chances of achieving them. Even consider joining online communities of like-minded individuals, such as AARP’s My Savings Jar, a free savings club.
6. Celebrate your progress. Whether it’s splurging on a new top because you stuck to your budget, or making over a room in your house once you pay off your credit card debt, celebrating both your small and big wins will provide you with milestones to reach for and rewards to look forward to.
Shifting your money mindset is not an instant process, so be kind to yourself. In a time of uncertainty like we’re facing right now, your outlook is being especially challenged, and your goals may look a little fuzzy. Continue to assess and reassess those long-term goals, tweaking them as necessary. Doing so will ensure that your big-picture focus remains intact through the current instability.
Lastly, prioritize progress not perfection. As Brown reminds us, “It's about what you can do today, not next week.”