Financial Stress Level

I recently went to the doctor with back pain.  While I was there, I was asked to describe the pain and assign it a number on the pain scale, with 1 being no pain and 10 being excruciating pain.  (For those interested, I gave my pain a 6, for distressing.  The doc gave me some medication.  I took it for a week and my back now feels just fine.)

It was interesting how such a simple scale allowed me to put my pain into proper perspective.

Using a similar scale – I’ll call it a stress scale – I’ll try to illustrate the powerful impact that debt reduction and financial planning have had on my stress levels, over the years.

Below, you will see a month, a year, and five “financial planning” categories.  Next to each category, I’ll put a number, between 1 and 10, illustrating the amount of negative stress I was feeling, at the time, in that area of my financial life.  Since there are five categories, the total amount of “stress” for each time period will be between 5 and 50.

One quick note – The first date you will see is January 2005.  That was the year that I turned 30 – and for the first time in my life I began to take a serious look at my finances.  Up until that point, I had done a decent job of earning money and paying my bills, but I was living a very typical paycheck-to-paycheck existence.  To be very honest, my stress level prior to January 2005 was very, very low, but it should have been very, very high.  Once my eyes were opened and I saw the true state of my financial situation, that’s when I got motivated and serious.  (The desire to be rid of negative stress is, for me, a very real motivator.)

January 2005

Debt:  3 automobile loans, multiple credit cards with balances, personal loan with local bank  Stress Level:  8

Savings:  less than $500 in the bank  Stress Level:  9

Money Management:  checkbook rarely balanced, bills paid on time, no real organization  Stress Level:  8

Insurance:  basic life insurance, basic automobile insurance, health insurance  Stress Level:  7

Future Planning:  minimal contributions to 403(b), no Roth IRAs, no ESAs  Stress Level:  5

Total Stress Level:  37

The very first thing that caught my attention back in 2005 was my lack of savings.  I was, as I mentioned, 30 years old.  I had 2 children, a wife, and I had been working, at one job or another, for more than 15 years – and I had less than $500 in the bank.  I was also worried about my debt, and frustrated with my lack of organization.  On the bright side (kinda), I wasn’t really worried about retirement or insurance, because I didn’t really know much about either!  Ignorance, I guess, can be bliss.

April 2005

Debt:  2 automobile loans, multiple credit cards with balances, personal loan with local bank, plan in place  Stress Level:  9

Savings:  $1000 emergency fund  Stress Level:  8

Money Management:  checkbook balanced, rudimentary bill organization system in place, online banking  Stress Level:  4

Insurance:  basic life insurance, automobile insurance, health insurance, deductibles increased  Stress Level:  5

Future Planning:  minimal contributions to 403(b), no Roth IRAs, no ESAs  Stress Level:  7

Total Stress Level:  33 (down 4)

In April of 2005, I started my debt reduction journey (and No Credit Needed).  Ironically, my stress level, as it related to debt reduction, actually went up – and I was super-motivated.  I did mange to organize my bills, balance my checkbook, and get $1000 stashed away in my saving account.  Overall, I felt a little bit better about my situation, but I was still very anxious.

February 2006

Debt:  debt free, zero balances for all accounts  Stress Level:  1

Savings:  $1000 emergency fund  Stress Level:  7

Money Management:  checkbook balanced, move towards online money management, filing system  Stress Level:  6

Insurance:  basic life insurance, basic automobile insurance, health insurance  Stress Level:  7

Future Planning:  minimal contributions to 403(b), no Roth IRAs, no ESAs  Stress Level:  7

Total Stress Level:  28 (down 5 more, 9 total)

February 2006 was one of the best months in my life.  For the first time as an adult, I was completely, 100%, debt-free!  As you can see, my stress level, as it related to debt, went from a 9 to a 1.  It really is impossible to explain how awesome it feels to be debt-free.

Alas, financial planning is about much more than debt reduction, and even as I was moving towards “no debt” – I did start to think about my future, and the fact that I still needed to learn much more about retirement, education, and long-term planning.  Plus, I still needed to do something about my emergency fund!

January 2007

Debt:  zero  Stress Level:  1

Savings:  six months’ worth of expenses in online savings account  Stress Level:  3

Money Management:  checkbook balanced, documents organized, fire-proof safe purchased  Stress Level:  3

Insurance:  life, automobile, health, disability, and umbrella insurance  Stress Level:  3

Future Planning:  minimal contributions to 403(b), no Roth IRAs, no ESAs, thinking about future home purchase  Stress Level:  8

Total Stress Level:  18  (down 10 more, 19 total)

Over the two year period from 2005 to 2007, I learned a lot about organization and time management.  I was able to establish a much healthier emergency fund – and increased various insurance coverages.

January 2009

Debt:  zero  Stress Level:  1

Savings:  six months’ plus in emergency fund  Stress Level:  1

Money Management:  very organized, spend very little time fine-tuning budget  Stress Level:  1

Insurance:  life, automobile, health, disability, and umbrella insurance  Stress Level:  3

Future Planning:  fully-funded 403(b), Roth IRAs and ESAs opened, planning for future home purchase Stress Level:  5

Total Stress Level:  11  (down 7 more, 26 total)

Just four years after I started, I was debt free, my emergency fund was doing very well, and I was funding several retirement and education savings accounts.  The “only” stress that I was dealing with (besides the normal stress that comes with the daily handling of finances) was in the area of long-term planning.  Our third child was born – and it was time to think about moving out of our employer-provided housing – and getting a mortgage!

November 2010:

Debt:  mortgage  Stress Level:  5

Savings:  six months’ in emergency fund  Stress Level:  2

Money Management:  very organized, spend very little time fine-tuning budget  Stress Level:  1

Insurance:  life, automobile, health, disability, and umbrella insurance, home owners  Stress Level:  2

Future Planning:  steady contributions to 403(b), Roth IRAs, ESAs, learning more about investing  Stress Level:  3

Total Stress Level:  13 (up 2, down 24 total)

Here I am, at the present day.  As you can see, I am no longer debt-free.  I have a mortgage.  I don’t like having a mortgage, but I have a solid plan for paying it off, in less than a decade.  On all other fronts, I feel like I’m doing a good job.  I am unable to put as much into retirement as I would like, but I am comfortable in the knowledge that contributions will increase, once the house is paid off.  At some point, I’ll have to replace current automobiles (with cash) and that will be a bit stressful.  All in all, I think I’m doing much better than I was just 5 years ago – and I can’t wait to see what the next 5 years have in store!

Final Note:  Obviously, there is another source of financial stress – income and job stability.  I did not include that in this list, because I only wanted to include those things over which I had (at least a majority of the) control.  I too get stressed about the stock market, real estate prices, tax policy, and other macro- topics.  This post really doesn’t address those things, instead, it just deals with the micro- topics, thing that I can improve and adjust, over time.


NCN

http://www.ncnblog.com

No Credit Needed is a personal finance blog about debt reduction, saving money, and simple living. Thank you for visiting the site and please consider subscribing to No Credit Needed by Email. Have a blessed day!

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4 thoughts on “Financial Stress Level
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  3. Greg

    I recommend you consider two or three additional categories: Relational, Physical, & possibly college savings. No amount of financial planning can offset stress in your marriage or the lack of staying fit & healthy.