May is National Mental Health Awareness Month, and in that spirit, we’d like to take a look at the influence of money on our own well-being. Much of the recent discourse surrounding mental health has been about healthy vs unhealthy relationships, how to distinguish between the two, and how to improve them going forward. While these discussions usually center around interpersonal relationships, it’s important to also consider the health of our relationship with money. Whether we like it or not, finances play a huge role in our everyday lives, and having an unhealthy relationship with money can have an outsized effect on one’s happiness. Here are 7 ways to have a healthier relationship with your money:
1. Have a long-term view
Financial markets are volatile by nature, and inherently unpredictable. There always exists a risk of negative performance in a day, month, or year. Despite what some may say, no one can know what the next day will bring. Consider this: the most impactful event on financial markets in the last decade was the COVID-19 pandemic. How many of us saw that coming?
With that said, the longer the timeframe we examine, the safer some assumptions become. It’s entirely possible, likely even, that sometime in our lives there will be another black swan event which causes the market to decline; however, we also have a bevy of historical evidence that the long-term trend of markets is positive, despite these negative events. The Russell 3000, an index that benchmarks the entire U.S. stock market, has an average yearly return of about 8.3% since 1990, despite the Dotcom Bubble, Global Financial Crisis, and COVID-19 pandemic all happening during that timeframe.
While it can be scary to see your portfolio shrink during a downturn, it’s only permanent if you are forced to sell when the market is at a low point. Investing for the long-term and only exposing long-term assets to market risk will help prevent a forced sale. That, in turn, will grant you some peace during future market downturns, knowing that your portfolio is designed to weather such events.
2. Don’t fixate on the headlines
Once you and your advisor have crafted an appropriate portfolio, you can take the next big step in improving your relationship with money: turning the TV off! Financial news is ultimately an entertainment business; while forces that drive market returns like interest rates, inflation, and earnings are important to know, they can also be a little… boring. On the other hand, bold predictions and existential threats make for great television, and emotionally written pieces drive online engagement. Because of this, headlines tend to be disproportionally dramatic and negative. The next time you find yourself having an emotional reaction to a story, consider whether the piece is truly meant to inform, or if it’s purposefully composed in a way that elicits emotional reaction.
To be fair, there are plenty of financial journalists doing important, accurate reporting, but it can be difficult to cut through the noise. A great place to start is with LTWM’s quarterly market commentary, written by our Chief Investment Officer Tim Sallade.
3. Keep your goals in mind
One potential barrier to saving is the ambiguity that is often attached. The things we want to buy are right in front of us, tangible and concrete, with benefits that are easy to imagine. On the other hand, saving for savings sake can feel vague and undefined. We all know it’s what we’re supposed to do, but it can be hard follow through without clarity surrounding what you’re saving for. Try to set specific goals for your financial future and keep them in mind when making purchasing decisions. It can be hard to forgo a purchase for the sake of “savings,” but it’s easier to do it for a down payment, your kid’s college, or an early retirement.
Keeping your goals in focus can also provide emotional benefits when it comes time to accomplish them. It is common to feel guilt or stress about large purchases, even when we know we can afford them. When we embrace goals-based thinking and steer away from the false binary of good saving vs bad spending, we give ourselves permission to feel joy and accomplishment upon the realization of a financial goal.
4. Prepare to flip the switch from saving to spending
Speaking of financial goals, don’t overlook the big one: retirement! After 30+ years of working and saving, it’s easy to get used to seeing your account balances rise. For most of us, retirement will mean seeing that number start to go down, and that’s ok! There’s a big difference between spending your savings and spending an unsustainable amount.
Even with assurances that withdrawals are sustainable, it can be hard for some to transition to drawing down their savings. We spend our entire working lives thinking that saving is good, and spending is bad. New retirees can struggle with feelings of guilt and insecurity as they face the prospect of seeing their account balances decline.
Try to get comfortable with the idea of spending your savings in retirement. Guilt can cause you to be overly conservative with your retirement spending, which robs you of the enjoyment you earned during your years working. Allow yourself to enjoy the fruits of your past diligence! If you are worried about your spending levels, a LTWM advisor can work with you to find a level of spending that is appropriate for your circumstances.
5. Reexamine your relationship with debt
Many of us are taught that debt is inherently bad and should be avoided at all costs. While that kind of thinking is helpful when it comes to high-interest loans like credit card debt, it doesn’t capture the full picture. Not all debt is created equal, and debt with a reasonable interest rate can be a healthy tool in your financial plan.
To be clear: it’s important to pay off credit cards each month, as well as make required monthly payments for student loans and mortgages. With that said, loans with lower interest rates shouldn’t necessarily be paid off as fast as possible. If your interest rate is lower than high-yield savings rates or expected long-term market returns, it’s probably beneficial to invest your extra cash instead of paying extra on your loan. Additionally, debt can be a tool to efficiently access your equity. HELOCs, Home Equity Loans, and Margin Loans can be useful tools to generate capital without selling assets or creating tax liabilities.
Debt can feel suffocating for some, but distinguishing between healthy and unhealthy debt can help relieve your anxieties. Many healthy financial plans involve folks keeping their existing loans or even thinking about taking on new ones. If you have reasonable interest rates and are paying on time each month, you’re doing just fine. Give yourself some grace!
6. Be flexible
Imagine being able to speak with your 18-year-old self and compare notes on their expectations versus your reality. Certainly, there would be things they predicted correctly, and goals that you’ve managed to accomplish. But your timeline is probably also rife with the unexpected, in good ways and bad. The future is impossible to predict, which means the only real guarantee is unpredictability.
When it comes to your financial situation, expecting the unexpected is important. One key way to do this is to build an emergency fund with enough to cover 3-6 months of non-discretionary expenses. Building yourself some leeway will give you time to react to unexpected changes without immediate financial pressure.
With that said, don’t only prepare for the negative. Go through the exercise of imagining what you would do with an unexpected windfall. Having a plan for an unexpected bonus can help you utilize that money in ways the are meaningful, and that you won’t regret in the future.
Importantly, most of the big changes we see in our lives extend well beyond a financial loss or gain. Events like meeting a significant other, changing careers, or losing a loved one are important on levels greater than financial, and yet money is adjacent to all of them. Having a flexible financial mindset can help you overcome the fear of change and allow you to process your emotions before you have to consider financial impacts.
7. Talk to someone
The theme for 2024’s Mental Health Awareness Month is “Where to Start,” with a mission statement of “For anyone struggling with the pressure of today's world, feeling alone, or wondering if they can feel better, this is Where to Start."
If you are struggling with your relationship with money, a financial planner can help. They can help you better understand your financial situation, evaluate your relationship with money, and work towards a brighter future. Lake Tahoe Wealth Management advisors have decades of experience helping clients navigate their emotional connection to money. To get started, email info@laketahoewealthmanagement.com to set up a free consultation, where an advisor can help you better understand the help we provide.
If you or a loved one need more information about mental health and available resources, Mental Health America’s website can be a good place to start.
Interested in learning more about Mental Health Awareness Month? Visit the Mental Health Month homepage.