Money - Understanding its role in your life to eliminate anxiety
Welcome to the 5 new Alive & Thriving people who have joined us since last Sunday! If you’re reading this but haven’t subscribed, be an early adopter of this growing community of humans looking to thrive by subscribing here!
[Hu] man is not worried by real problems so much as by [their] imagined anxieties about real problems - Epictetus
What Role Does Money Play In Your Life?
Defining the role money will play in your life is a key part of feeling good.
For as long as I can remember being financially successful was a motivating factor in my life. However, being financially successful was an incredibly vague idea. Broadly speaking, when I reflect on my conception of success, it simply meant having more.
As a result, it became way too easy to move the goal posts every time I had a win. You make your first $1 and now $2 is the number to chase. In the back of my head I had some arbitrarily large financial number that represented the end goal, but frankly did not have clear reasons why that was the number.
The more I've talked to people about money I have found this thinking to be common. I'm not saying everyone thinks this way but I think many of us yearn for financial success, yet don't spend enough time defining what that actually means to us and what it looks like.
By not taking the time to understand what I wanted money for, I created pressure on myself based on some arbitrary and intangible goal. I had, due to a lack of thought, turned money into a source of anxiety. In order to try and face this anxiety I decided to explore how money affects well-being.
Money Alone Won't Make You Feel Better
The correlation between money and happiness has been studied exhaustively and the conclusions are that it affects happiness to a point.
Day to day happiness is highly correlated with money until you reach $75K per household. Afterwards, making more money has diminishing returns and less of an effect on your overall happiness.
This makes sense. At certain levels of income you're worried about making ends meet, maybe you don't have enough to cover basic necessities, and as you make more money you can worry less about basics like food and shelter, as well as, afford purchases that bring you delight in your day to day. After that point, more money does not necessarily correlate to more happiness.
What I find even more interesting is that approximately 46% of U.S. households make more than $75K/yr. In spite of this fact, 77% of households report feeling anxious about their financial situation. We know money won't necessarily increase our happiness, but how do we deal with the anxiety that money causes?
As someone that had my necessities and even my day to day joy's taken care of I identified closely with this group of people that still had some level of anxiety around money. As a result, I tried to get to the root of what I was anxious about.
How Does Money Affect Anxiety Above Our Basic Needs
Upon reflection, my anxiety around money can largely be explained by the following
Not Enough - Running out of money in retirement and dipping into the money I've saved or needing to rely on the wealth I have created.
Getting What I Want - Not having enough money to buy the things I want or live the life I want to have.
At its core, my worries really boil down to security and goals. Will there be enough? And will I be able to afford what I want. This realization brought a quote to mind from one of my favorite books (Emotional Equations by Chip Conley).
Anxiety = Uncertainty X Powerlessness
Anxiety Explained
I love this equation because, in my opinion, it explains anxiety so eloquently. Anxiety is the product of focusing on what we don't know (will I have enough?) and what is not within our control (I don't have enough today).
Where My Financial Anxiety Came From
For me, my financial anxiety was rooted in my uncertainty. The powerlessness component I had more or less targeted by spending a ton of energy focusing on what I could control. Specifically, this is working hard at what I do professionally. I focused all of my energy and effort there and ignored the uncertainty component.
The problem with just focusing on what you can control is you still have a high degree of uncertainty. Put another way, you don't know what you're chasing.
If you never have a sense of certainty, it can be easy to feel like what you're doing and what you're gaining is never enough. The hedonic treadmill becomes very real. I personally found that the financial "goal", "number", or "target" was elusive and as a result, I never really felt fully at ease and collected about whether I would meet my goals.
As a result of this exploration I decided to put pen to paper to better understand what I expected from money and what I wanted it for in my life. The goal here was to make the idea of financial success more specific and as a result more tangible.
Defining What I Need and Want From Money
At its core, I discovered there are three basic goals money helps me with:
Lifestyle - Living the life I want. This break down into three categories.
Security - I'll be able to pay rent and eat food
Thrive & Happiness - I'll be able to afford things that bring me great joy like eating out, traveling, or buying random things that get me excited like a VR headset or an Oura Ring
Luxury Purchases - Things I don't need but are fun goals to aspire to.
Investments - This is any big purchase we would consider down the road. It includes things like a house, money for kid’s college, and a bronze statue of gophers playing chess.
Fulfillment - For me this means having the lifestyle I want without needing to work. This would allow me to spend my time on things that bring me fulfillment like seeing my family, working on interesting projects, writing this newsletter, and developing eccentric hobbies (hit me up if you want to freestyle together) and still have a standard of living that I want.
Once I had figured out, broadly, what my goals were that required money it was now key to attach specific numbers to them. By attaching specifics I was able to develop clarity and create a roadmap to achieving them. This, for me, was important to make the game of money winnable and more importantly make me feel good.
Figuring Out How Much Your Lifestyle Costs
In order to get certainty over what role I expected money to play I needed to start with the basics of how much my life costs.
I've included a sample breakdown of how Isabella and I worked through ours. I changed the numbers because it felt weird to get THAT personal with all of you.
How Much Your Life Costs Breakdown - Example
Boom! Lifestyle goals are now more tangible since I had broken it down into real numbers. It can be a little scary to look at those numbers the first time, but once you do you start to wrap your head around what your life costs and make substantive changes if you need.
Tip For Figuring Out Your Own Lifestyle Cost - If this is something you don't have clarity over there are a bunch of personal finance apps like Mint where you can connect your bank accounts and credit cards to get clarity over your spend.
Once we had nailed down how much Isabella and I spent and wanted to spend on a monthly and annual basis (i.e. our lifestyle) it was important to figure out what our long term financial goals were.
Make The Game Winnable
Our long term goals broke down into the remaining two categories we mentioned above.
Investments - We tried to think of the things we wanted to spend money on and set a dollar amount on them as well as when we'd spend it.
Fulfillment - Fulfillment, for us, was about understanding at what point would we have enough wealth to not need to work.
Figuring Out The Wealth Target
We had figured out lifestyle costs + investments. And we had also identified our fulfillment goal. In order to determine the wealth target we looked to figure out the following:
Interest - How much interest can we expect to generate from our invested savings
Withdrawal - How much could we pull out (in the future) w/o dipping into savings
Monthly Contributions - How much did we plan to contribute to savings monthly
I want to jump in here and say that there is a lot more detail you can go into on this subject and in no way should this be considered financial advice. I am less than qualified to give advice in this area and if you are interested in advice you should speak to someone you trust or a fiduciary.
My goal here is simply to lay down the roadmap to how we got clarity over our goals and reduced financial anxiety.
Once you have defined the above numbers you can then make a table to see what the time frame looks like to hit your goal
Financial Plan Table
When we first looked at the time frame a bunch of ideas started to come to mind on how we could achieve our goals faster or even add new ones. Ideas sprang to mind like:
Where Do I Spend Money That Does Not Bring Me Joy - The possibilities include anything from what city you live in to what you spend on in your day to day.
Where Can We Invest to Generate Higher Returns
How Can We Create More Income and Save More - We started to brainstorm how we each wanted to make money and side hustles that interested us.
All of a sudden, anxiety diminishes and it becomes more of a game, which was exciting! And its not just a game, it is a game that is winnable. The first step is getting clear on what game you are playing by getting specific about what you want money to support in your life.
I'm not saying that by writing stuff down you'll all of a sudden become Jeff Bezos (that would be chill though). All I'm saying is by getting a clear understanding of what your goals are, how money supports those goals, and a clear picture of your lifestyle today you can get clarity and power over your finances. This will help you feel better.
Get Specific About The Role Money Plays and Eliminate Anxiety
This was an extraordinarily helpful exercise and something Isabella and I now review regularly to ensure we are where want to be. We call these Money Dates (thanks to Actually for that idea)!
This exercise in establishing clarity reduces uncertainty and also makes it easier for us to focus on what we can control, thereby significantly reducing financial anxiety.
If you decide to give creating this plan a shot, I'd love to hear how its impacted your life in a few weeks. Also, if you want help running through these exercises please don't hesitate to reach out and there are number of resources I'm happy to point you to!
Feedback Time 😁 - Share Your Thoughts
Would love your feedback (two questions only!) so I can better tailor this newsletter to you all in the future → Feedback Form
Lastly, if you enjoyed this newsletter you can use the link at the bottom to easily share it with others that you think would like it as well.
To Living Well,
Alvaro
Weekly Live Well Recs
Read of the week 📖: Tweet by Naval Ravikant
Product(s) of the week 🍯: The Financial Gym - Check out the financial gym for advice on creating a financial plan by accessing a team of experts that can help you put pen to paper and reduce uncertainty.