Stress and the Role of Money

The American Psychological Association has ranked money as the top stressor for Americans every year since they started their survey in 2007.  64% rated money as a somewhat to significant stressor in their lives.  Studies on relationships also rank money as a top reason for stress in relationships and a leading cause for divorce.

Now money is simply a means of commerce.  The focus on money is really just a proxy for what we can gain for ourselves using money.  Since we purchase many things of personal value to us with money, a shortage of money compared to what we want or feel we need, creates stress.

In a relationship, a lack of alignment on how to spend money creates significant conflict.  This is due a misalignment of values, often exacerbated by a lack of awareness of true values.  We are influenced more than we like to realize by advertising and our social conditioning, which is often at odds with our true values.  Of course, the biggest conflicts are between couples with very different saving and spending preferences.  A saver and a spender in a relationship is sure to cause financial stress for both sides.

It’s worth taking a step back and thinking about what stress is.  One definition is listed as:

“a state of mental or emotional strain or tension resulting from adverse or demanding circumstances”

This is a typical definition that you can find.  If you think about the definition above, stress is not necessarily bad.  In fact, stress can often be good.  Many studies show that a moderate amount of periodic stress is healthy and motivating (actually called eustress).  But what we’re typically referring to when we say “stress” when it comes to money is the bad stress, or distress.

From the studies on stress, many of which are from the workplace, I think its pretty clear that negative stress has it’s root in feeling hopeless.

It’s when you feel responsible for (or even have your performance rating dependent on) that big project at work succeeding but have limited control to actually make it happen yourself.

It’s when you or a loved one have a health problem you can’t fix.

It’s when you’re trying to help your kids make good life decisions during a tough time but you can’t fully control what they actually do.

In all these cases, you are very attached to an outcome that you can’t control.  This creates stress.

Our stress with money arises from the perception that we don’t have enough to cover the many things we are very attached to and require money.

It’s when you have a strong desire to buy something but don’t have the money for it.  It’s when you want to save up for a home down payment but your spouse is spending money shopping and eating out.  Or maybe you’re the one that wants to spend some money in order to have time with friends and you feel stressed because your spouse disagrees with those spending choices.  It’s when you want to retire but you can’t afford it.  It’s when you’re worried about paying for a medical treatment you need.  The list goes on.

What these stressful financial examples share is a money scarcity versus what is desired.

There are fundamentally two ways to address this problem and reduce your money stress.

1. Reduce your desires to fit your financial situation.


2. Accumulate more money until your financial desires are satisfied.

The problem with just focusing on #1, especially early in life is that your desires far outstrip your financial means.  Most of us are not enlightened monks or Stoics.  Even if you can reduce your lifestyles costs to a very minimal amount, you still need a large amount of savings to actually be financially free in modern society.

And most people are not truly free of money stress until they are confidently financially free, meaning they have enough saved that work is optional at least very little income from work is needed.

The problem with only pursuing option #2 is that the amount of money needed is often gigantic and it keeps getting bigger.

We humans have a bad tendency to never be content (hedonic adaptation).  Once we gain an amount of wealth that we used to think would be plenty, we typically want more.  Often this means more spending for a “better” standard of living.

When many people, rich or poor, are asked how much is enough, their answer is “more”.  Studies on money and happiness show the same thing, regardless of income.  When asked what income would make them happy, it’s always about 20% more than they are currently making.  And it doesn’t matter whether they are currently making $20,000 a year or $200,000 a year.

In reality, both approaches need to be pursued together.

#1 is very important.  I would argue reducing your wants is the biggest key to both financial freedom and overall happiness.  There is a parable about a monk and a minister floating around the internet that highlights this nicely.

Two close boyhood friends grow up and go their separate ways. One becomes a humble monk, the other a rich and powerful minister to the king. Years later they meet. As they catch up, the minister (in his fine robes) takes pity on the thin, shabby monk.

Seeking to help, he says: “You know, if you could learn to cater to the king you wouldn’t have to live on rice and beans.”

To which the monk replies: “If you could learn to live on rice and beans you wouldn’t have to cater to the king.”

By reducing the amount of spending you need to be happy, the amount of money you need to save is much, much smaller and the working time needed to save it is much, much less.

As an example, using a 3% withdrawal rate (which I recommend for early retirees as explained here), if you want to be able to spend $30,000 a year for the rest of your life without ever making another $ through paid work, then you need to have $990,000 saved and invested.  If you want to spend $100,000 however, you need $3,300,000, which is an extra $2,310,000 saved.

Even for those with high incomes and high savings rates, this is many, many more years of catering to the king.

Luckily, #1 tends to get easier as you get older.  It becomes more apparent that spending more doesn’t make you that much happier and if you’re truly conscious of the value you are getting from your spending, you naturally start to make better spending choices while limiting the waste of your own wealth.

As you make progress on #1, you’ll find your financial stress going down quickly.  You can start to feel like you have “enough” on a day-to-day basis and are starting to save more and more of your income.  Now money is feeling less scarce and you start moving towards a healthier abundance mindset over the following years.

Once you have #1 under control, #2 becomes much easier.  Now you just have to save enough to cover the lower spending level needed to make you happy.  And for most people who truly reflect on their personal spending to happiness equation, they are pleased to realize that they don’t need to spend as much as they might have thought to be happy.

Just save enough in order to spend what is needed to make yourself happy.

You don’t need to spend more of your life saving money you don’t need in order to buy things that don’t make you any happier.  It’s worth really thinking about this.

Again, if you start spending less, you also start saving a lot more so you get a big win-win.  The amount you need for financial freedom goes down a lot and your savings increases faster.  Your journey to financial independence really accelerates!

You are on the path to a feeling of abundance and financial stress is fading by the day.

And since financial stress has such a large negative impact in our lives, this is a really good thing.

At work, you’ll probably find you enjoy it more.  Many people say they like their work more once they realize they don’t need it.  This has certainly been the case for me.  No more stressing about the next round of layoffs.  No more worry about some impossible goals at work.  No more worry about office politics.  Maybe you won’t feel as obligated to put in “extra” hours that are creating a more stressful work/life unbalance.

At home, you should see a significant improvement in your relationship(s) since money stress has a negative impact even if a lot of it is subconscious.  You might find you’re more patient with your kids after a day at work because even if you’re working the same hours as always, some of the chronic background stress is gone.

You might find yourself sleeping better.

You might find yourself making healthier food choices.

You might find you have more energy or are simply unexplicably happy at times throughout the day.

All of these things are linked quite clearly to stress even though we don’t feel the connection consciously.

So if you weren’t already convinced that pursuing financial independence is worth it, maybe this article on stress and money will give you strong nudge towards the pursuit.

I’m quite certain that if you decide to pursue FI, then you won’t regret it.  On the other hand, I can’t give you comfort the other way around.  The advice from those with a lifetime of wisdom is that you likely won’t regret saving more now but that it’s very likely you will regret not saving enough early in life.  Just like you’ll regret having to work too much in life at some point even if you don’t realize it when you’re young.

The common regrets of working too much and not savings enough earlier in life are often linked.

Prioritizing savings early in life will help you get out of debt earlier, have a healthy amount of money in case of an emergency, and will start a slow snowball of wealth accumulation that you’ll appreciate later.

The future you will be glad you didn’t waste any more of their money or life (i.e. time) than you had to.

From the start, and throughout your financial journey, saving more money will make life seem a lot less stressful than it otherwise would.

Spend some money buying financial peace of mind.  The reduction in unhealthy financial stress is likely to make you more happy than most of the things you could have purchased with the money instead.

As always, I wish you the best on your own journey.

4 thoughts on “Stress and the Role of Money”

  1. Psychology is fascinating. The fact that 20% more is the answer, regardless of income, makes no sense and perfect sense at the same time. Thanks for sharing your thoughts.



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