I realized something important after writing about the best reason to retire early. Money doesn't buy everlasting happiness. However, having more money can reduce stress and anxiety.
The goal of achieving perpetual happiness is not realistic. Happiness ebbs and flows. It's more exciting to be an 8 out of 10 on the happiness scale because there's still upside. You're already happy enough. But the thought of experiencing even greater happiness gives you more reason for being.
Life gets complicated as we get older. The responsibility of taking care of a family, experiencing declining health, and worrying about the future can suppress the mood of even the happiest person.
Therefore, I thought it wise to highlight the top financial moves you can make to reduce stress and anxiety. With less stress and anxiety, not only will you feel happier, but you'll also be less envious, less angry, more patient, and more empathetic.
Top 10 Financial Moves To Reduce Stress And Anxiety
Here are the top 10 financial moves I've made that have brought me the greatest stress relief. I've ranked the financial moves in order of least to most impactful. I use just two variables to determine the order of the rankings:
- How easy the financial move is to do
- How much stress and anxiety relief each financial move provides
10) Saving up at least six months of living expenses
At the minimum, every household should have at least six months of living expenses in cash or risk-free investments like Treasury bonds. With interest rates so high, investing in 3-month-to-1-year Treasury bills makes a lot of sense today.
After you have about six months of living expenses saved up, the stress relief you feel may start to wane. Depending on economic conditions, investing FOMO might take over as you feel your cash could be making a greater return.
Once you've got a 6-month financial defensive shield up, you will feel more confident to tackle the world. A perpetual cash buffer should quickly be automatic.
9) Tracking your net worth in one place
Tracking your net worth in one place is like jotting down your to-do list or writing a grocery list before going shopping. Once it's written down, you feel less stress and anxiety about forgetting to do something.
I've been tracking my net worth with Personal Capital, now called Empower, since 2012. It feels great to link up and manually input all my accounts so that they are never lost. I have actually forgotten about financial accounts before.
Due to investing in multiple private funds, it's also hard to keep track of all the various contributions. It also feels good to delete financial accounts that are no longer applicable. For example, every time I pay off a mortgage, it feels wonderful to remove the debt account from my net worth.
8) Putting together a death file
As our lives get more complicated digitally, it's easy to lose access to online accounts. If we don't have an organized way to keep all our accounts, usernames, and passwords in one place, our loved ones will spend an unnecessary amount of time and stress trying to figure them out.
Once my wife and I created our digital death files, we felt a lot of relief. Ideally, you only store your death file on a USB drive that can be found. But you can also store one on your computer or in the cloud and accept that either could be hacked.
7) Creating a revocable living trust
After our son was born in 2017, we decided to create revocable living trusts for both my wife and me. This way, there are clear instructions and processes in place in case either or both of us pass prematurely.
The importance of living goes way up once you have children. At the very least, every parent wants to live long enough until their children are adults. The more complicated your net worth, the more important it is to create a trust.
Going through probate court because your family doesn't have a trust is both time-consuming and more expensive. Trusts are for all families who care about having an orderly passing of financial accounts.
It can take months to put together a revocable living trust because you need to get all our files in order. Then you need to visit an estate planning attorney to finalize the trust. But once you get everything done, you will feel tremendous relief.
6) Buying an affordable home.
Once you own an affordable home, life gets easier. No longer will you worry about a rent hike or be asked to move because the landlord wants to sell. If another pandemic ever comes, the value of your home will go way up because you'll spend even more time at home.
If you plan to start a family, consider buying a home before getting pregnant. Once you get pregnant, the nesting instinct goes into overdrive. As a result, you may end up spending more money on a home than you really should.
“Affordable” Is The Key Word
The beauty of following my 30/30/3 home buying rule is that you won't feel constantly stressed after purchase. Instead, you'll feel a good balance of leveraging your capital enough to live a better life while not risking financial ruin.
Home maintenance problems come up all the time. You will eventually have to change the water heater ($3,000), the roof ($10,000 – $50,000), the furnace ($1,500 – $5,000), and many more items. By being able to fix these problems without stressing the bank account, you will feel more at ease. Large expensive houses usually come with large expensive problems!
As your net worth grows, you may follow my net worth home buying guide to buy a home. Try to get your primary residence's value down to 30% of your net worth or less if you want to take take things easier.
Next Comes The Forever Home
The second level of anxiety and stress relief from shelter comes from buying a forever home. It is rare the first home you buy will be the one you end up living in forever. Hence, once you find that forever home, you will feel even more settled.
To never have to move again provides a tremendous amount of comfort. Not only can you more easily plan your life, but you will also likely benefit financially the longer you own the home. In ten years, owning your home will feel cheaper. At the same time, your home will have likely appreciated in value.
Finally Comes The Paid Off Forever Home
Even better than having a forever home is a paid off forever home. With no more mortgage payments, you no longer have to grind as hard to pay for life.
With shelter out of the way, we can focus on everything else that matters. The only problem is that it can easily take more than a decade to pay off your forever home.
Also be careful. If your life gets too easy, you might end up slacking off and doing nothing productive. Losing motivation was the biggest downside to paying off a rental property early.
5) Creating and sustaining a family business
Once you become a parent, you no longer think as much about yourself. Instead, the majority of your focus will be on your children's well-being. Without generational wealth, creating a sustainable family business may be the next best thing.
The harder your upbringing, the more you may worry your children might go through the same difficulties. When I was growing up I got into some fights. As a result, I was suspended a couple of times and almost got expelled. Then I experienced run-ins with the law while in high school. Due to my defiant nature, I could have easily ruined my life.
Given a mango never falls far from its tree, I suspect my kids may have similar defiant and rebellious attitudes that will get them in trouble as well. If my wife and I are not able to properly guide them, they might end up unemployed or underemployed.
In addition, hard work might no longer be good enough to get ahead anymore. As a result, your kids might be shut out from many opportunities despite being qualified.
Having career insurance by owning a family business provides stress relief. However, running a business takes hard work. And most businesses die or get sold within ten years.
4) Superfunding your children's 529 plans
Many people dread paying for college in the future. I'm even considering going back to work to help pay for a potential $750,000 all-in college tuition bill for one child in 15 years. I'm not bold enough to think my kids will be smart enough to get scholarships due to strong academic performance.
Despite the ability to learn everything for free online or through affordable books, college tuition keeps going up faster than the rate of inflation. Therefore, once you superfund each child's 529 plan, you will feel great knowing you've done the most you can do in a tax-efficient manner to pay for their college.
Even if you don't contribute another $1 to a college savings plan, a superfunded 529 plan with 10+ years of compounding should be able to pay for four years of public school tuition. If you want to have enough money to cover the cost of a private university, then you will likely have to contribute more.
Unfortunately, superfunding $80,000 is not easy for most families to do. But that's OK if you can't. You can always contribute annually to a 529 plan instead.
Another way to reduce the stress of saving for college is realizing you can always pay for college through your wages while your kids are in school. I didn't think about this method of paying for college because I don't plan on working 12-15 years from now. But once I did, I felt better because due to having another option.
3) Buying a safe car
I never thought much about car safety before we had children. If I did, I wouldn't have driven a Honda Civic, BMW M3, or a Honda Fit. But about halfway through my wife's pregnancy, I began noticing more car accidents and experiencing more close calls.
The stress of driving increased the closer my wife got to her due date. Therefore, I decided to buy a Range Rover Sport and return my Honda Fit once the three-year lease was over.
If I could have bought a tank, I would have. Alas, a large vehicle with thick doors and large crumple zones would have to do.
Driving in a big city is chaotic and full of mishaps. You can be the safest driver on the road and still get into an accident due to someone else's reckless driving. Constantly feeling like you and your passengers could get injured or die in a car accident is stressful!
The best time to own the nicest car you can afford is when you have children. After your children are gone, you can buy whatever you please.
A cheaper automotive financial move you can make to reduce stress is buying new tires and brakes. Don't ride your tires until they are bald. And don't wait until your brakes are squeaking either. Get your maintenance done on time.
2) Generate enough passive income to cover your basic living expenses
Once you have enough passive income to cover your food, clothing, and shelter expenses, you're able to fully emerge from your shell. No longer do you have to pretend to be somebody you're not. You don't have to put up with things you don't like either.
As your portfolio's passive income grows, your courage to be yourself increases. The more you can be yourself, the more you will feel alive. You'll more easily be able to find your ikigai, which gives you the reason for being.
The only issue with having enough passive income to cover your basic living expenses is that it takes a long time. It took me 13 years of aggressive saving and investing to generate enough passive income to take care of myself. Then it took another seven years to accumulate enough to take care of a family of four. 20 years is a long time!
Further, your basic living expenses are likely a moving target. My basic living expenses have only grown due to the birth of two children, healthcare costs, and education costs.
I've relied heavily on investing in real estate and stocks to try and outperform overall inflation. Most years have worked. Some years, like in 2022, have not. Therefore, a diversified passive income portfolio is also a must.
1) Getting life insurance policies.
Finally, the number one financial move that reduces stress and anxiety is getting affordable life insurance. The more you think about your children, the greater the impact of getting life insurance.
Even if you are single and don't have children yet, I would strongly consider getting a 30-year term policy if you're around age 30. Life can get much more complicated in a hurry.
My wife and I recently got two, 20-year term life insurance policies during the pandemic. My 10-year term policy was coming due in January 2023 and my wife also had half the amount of coverage I had, which made no sense since we are equal caretakers.
As soon as I got my new policy, a significant amount of stress and anxiety melted away. I had been searching on and off for a new affordable life insurance policy since 2017 when our son was born. But I couldn't find anything affordable since I went to an overzealous sleep doctor who said I had severe sleep apnea, which I didn't.
I kept putting off my search until a year before my 10-year term was about to expire by getting multiple quotes online with Policygenius. I finally was able to get a $750,000 20-year term policy with no medical checkup for a reasonable $140/month. In comparison, my old carrier, USAA, quoted me at $840/month!
I made a strategic error when I was 35 years old by only getting a 10-year term policy. I felt dumb for improperly forecasting my future at the time. As a result, I felt like getting an affordable new policy was like getting a second chance.
I would gladly pay $500/month to feel the amount of relief I started feeling once my wife and I got new policies. Thankfully, getting affordable life insurance is easy to do.
Make The Financial Moves Now To Reduce Stress Later
Life is stressful. The more money you have, the more you can use it to reduce your stress and anxiety.
Looking at my top financial moves list, I realize that many of them are due to having children. Therefore, if you want less stress and anxiety, don't have children. Children are a tremendous joy, but also a tremendous amount of responsibility.
Without children, you don't have to buy a larger house, superfund a 529 plan, buy a safer car, create a revocable living trust, or get life insurance if you have no debt.
If you already have children, then another strategy to reduce stress and anxiety is to lower your expectations of them! If you keep expecting them to get into a top university and become the next CEO, then everyone will feel constant pressure.
For those who want to reduce stress and anxiety quickly, tackle the easiest financial moves first. They are saving at least six months of living expenses, tracking your net worth in one place, putting together a death file, and getting life insurance if you have debt.
Once you get the easy moves out of the way, start tackling the harder ones.
Money Should Help Make Life Easier As You Age
Circa 2015, one incident in particular awakened my appreciation for having money. I had gotten a $90 parking ticket because I didn't notice it was street cleaning on that side of the road. I just thought I was lucky to have found a parking spot so easily!
Although I was annoyed when I got the ticket, I didn't care as much like I did in college. Given I cared less about the $90 ticket, I felt less stressed and happier as a result. I just chalked up the $90 to having a good time playing softball with my buddies.
We can use money to hire housekeepers, cooks, coaches, au pairs, tutors, night doulas, and therapists to help reduce stress. The more strain we are under, the more we should use money to help lighten the load. Just be careful spending too much money.
More Knowledge Should Also Help Alleviate Stress
There is one last financial move worth mentioning that helps alleviate stress. Spending money to obtain financial knowledge or any practical knowledge. In many cases, you can learn inexpensively or for free online. The more knowledge you obtain, the better you may be able to deal with suboptimal situations.
Let's say you're losing money in a bear market. If you know the historical average duration of a bear market and the historical long-term return of the S&P 500, you may be less inclined to panic sell because you're not as stressed. You've set up your net worth asset allocation to match your risk tolerance.
Now let's say you're a super-handy person. Random plumbing and electrical problems don't bother you as much because you know how to fix them all. Getting a flat tire is also no big deal because you know how to operate a jack and change a tire. MacGyver doesn't get stressed out. Instead, he finds solutions.
Now let's say you are an expert in hand-to-hand combat. As a result, you're less afraid to walk around the city in the middle of the night. You've experienced combat many times before and know what to do.
Finally, let's say you obtained tremendous practical employment knowledge after reading How To Engineer Your Layoff. As a result, you may not feel as stressed during a rocky economy because you know all the severance negotiation strategies to maximize your exit.
Knowledge is power. Don't let a lack of knowledge limit your creativity in finding optimal solutions. The more you learn the greater the command you will have over your life!
Reader Questions About Top Financial Moves
What other financial moves relieve stress and anxiety for you? Was there a point in your life where you no longer felt as stressed about money and the future? How would you rank my top financial moves from 1 to 10?
For more knowledge, pick up a copy of Buy This, Not That, my instant Wall Street Journal bestseller. The book helps you make more optimal investment decisions so you can live a better, more fulfilling life.
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