Basic Finance, Philosophical Musings

Personal finance and mental health in 2020

Personal finance and mental health

Now that the big crystal ball has ushered in the roaring 2020’s, millions of people are making plans and lists and goals for an improved future. Today, with the encouragement of some Best Interest readers, I’m going to do the same. Since I tend to focus on financial literacy as a means for an improved life, I’ll talk a bit about that. But I’ll also re-hash some other common Best Interest topics: mental health and habit-building, the Pareto principle, efficiency, discipline, and more. There are many ways to think about improving one’s personal finance and mental health.

Personal Finance Habits in 2020

No matter where you lie on the spectrum of financial literacy, I’ve put together a few goals that could apply to 2020 and beyond. By no means is this exhaustive…it’s just a sample. So please feel free to share your own additions using a Comment at the bottom of the post.

Sharing freely with others is gift in itself.

Beginners Goals for 2020

Start a budget. A budget is the single-most important personal finance tool. It gives you knowledge of where your dollars are going. It provides you with a way to measure your personal finance. And measurement is needed before management (a.k.a. improvement) can begin. If you need ideas, I wrote an entire article using experts’ opinions on how they budget. There are lots of different methods, but all the experts have one thing in common: they all budget in some form or fashion. Nobody I spoke with said, “Nah, I don’t budget.”

Create an emergency fund. What happens if the furnace breaks in mid-February? What happens if you get laid off and need a few months’ expenses to get back on your feet? These are scary questions. While there are a few different ways to prepare, the most important one is to create an emergency fund.

An emergency fund is simply a chunk of money that you’ve saved up and decided not to spend unless there’s an emergency reason. It’s a safety net for when life throws you a curveball. For most people, it’s not a matter of if that curveball is coming, but when.

So if you haven’t started setting aside some money into an emergency fund, perhaps 2020 should be your kickstart.

Plan to pay that credit card debt. A lot of us are in some form of debt…student loans, mortgages, car payments. But the most insidious form is credit card debt, because it has such a high interest rate. “Interest” means that you are burning up your money–although sometimes it can be for good reasons (e.g. further education, or a place to live). A high interest rate means you’re burning your money quickly. Ouch. Credit cards tend to have some of the highest rates out there, so make an effort to pay them down in 2020.

Intermediate Goals for 2020

Take full advantage of your employer’s retirement savings program. For most of you reading from the U.S.A., this would be your 401(k). But some employers use other programs, such as a 403(b), IRAs, Thrift Savings Plans, or 457s. Internationally, there are similar government-sponsored and employer-sponsored plans.

In short, all of these programs offer either a tax-advantage, an employer contribution, or both.

A tax-advantage means that you pay less or zero taxes on the money you invest, which usually means you’re getting 20-30% additional money for free on top of what you’re saving.

An employer contribution means, “If you save X, your employer will give you an additional fraction of X.” Often times, that fraction lies between 50-100%. Again, that’s free money.

Many plans offer both the tax-advantages and employer matching. Lots of free money. So if you haven’t started using your employer’s retirement plan, ask yourself: how much free money are you leaving on the table?

Re-consider your spending. This is something that anyone could do. But since you already have some of the financial basics locked down, this is an easy next step. If you go back to 2019, you could probably pick out some purchases that now seem pretty worthless. What could you do different in 2020 to prevent those worthless purchases?

For me, I think of the phrase “temet nosce,” or know thyself. In short, get to know your impulsive brain. Why do you make purchases that you later regret? If you start to understand your impulse triggers, you can then prevent or counteract them, and stop the spending before it starts.

Expert Goals for 2020

Understand your portfolio. You might have money in a bank account, a retirement plan, in company stock options, in home-ownership equity…the list goes on. And within those various locations, there can be sub-categories. Where is your retirement account invested? In stocks, in bonds, or a REIT?

This tree of possibilities has a lot of branches, and it seems complicated. But once you dig in a little bit, you’ll gain a lot of clarity. Similar to how budgets allow you the measure your spending, understanding your portfolio will allow you the measure your saving. You can then make educated changes when necessary. If you want to start planning for eventual retirement, this is a key step.

Outside education. This was a huge step for me. How often do you seek out knowledge when you’re confused about your personal finances? You shouldn’t be surprised: those who seek out education are going to be well-versed on the subject. Those who choose not to learn will be left in the dark.

A shameless starting point: go back in the annals of this blog. After that, I recommend some great books, for both beginners and experts. If you’d rather not commit $20 to Amazon for a book, the local library is an amazing resource that I use all the time.

Personal finance and mental health

As I’ve grown to understand more about my personal finances, one of the biggest benefits has been a decrease in anxiety. Now, I’m no mental health expert. Please understand this with a blaring disclaimer: I’m not a mental health professional. I can, however, speak about my own personal experiences.

I’ve found that I stress out when I feel out of control. I get nervous about the unknown. And personal finance used to be something unknown to me–something that was out of my control. I’m not alone. Research supports the idea that personal finances are a common cause of anxiety and mental distress.

Once I started asking questions, seeking out answers, and educating myself about the many aspects of personal finance, that stress started to dissipate. It was one less thing that I had to worry about. Personal finance and mental health are intertwined.

That said…there are plenty of other things to worry about. But an interesting screenshot from Anthony, friend of the blog, got my mind working about some tips in 2020.

Improvement in 2020

Anthony sent me this list of 20 ideas he found perusing the Internet. These lists exist everywhere, and I’m sure you could come up with your own. And like those other lists, this particular list comes with some caveats that I’ll mention below.

The goal of the list is to be happier. Of course, “happiness” is somewhat subjective–it means one thing to you, and a different thing to me. If you talk to a Buddhist, the act of seeking out happiness can be counter-productive i.e. happiness comes from within. Plus, like any general list, this one is a bit vague. I love cheesecake. So…should I follow my heart?

And then it hit me, “Why not put the Pareto principle into practice?”

If you’re up on your Internet intellectual influencer lingo, you might already know the Pareto principle. Pareto was an Italian economist who realized that, for many scenarios, a large percentage of outcomes are borne from a small percentage of the inputs. It’s commonly called the 80/20 Rule. For example, about 80% of a company’s sales come from the largest 20% of its clients.

When I saw this list of 20 ways to improve in 2020, I knew that some of the suggestions simply wouldn’t apply to me. I also knew I wouldn’t be able to focus on all of the different options, or wouldn’t have the time–no thanks, weekly massages.

But I did know that I could probably find 20% of the list–four options–that could have a disproportionate Pareto effect on my personal finance and mental health in 2020.

“Eat lots of leafy greens”

I’m going to use this as a proxy for diet in general.

I’m a regular in the gym, but I don’t track my diet. For someone who tracks every single dollar, it’s kinda odd that I track literally zero of my calories. Especially now that the holidays have ended, I know that I’ve eaten many cookies and cheeses and meats…but I have no idea how many. It’s that whole measurement and management issue–how can I improve if I don’t really know where my starting point is?

So for 2020, I’m going to try to use my budgeting and tracking skills on my diet. If you recall, budgeting usually happens before you spend, and tracking occurs after you spend. I’m going to try to “budget” my calories through grocery lists and food plans, and then “track” my calories using one of the many iPhone apps built just for that purpose.

Serious question: anyone have great success with a particular food tracking app?!

“Be active in nature”

I’ve written before about my love of hiking and camping and simple walks through the woods. But I feel like I was indoors way too much in 2019. Although I took a couple hiking trips to the Adirondacks and a wonderful adventure to Wyoming, I really didn’t get out much in-between those dedicated experiences.

I took far too few quick trips to the local parks, up the nearby climbing hills, or to walk the Lake Ontario shoreline. Sometimes, I’d walk outside at night and think, “Whoa! When was the last time I actually stopped and looked at the stars?…it’s been weeks, if not months!” For me, that’s just not enough.

In 2020, I’m going to plan more post-work evening adventures or quick day-trips around the Finger Lakes. There’s a lot of cool world out there, even in your own backyard. Just ask the fanged mouse-deer

“Get your beauty sleep”

In other words, get enough sleep. For me, this is less of an improvement goal, and more of “if I want to have any success in life, I need my sleep.”

We’re all wired a little differently, and I know that I’m wired in a way that absolutely requires sufficient sleep. I don’t think I was fully aware of it growing up, but sometime in my 20s it really dawned on me.

When I’m tired, I get headaches. I don’t work as efficiently. My athletic performance drops. Chips and cookies become a lot more appetizing, but cooking vegetables starts to seem like too much work. And perhaps most worrying, I tend to get more angry, more sad, more apathetic…all of the negative emotions. I can literally “sleep off” a bad mood–just like a two-year old.

When I read stories of entrepreneurs who average 4 hours of sleep so they can work 16-hour days, I think, “More power to them, but that’s not for me.” I gotta have my sleep.

“Meditate daily”

Again, I’m going to use this advice as a proxy for “meditate more, and be more mindful.” I’ve done some meditation in the past. I did not have a Zen enlightenment. But I did learn some interesting things.

Perhaps it’s obvious to you already, but I realized that I do not understand where a lot of my thoughts come from. That’s a weird thing to think about. I do not know where my thoughts come from. Sure, they come from somewhere in my head. But it’s like they just magically poof into existence. And with new thoughts come new emotions.

You’re having a pleasant day, but then your roommate drops a glass of water on the ground, and poof–you get frustrated at them. Broken glass and water everywhere. Sure, you can say that the external stimulus caused your emotions to changed.

But why did you get frustrated instead of laughing it off? Why was it frustration rather than blinding rage? Different people respond to this dropped glass with different emotions, all over that spectrum. Some folks seem to always remain calm, but others have a short fuse. Why, why, why?

Meditation and mindfulness attempt to answer that why. It’s all about trying to understand–just a little bit–about how your brain works, and why it works that way.

It’s pretty similar, in a way, to the “temet nosce, or know thyself” advice that I offered earlier. Why do you make impulse purchases? Just like an emotional outburst, mindfulness can effectively address this question.

Mindfulness, for me, is a way I can improve both my personal finances and mental health in 2020.

What are your choices?

How are you going to improve in 2020? Feel free to brainstorm using the list above, or come up with your own ideas. Either way, I think this is the perfect place to use some Pareto thinking. Find the small number of improvements that can make that 80% impact in your 2020.

And while you’re at it, consider some personal finance practices that could improve your 2020, and beyond. Start with the heavy hitters and the low-hanging fruit.

There are plenty of great ways to focus on personal finance and mental health in 2020.

As always, thanks for reading the Best Interest. Happy New Year!

-Jesse Cramer

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About Jesse Cramer

I’m Jesse. I’m an engineer, a new owner of an old home, and an avid reader/writer. I hope you enjoy my thoughts, numerical breakdowns, and general musings. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@BestInterest_JC) or on Reddit (u/BestInterestDotBlog). Many of my posts have been directly influenced by my readers. It’s the most fun part of writing this blog. And as always, thanks for reading the Best Interest. Jesse
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