Buyology: Money stress and a 3-step guide to reducing it

Jul 30, 2021

Dr. Amos Nadler, Ph.D. Chief Economist at Fabriik

Last week we talked about stress and investment decisions, this week we’re taking a step back to look at the bigger picture.

The history of money shows that coins emerged to standardize trade. Instead of ad hoc ballparking exchange rates on the fly (“how many goats does it cost for one cow, again?”), a reliable common denominator could be used. Today money isn’t a usable commodity such as cocoa beans or cows but a proxy for purchasing power not just for necessities but also for social status and freedom in how we spend our time.

Everyone, regardless of their wealth, experiences money stress. Being financially poor profoundly affects people’s stress levels, developmental arc (especially children), and overall health; middle-income earners face the twin challenges of avoiding falling into a lower status echelon while working to rise to a higher one; high earners generally focus on preserving and growing their wealth through investments and/or entrepreneurship. Given its importance to us, it should come as no surprise that our human physiology and hormone production change in response to price volatility or that experienced traders who learn how to control emotions over time will outperform.

A simple three-step guide to reduce financial stress

So, how can we experience less financial stress? Make sure your bases are covered and have a plan to get where you want to go. Also, your ability to live your “normal” life shouldn’t be under threat from a single mistake or market event.

  1. Don’t invest your lunch money. Your portfolio should reflect your life stage, income, and risk preferences, and you should set realistic investment goals. A properly allocated portfolio means that you won’t have to eat Top Ramen the rest of your life if one IPO flops.
  2. Keep learning to stay on top. For most of us, employment is our largest source of income, so keep your training and skills current to perform well in your role. (Do like the professionals: take regular training courses to keep up with developments in your field).
  3. Don’t skip the fine print on insurance. Although it comes at a cost, robust insurance provides peace of mind and tangible protection in the event of loss of a job or, heaven forbid, injury or death.

Together, these three steps should allow you to take life in your stride and be able to navigate whatever it throws at you (unless life throws a cow at you, they are really tough to dodge).

 

Thoughts? Reach out to me on Twitter @profofwallst to discuss.

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