At any given time, every investor must always decide three things:
1) How to invest their new cash flow
2) How to invest their existing cash
3) How to reposition their existing investments if at all
As long as enough money is coming in to cover your expenses, life is fairly good. As our cash hoard grows, there’s also less financial stress because you can more easily cover unanticipated emergencies like a furlough.
In general, having 6 – 12 months of living expenses in cash or cash equivalents is good enough for the average person to sleep soundly.
There might come a point, however, when you will have excess cash. Perhaps you were undisciplined in your monthly dollar cost averaging strategy or maybe you got a bigger windfall than anticipated.
Whatever the case may be, your financial anxiety will be replaced with the fear of missing out on potentially bigger gains in risk assets like stocks and real estate. Given your peers are all getting rich, you will want to follow suit.
If enough greed kicks in, you will end up taking on more risk than you can comfortably withstand, and sometimes bad things will happen. Your financial stress returns once again. Hence, one benefit of following Financial SEER.
No matter how much money you have or how much you make, you will always have to work on managing your financial stress. After all, the more money you have, the more you have to lose! When you are broke, you’ve only got upside.
Money is mental. Psychology is why during market sell-offs, there will be headlines about stocks re-testing Great Depression lows. And during bull runs, there will be headlines about how the sky is the limit and you just can’t lose.
I didn’t do much right financially in 2018 except for continuing to aggressively save. But I did make one move with my existing savings that helped reduce financial stress.