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The Impact of Stress on Financial Decisions

Stress affects everyone. Not even the most resilient and disciplined among us are free from the impact of stress on our daily lives. Balancing the demands of work, family, friends, and community while keeping stress to a minimum can be a challenge even during the best of times. Significant life events -such as an unexpected death, divorce or illness – are major disruptors that can push your stress-level into the red. Stress, and the increased anxiety that accompanies it, can have negative impacts on your body and your mind. While stress may be unavoidable at times, how you respond to it will determine how it ultimately affects your life. Stress-related symptoms can impact your decision making, and learning to understand and manage stress properly can help you make thoughtful and prudent financial decisions during life’s tumultuous times.

Stress is your body protecting you from perceived harm

Human beings have adapted many survival skills over the course of our existence. The physiological response of your body, when confronted with a stressful situation, is a prime example of human evolution in action. In times of perceived emergency, your body releases stress hormones and your “fight or flight” switch automatically flips to the “on” position in an attempt to keep you safe. While this automatic response has benefits as an evolutionary defense mechanism, ongoing and unchecked stress can leave you in a constant state of heightened anxiety and cause a host of problems – irritability, insomnia and poor concentration among them – that can affect your decision-making skills. Being aware that stress can cause problems which impede prudent financial decisions is your first line of defense in maintaining your retirement goals daily. Rash decisions made during stressful times can have painful long-term consequences. Consulting those you trust and seeking advice from family and friends before acting during stressful times can help keep you on the right path to achieving your retirement goals.

Emotion moves faster than logic

Long-term goals require long-term thinking unencumbered by impulsive, emotionally driven decisions. However, removing emotion from your decision-making process entirely is not possible. Recent research suggests that our emotions travel faster to our brains than rational thoughts. Emotions experienced during times of stress can carry additional weight and are often felt more intensely. The more intense the emotion, the greater chance it has of bulldozing your logical thoughts into impulsive decisions rooted in fear. The unknown is fearful to most of us, and questions you may have about the sturdiness of your financial plan can become overwhelming. Is my portfolio growing quickly enough? When is the most prudent time for me to retire? Will my spouse be financially comfortable in the event of my passing? These are common questions and concerns for soon-to-be or current retirees. Knowing that your emotions are leading the charge over rational thought in the race to your brain puts the importance of making deliberate and thoughtful financial decisions into sharp focus, especially during times of increased stress.

Visualize Your Goals

While stress may be universal, so are the overarching hopes that you have for a happy retirement. The three universal things that are most desired in retirement are free from financial worries, the flexibility to do what you want and the ability to spend meaningful time with family and friends. Being able to visualize your life in retirement is essential to knowing how to plan in order to attain that life when you retire. Questions about where you will live and how you will fill your time left by the void of work are best considered long before retirement begins. Today’s retirees are less concerned about simply taking it easy and more concerned about how to reinvent themselves in this chapter of their lives. The flexibility to do what you want can mean a host of things, such as pursuing interest or hobbies, volunteering or finding some other way to leave a meaningful legacy. One effective way of disarming stress and anxiety is by constantly keeping your eyes on the prize. When faced with stress and confused about how to best proceed with financial decisions, remind yourself of your retirement goals - the surest way to attain them is by making careful financial decisions that are not driven by anxiety or fear.

Consulting your financial advisor when faced with tough financial decisions during stressful times is a normal part of the planning process. An experienced professional has helped others make informed and thought out decisions like these before and can help guide you through these stressful times while maintaining optimal financial health.

Tags: wealth management, comprehensive planning, saving, retirement planning, budgeting, stress, estate planning