When money matters
Financial security and its effect on the psyche
Financial anxiety has the power to overwhelm us. During the pandemic, you likely know people who are worried about their jobs, have lost their homes, or have had to relocate. Does that mean that there is a relationship between money and stress? According to the American Psychological Association’s Stress in America report, money tops the stressors we face. It comes ahead of work, family responsibilities, and health concerns. Research also shows that there is a greater psychological effect on lower income groups than high income groups.
Sources of financial stress
- Uncertainty about job, income, or investments
- Uncomfortable about debt
- Excessive spending
- Sudden unexpected expenses
- Anxiety about the future
- Different financial philosophies among family members
- Fear of outliving the money
Effects of financial worry
- Chronic illness, sleep issues
- Depression, anxiety, drug abuse
- Strain on relationships, job performance
- Poor decision making
- Sedentary or unhealthy behavior
Importance of financial security
As human beings, we have both physical and spiritual requirements. Financial security is important to satisfy physical needs such as hunger, shelter, clothing, and safety. In addition, we want to nurture our soul by pursuing our goals and life’s purpose. However, if we do not have enough financial resources, we have the potential to go hungry and be in the “fight or flight” mode. It is therefore key to have enough money that we can be content and pursue all of our dreams.
To explain this phenomenon, Psychologist Abraham Maslow came up with the “hierarchy of needs” in 1943, emphasizing that humans are motivated by unmet needs. Despite various criticisms of the theory and its hierarchical nature, it is a useful mechanism to relate the impacts of motivational and financial needs on a person. In this article, Clinical Psychologist Jade Wu describes how to use Maslow’s hierarchy of needs to sort one’s feelings.
And if you are curious, this article by Kim Petch explores the similarities between Maslow’s work and the financial hierarchy of needs.
Below is a visual representation of my interpretation of how our unmet needs may affect our psyche. Using emotions as our guide, we can identify our missing needs and take fiscal actions to fulfill them.
Reducing financial anxiety without making more money
Clinical Psychologist Seth J. Gillihan, explains that paying attention to why money matters to us can make a difference in our relationships, specifically with our partners. We may have a thrifty attitude if we were denied toys, trips, or fun activities when growing up. We may fear that lack of money will make us go hungry and lose our home. Or we may think that if we don’t earn enough, we will be a disappointment to friends or family. We may admire people who can spend money or, conversely, who are able to save money. Understanding our own attitude towards money can help us navigate these murky waters.
To help manage your relationship with money:
- Acknowledge and understand your financial fears and have the necessary conversations with family
- Reach out for emotional support from family and friends
- Enjoy the simple pleasures of life
- Actively manage self-care
Achieving financial security
To move towards security, it is important to gain financial confidence by getting organized and thoroughly understanding where the money is coming from and going to. Mitch Anthony explains how to design an income for life in “Maslow Meets Retirement.” Visualizing where we are allows us to plan for the next financial stage.
To step up the financial ladder:
- Manage money by understanding the cash flow (income, asset allocation, taxes, debt, insurance, savings) and living within your means. Use earned money to pay for essential expenses. Use debt if absolutely needed for essential needs.
- Allocate for goals such as home, education, health, emergency, future, giving back. Cover all essentials within earned income. Save money for emergencies.
- Accumulate money by taking care of family needs and saving excess income for the future.
- Become financially independent by saving and investing. Refine understanding of the financial landscape. Pay all expenses with investment income.
- Achieve nirvana by fulfilling life’s goals. Give back to society for fulfillment
After marriage, my husband and I survived on very little money. Every dollar counted! We had a strict budget, scrounged flea markets, bought a used car and furniture, took full advantage of coupons and sales, entertained ourselves with long drives, picnics, and meeting friends, and made sure to save at least 15% of our money for a rainy day. Despite being uncertain about the future, we were happy and steadily moved towards our future goals: education and jobs. Yes, we worried about unexpected needs but offset the stress by having emergency savings and a strong network of friends we could rely on in tough times.
However little we make, we can feel safe, confident, and content by educating ourselves and managing money responsibly while surrounding ourselves with trusted friends and ensuring a healthy lifestyle. As we approach financial independence, we are increasingly able to be curious and creative in the fulfillment of our higher-level goals.
Awareness and concrete actions are the key to reducing financial stress.
