Finance

When The Beatles sang: “I don’t care too much for money, ‘cause money can’t buy me love” they were right. Money cannot possibly buy real, meaningful love, though it can lead to transactional relationships predicated on false emotions – which is anything but. And so too would John, Paul, Ringo, and George have been more or less on point if they had replaced the word “love” with “happiness.”No amount of money can guarantee human satisfaction – indeed, far too often we see people who have achieved significant wealth far from sitting back content with what they have acquired. These folk often instead seek ever more wealth, thus the rise of the once unconscionable centibillionaire. However, the lack of sufficient money can certainly lead to unhappiness. Without enough money to comfortably cover the living expenses for yourself and your family – or without the funds for dealing with an unexpected emergency, not to mention lacking the means for the occasional vacation or a purchase made for pleasure – a sense of privation can lead to stress, anxiety, anger, and depression. All of which are anathema to happiness, of course.RELATED: Why Gordon Ramsay’s Children Will Not Inherit His MoneySo, let us operate under two conditions: first, let us accept that a great abundance of money cannot guarantee happiness. Let us second note that insufficient money can cause unhappiness. How much money do you need to be happy, then, if it’s not untold riches? The better question is not how much money you need to be happy, but rather how much money is needed to allow for happiness. Ultimately, the answer is different for everyone, but we can establish some baselines for reference.How Much Money Do You Need to Be Rich?(Photo by Alexander Mils on Unsplash)“Rich” is not a technical term; rather, it is about as subjective a term as can be found in the English language. One person may consider someone with $100,000 in the bank as quite wealthy, where as another may lament that their $5 million net worth is so low. What counts as the poverty line in one nation is triple the average annual salary in another.While there is no universal figure that denotes arrival at the status of wealthy, financial experts in the United States have come up with a number: according to the most recent Modern Wealth Survey conducted by Charles Schwab, the average American considers a net worth of $2.2 million to be the lowest figure at which a person (or a household) can be considered rich. RELATED: How to Save Money: 7 Tips to Start Saving NowNote, however, that the same survey found that a net worth of $774,000 was the minimum required to feel financially comfortable, albeit not rich.As comfort is one of the major preconditions for happiness, ultimately that second figure, the $774k that fosters comfort, is probably the more important figure. How Much Money Do You Need to Create Conditions for Happiness?(Photo by Nguyen Thu Hoai on Unsplash)If we accept that a certain amount of money can create the conditions for happiness, then we next need to look at all the conditions that inform that number. That $774,000 figure is static, while life is not, so we have to assume that you are able to keep the number there (or above) even as there are still bills to pay, groceries to buy, gas to put in the tank, and on it goes.Let’s look, then, at the cost of living in the United States. According to World Population Review, in 2022 the average cost of living in America is $61,334 per year. That’s the cost of keeping the proverbial lights on – of paying the standard expenses we just mentioned as well as everything else. What that figure does not include is savings or discretionary spending, so it’s an incomplete picture.RELATED: Side Hustle Ideas To Make Money Or Start A Passion ProjectYou will need to calculate your own budget for spending on pleasure, but when it comes to planning for retirement, we can turn to a bit of expert advice. Assuming you want to retire at that $2.2 million mark, the bar for being rich, remember, according to CNBC Select, you need to be diligent about your investing. If you were starting from scratch and hoping to retire in 20 years, you would need to invest $4,335 each and every month to hit that $2.2 million threshold – hardly a realistic figure for most people. To retire with $2.2 million in 30 years, you would need to invest $1,1881 per month, which is still quite high. Ideally, you have a timeline closer to 40 years ahead of you, because at that span of years, you would need to invest $890 each month – a much more manageable figure, though still a real chunk of money. The Income Needed for Happiness(Photo by Tim Gouw on Unsplash)According to Go Banking Rates (citing a recent Purdue study), the average annual income a North American household needs to feel happy is $105,000. The figure varies by state and territory, of course, as the cost of living from one place to another can be wildly different, but there’s your average income needed to be happy.RELATED: 5 Cognitive Biases That Affect Your Money ManagementWhy didn’t we cite this figure earlier? Because if a household is saddled with lots of debt, be it a steep mortgage payment, student loans, credit card debt, and so on, then even that solid income may not generate the comfort that a positive net worth of $774,000 can foster.The Problem With Money and Happiness(Photo by Sage Friedman on Unsplash)Money has an insidious way of infecting the mind: when we don’t have enough of it, money can be the only thing we think about. But just the same, almost no one ever thinks in terms of “too much” when it comes to money – after all, we could always have more. The secret is to realize that you have enough money to feel safe and comfortable and then to look around in life for other things that will bring you joy – after all, money is just a series of numbers you trade back and forth, often without ever even touching physical currency these days.In the words of Sheryl Crow, "it's not having what you want, it's wanting what you've got."KEEP READING:Train Your Brain to Shed Distracting Habits and Concentrate Better

The way the human mind functions when it comes to money is a complex subject matter, to say the least. It’s a matter which experts devote their entire professional lives. If you already have a solid understanding of behavioral finance, then you are in a rarified group and, quite frankly, there’s no need for you to read on.If you’re like the rest of us, though, you're likely falling victim to a number of cognitive biases that are costing you money. The Most Common Money Management Cognitive Biases(Photo by Alexander Mils on Unsplash)Today, we’ll parse through five of the most common cognitive biases that affect money management skills and can impact your potential in earning, saving, and investing, but note that there are many more cognitive biases than those covered here. We’re focusing on the five heavy-hitters of the subject, and we hope to open your eyes to more of the ways your own thinking can cost you money.The sunk money fallacyAny gambler knows this classic cognitive bias all too well (and anyone who’s good a gambling will tell you Kenny Rogers was right when he sang “know when to walk away, and know when to run”). Unfortunately, you don’t need to frequent the blackjack table or roulette wheel to have experienced the sunk money fallacy in your own life: it can (and does) happen with investments, with property, with vehicles, and with so much more.Simply put, the sunk money fallacy describes a human tendency to stick with something into which we are already invested even when, objectively, it seems a bad idea. RELATED: Why Gordon Ramsay’s Children Will Not Inherit His MoneyWe tend to keep putting more money into a failing business hoping it will turn around and grow and we’ll see our investment pay off. We spend more and more money repairing an automobile when it would make more financial sense to get rid of it and buy a vehicle in better shape. And so it goes.The antidote to the sun money fallacy has a harsh name: cutting your losses. But once you stop throwing good money after bad, you are effectively saving money. Accept that what you have spent is gone, and that spending more on the same mistake is only amplifying the problem.The anchor biasHuman beings are hard-wired to hook onto things, be they ideas, people, or prices. The first politician to speak during a debate has a marked leg up over her competitors because she will imprint on us merely for being first, and this will remain true even if a subsequent participant had better command of policy and more eloquent speaking style.The first price we see for an airline ticket, say $500 for example, will become our reference point as we track the flight over the coming days even if it was actually nowhere near a good price. The anchor bias might see us spending $475 on a flight that should have cost $350 because we got that $500 price in our heads.Or maybe you have been watching a stock you believe strongly in for weeks, waiting for it to drop back to that $15.50 price point where you first saw it even as it ticks up to $19, then $20, then $21 as the days go on; you may well keep waiting for it to fall forever, never buying in because you anchored to that lowest price even though it still would have been a good buy well into the $20s.While perhaps harder to do when it comes to our feelings on people and politics and such, when it comes to money matters, you can drop the proverbial anchor. You simply need to identify that you may be anchoring and then look at the numbers objectively and in comparison to other data. What is the standard price of a flight at similar times to the same locations at different airlines? What have other similar stocks done recently? Numbers don’t lie unless you let them.The money bandwagonRemember when the stock price of the video game retailer GameStop jumped from the teens to well over $300 in a matter of days in early 2021? It then went crashing right back down. What happened? People got on the proverbial bandwagon, grossly inflating a stock that was destined to crash again – a few people made out like bandits; most people got left in the dust.RELATED: How to Save Money: 7 Tips to Start Saving NowJust because a lot of other people are making a given financial move is no reason for you to do so. It can be a reason for you to take a close, objective look at a given financial asset, be it a stock, a property, a bond, or what have you, but make your decisions with the same cool head and independent thinking as you always do, not because of any sudden surge in popularity around any financial instrument. The conformation biasPeople engage in the conformation bias all the time in all aspects of life, from health advice to political leanings to pop culture and more. Simply put, the confirmation bias is the cherry picking of facts and information that support what you want to hear. When it comes to money matters, if you only seek out material that agrees with your strategies – say, reading the blog of a company that helps you invest in gold right after you invested in gold – you are going to hear what you want to hear, which may be a far cry from what you need to hear.There’s a subset to this bias which is sometimes identified on its own. It’s known as post-purchase rationalization, which is when we engage in some mental gymnastics to convince ourselves we’re happy with a purchase or investment that, deep down, we regret. Buyer’s remorse may be a bad feeling, too, but it may be one we can solve by returning a purchase, selling off an asset, or at least learning from for the future instead of suppressing.The status quo biasOne of the worst things you can do, from a financial standpoint, is nothing. But that’s exactly what so many of us do. We may wisely invest in a few stocks, a few ETFs, and we may buy some bonds and then we do… nothing. We think “I’m already invested, my work is done until retirement!” But sticking with the status quo, leaving things as they are, can leave huge sums of money on the table, as it were, when making an occasional sale or new buy could have led to huge gains.RELATED: Side Hustle Ideas To Make Money Or Start A Passion ProjectUnless you have entrusted your finances to one very capable fiduciary, you owe it to yourself – literally owe – to check in on your finances now and then and to make moves when you can, because accepting the status quo actually means stagnation.What Is a Cognitive Bias, Anyway?(Photo by Arteum.ro on Unsplash)According to the Merriam-Webster Dictionary, the word “cognitive” means: “of, relating to, being, or involving conscious intellectual activity (such as thinking, reasoning, or remembering)” while one definition of the word “bias” means: “systematic error introduced into sampling or testing by selecting or encouraging one outcome or answer over others.”Putting those two definitions together gives you an excellent definition of the term “cognitive bias,” which we can understand as a pattern of deviation from reasoned judgment in favor of self-imposed misperception. When you stumble into a cognitive bias, you are perceiving things through your own fallible lens, not seeing things as they really are. And when it comes to money, in most cases a cognitive bias will cost you.KEEP READING:Train Your Brain to Shed Distracting Habits and Concentrate Better

If worrying about your finances keeps you up at night, you're not alone. According to a recent survey, a whopping 73% of the U.S. population rank finances as the number one source of stress in their lives.Financial anxiety is common for a good reason. It can be incredibly challenging to save up for financial milestones like buying a home, sending kids to college and retirement while paying bills and managing current expenses. RELATED: Regular Workouts Keep Improving Your Memory and Brain Function — Here’s HowAs the old saying goes, worry is like a rocking chair – it gives you something to do, but it doesn't get you anywhere. This article will explore financial anxiety – what it is, why it happens and actionable steps to take control of your finances and improve your financial future. What is financial anxiety?Worrying about money every now and then is common. But for those who suffer from financial anxiety, the fear can be obsessive and debilitating. People with financial anxiety are constantly stressed about paying bills. They feel fear when logging on to their bank account – even when there's nothing that should be upsetting about the recent transactions made. Those with financial anxiety may be so upset about finances that taking actionable steps toward financial planning feels too scary or stressful – to the point that they continue to ignore their finances even when they know addressing financial issues is in their best interest. How to Overcome Financial Anxiety(Photo by Alexei Maridashvili on Unsplash)Overcoming financial anxiety is as much about self-care and fortifying mental health as actively managing finances. Financial stress and anxiety are prevalent for many reasons. The main one is that our finances can be affected by things out of our control. Even when finances are on track and everything is stable, a job loss or stock market crash can throw off the best laid financial plans. Here are a few tips for overcoming financial anxiety. 1. Learn how to manage stress. Negative events are par for the course when it comes to finances. Instead of trying to control what you can't, learn techniques for managing the stress that can come with financial uncertainty. An effective way to do this is to start taking note of the thoughts that come up around finances, then practice stress management techniques to work through these difficult feelings. RELATED: Open-Mindedness: 5 Practical Steps To Open Your MindThis can be done through journaling, cultivating gratitude toward your current situation and looking toward the future with a more positive outlook. If financial anxiety has become stressful enough to exhibit physical symptoms such as insomnia, headaches or lack of appetite, it may be beneficial to find coping mechanisms that help alleviate the physical responses to financial stress. One method that can help is the 4-7-8 breathing technique, which mental health professionals often recommend to help regulate the nervous system. 2. Focus on physical health. Prolonged periods of stress can impact our overall health and well-being. The more time you spend focusing on improving your physical health, the better your mental health will be, which can help alleviate symptoms of financial anxiety. If you've suffered from financial anxiety for a long period of time, chances are it has started to impact you physically – whether that's a compromised immune system, digestive issues or trouble sleeping. To work toward improving these symptoms, start incorporating exercise into your daily routine. This can be as simple as starting off with a walk around your neighborhood or at a local park. Exercise releases endorphins, the feel-good chemical in our brains, which can help improve mood and keep negative thoughts at bay.3. Speak to others. When dealing with financial anxiety, it can be easy to feel that you're the only person experiencing these negative thoughts and concerns over money and future financial outlook. But worrying about finances is a common issue, and in reality, very few people feel entirely financially secure all the time. Feeling alone can actually increase our stress levels, so speaking to other people in your life about your financial anxiety can make your fears feel valid and normal. Finding support within your social circle can be a powerful way to help manage and alleviate financial anxiety – however, talking about money and finances can also be uncomfortable. If you'd rather speak with someone you don't know personally, there are resources available for people who are specifically stressed over managing debt, such as the National Foundation for Credit Counseling.4. Create a financial plan(Photo by Christin Hume on Unsplash)You've learned how to manage stress levels, made changes to improve your physical health and confided in others about your financial anxiety. Once you've implemented these changes, you're in the right frame of mind to start slowly evaluating your current financial state. You can work toward putting a plan together that will make you feel more financially secure now and in the future. The first step in creating a plan to stop financial anxiety? Creating a budget. To do this, take a look at the last three to six months of your spending history and identify superfluous costs. The trick to creating a budget you'll stick to is not to omit every expense that isn't an absolute necessity but rather to build a budget that helps you save money that can be allocated toward your financial goals that doesn't leave you feeling deprived. RELATED: What Is Groupthink? How To Avoid This Common BiasFrom there, focus on building an emergency savings fund to have in case something unexpected, like a job loss, happens. Ideally, having three to six months’ worth of living expenses saved is an ideal place to start. To do so, use the money saved from your budgeting exercise, and see if there are other ways to earn additional income to help build the fund more quickly.5. Meet with a financial advisorThere's plenty of work you can do on your own to help manage financial anxiety but meeting with a financial advisor to discuss your future financial goals and current financial stressors can help take things to the next level. Once you've managed your budget and built up a savings account, a financial advisor can help identify low-risk investing methods to slowly grow your money. This can help you feel more financially secure and help alleviate financial anxiety. Summary(Photo by Josh Appel on Unsplash)Financial anxiety is, unfortunately, a very common experience. Though it can be difficult to break the cycle of negative thinking and worry associated with financial anxiety, it's possible to cultivate a positive mindset around finances by following the proper steps. Identify stressors that trigger financial anxiety, learn how to manage them and take steps to improve your physical health. Then, get to work on building a financial plan that makes you feel as secure as you can with what you can control regarding your financial future.KEEP READING:Train Your Brain to Shed Distracting Habits and Concentrate Better

Your number one financial goal in life should be, simply put, the achievement of financial wellness. We’ll discuss what we mean by financial wellness in a moment, but first, let’s say this: financial health does not mean being rich; it means being content.When you are setting financial goals, you are not planning for a future where your bank account is overflowing, you are rather setting yourself up to meet future financial obligations with ease and confidence, to weather financial emergencies, and to have an overall healthy financial life. And really, that alone is a pretty huge goal. But it need not be a daunting one.The secret to hitting that big financial – financial health, e.g. – goal is to establish multiple smaller goals and then make a plan and put in the work to hit them. And as you hit those goals, a sense of financial wellness will materialize.What Is Financial Wellness?To be clear, again, financial wellness does not mean achieving significant wealth – you can very much achieve financial wellness without amassing more money than you ever dreamt of or generating wealth such that your financial situation is one of riches. So, what do we mean by financial wellness? Think of achieving financial wellness as reaching a place in life free of financial stress and in which your financial situation is balanced and improving, even if only slowly and steadily.Financial wellness is a state of existence in which you are able to meet your current financial responsibilities like paying bills, buying groceries, and even having some discretionary cash on hand, and in which you are accounting future financial obligations, like paying down a mortgage, sending the kids to school, and planning for retirement.(Photo by Wonderlane on Unsplash)RELATED: 5 Daily Habits to Steal from Google Co-Founder Larry Page Including His Controversial Leadership StyleIf we want to trust the financial experts at the Consumer Financial Protection Bureau, then the four factors needed for financial wellness are:1. Stable daily/monthly finances (expenses vs. income/savings, e.g.)2. A financial cushion capable of absorbing a sudden expense3. A financial situation allowing for freedom of choice4. Progress toward a stable financial futureMakes sense, right? It’s really all about being comfortable now, financially speaking, even with some bumps in the road, and having a roadmap for financial comfort in the years ahead. And it’s about having enough money to have a bit of fun, too.Why Is Financial Wellness Important?If you enjoy enjoying your life, then financial wellness is important. Perhaps that sounds a bit flippant, but it’s entirely true. Without your proverbial financial house in order, you cannot truly enjoy your life, because one major aspect of your life is a constant threat to the well-being of its other areas. Without proper funds available, you lose control over so much of your life: you cannot be as selective with the hobbies you pursue, the foods you eat, the places you visit, the clothes and accessories you buy, and on it goes. And until you are in control of your finances, you cannot be as selective when it comes to major points in your life, either, such as where you live or the job you work. Financial wellness is critical to emotional wellness and really to overall wellness.So, how do we get to a state of financial wellness so our mental and spiritual wellness can be supported?Understanding financial literacy(Photo by Alexander Mils on Unsplash)Financial literacy does not ensure financial wellness, but without financial literacy, you’re unlikely to get there. Fortunately, financial literacy does not require a degree in accounting or years spent working at an investment bank or anything of the sort. Being financial literate just means you grasp the importance of saving, of planning for both short-term and long-term financial goals, you understand that avoiding or getting out of debt is imperative, and you know the value of proper budgeting. RELATED: Regular Workouts Keep Improving Your Memory and Brain Function — Here’s HowFinancial wellness improves with good financial literacy, and financial literacy improves with regular reviews of your money situation compared with your financial obligations. Achieving Financial Health Means Setting and Hitting Financial GoalsDon’t think of financial goals as having the wealth to buy a mansion or a sports car or spend three weeks a year vacationing in the Mediterranean or on Fiji. Those things would be nice and may well come in life, but they are aspirational rather than actionable financial goals, and fixating on distant financial goals like that can cause two issues: one, it may set you up for failure unnecessarily, which can damage your mental health and overall health as well based on stress and a lack of satisfaction. RELATED: Open-Mindedness: 5 Practical Steps To Open Your MindAnd two, setting overly lofty financial goals that are hard to hit may mean you don’t see all the successes you are actually having. Because in reality, financial goals should not be the big house or fast car, but the establishment of emergency funds that can float you through rough patches, retirement planning that feathers the nest for a comfort later in life, and the creation of a budget that lets you manage your personal finances properly week to week, month to month, and year to year. Financial goals are not riches, in other words – though at some point wealth may come thanks to hard work and good planning – but are simply actionable metrics that can help you achieve financial freedom and establish good and lasting financial habits.The Importance of Eliminating DebtIt’s easier said than done, of course, but you simply have to work toward getting out of debt if you’re ever going to achieve financial wellness. Whether it’s student loan debt, credit card payments, a hefty mortgage, or any other source of debt, while you owe more than you can pay, you cannot thrive financially, and let’s be honest: doing well financially is closely tied to doing well emotionally. When you can grow your finances, you can grow your sense of self-esteem and your happiness in life. It’s almost impossible to get into a positive growth mindset while you have that burden of debt on your back.Yes, you do need to plan your budget(Photo by Giorgio Trovato on Unsplash)There are a slew of reasons people avoid planning out a budget for their lives. Maybe you think they are just too hard to create. Maybe you worry you’ll never stick to one. Or maybe you don’t want to know the hard truths about your finances that will come when you calculate your budget.First, budgeting is not that hard: you don’t have to be precise to the penny to figure out about how much you spend each week on bills, gas, food, fun, and so on, and it’s not that hard to figure out how much you earn and what you have saved and invested. And guess what? You just made a budget.RELATED: What Is Groupthink? How To Avoid This Common BiasSecond, you will likely find you are already living within your means; sticking to a budget might be easier than you expect, and if it’s not, the trouble was already brewing and now you can create new ways to keep yourself in line.Third, it’s always better to know. If you have allowed in the thought that you don’t want to know your budget because it may be frightening or depressing, you are already being nibbled at by negative emotions; once you know, you may see they were needless, or you may see you were right, but then you can take action.Does Achieving Financial Wellness Mean Not Thinking About Financial Wellness?So in one way of thinking, you’ll know you have reached a true state of financial well being when thinking of your financial life doesn’t cause you even a bit of stress or worry, and may even elicit some contentment or even excitement.Perhaps the best financial wellness definition is the state of being where financed aren’t even on your mind at all.KEEP READING:Train Your Brain to Shed Distracting Habits and Concentrate Better