Financial Stress Can Cost You
Stress is more than an emotion; it affects our brain’s physical structure and function. Research conducted by neuroscientists at the University of California, Berkeley, reveals that chronic stress can lead to lasting changes in the brain. One of the most common modern stressors–financial pressure–has been shown to significantly affect our decision-making capabilities. Neuroscientist Dr. Sam Barnett has explored how anxiety influences the brain during financial decision-making and found that stress can severely impair judgment and rational thinking.
When faced with complex or uncertain financial situations, people often experience anxiety due to the sheer number of available options and the high stakes involved. In overwhelming and confusing situations such as these, the brain is wired to respond in “fight or flight” mode, which might manifest as impulsive decisions, or, in contrast, total inaction. Poor financial choices made under stress can cause long-term consequences ranging from buyer’s remorse to crippling debt. On the other hand, the fear of making the wrong decision may result in doing nothing at all, which, depending on the situation, can be just as harmful–if not more so.
The emerging field of neuroeconomics explores the relationship between financial behavior and brain activity. In the past decade, scientists have discovered that specific areas of the brain are activated during money-related activities. For instance, increased neural activity has been observed in individuals playing games for money, indicating that even the potential for financial gain has a measurable effect on brain function. These findings support the idea that our brains are actively and emotionally engaged in even the simplest financial decisions.
So, how can we support our brain when it’s flooded with financial information? Dr. Barnett suggests that simplifying financial choices or working with a financial advisor can ease the pressure on the brain and reduce anxiety. Advisors can enhance both financial outcomes and brain performance by helping to narrow down decisions and establish a structured approach. Establishing a clear financial plan aligned with long-term goals can also help mitigate stress and provide a sense of direction.
In addition to seeking expert guidance, individuals can take practical steps to reduce financial stress. Budgeting tools that track expenses and visually organize finances allow the brain to process information more efficiently. Writing things down, setting clear financial goals, and breaking them into manageable checkpoints all contribute to reduced anxiety and better decision-making. These strategies not only help create healthier financial habits but may also improve overall cognitive function by reducing the mental strain associated with financial stress.
Understanding how financial stress affects our cognitive function can help us make better, more informed choices. By simplifying our financial landscape and seeking the right support, we can reduce anxiety and foster better mental and financial health.
Hudson Valley Credit Union. (n.d.). The Brain/Money Connection . Hvcu.org. www.hvcu.org/learning-center/the-brain-money-connection/
Creating an Emergency Fund
We’ve all experienced unexpected financial emergencies–fender benders, medical bills, house repairs, and the list goes on. No matter how large or small the cost, these unplanned expenses often feel like they happen at the worst time.
Having a dedicated savings or emergency fund is an essential way to protect yourself. Putting money aside for unplanned expenses can help you recover more quickly and get back on track for your larger savings goals.
How much should an emergency fund be?
In general, aim to have enough set aside to cover 3 -6 months of living expenses. This amount may increase depending on things like children, a spouse/partner, self-employment or availability of financial support from family.
How do I set up an emergency fund?
Use these tips to get started:
- Set up a dedicated savings account. That will help you keep this money readily available and safe.
- Look for an account that pays you back, like a savings account that offers a higher yield.
- Start small; you don’t need to have your full amount right away. Try setting up automatic transfers from your paycheck until your goal is met.
- Only use the fund for emergencies. Save the account for true financial emergencies like losing your job, a burst pipe, large medical bills, etc.
- Replenish the account if you draw from it.
An essential guide to building an emergency fund. Consumer Financial Protection Bureau. (2024, December 12). www.consumerfinance.gov/an-essential-guide-to-building-an-emergency-fund/.
5 steps to creating an emergency fund. Morgan Stanley. (2024, December 16). www.morganstanley.com/articles/how-to-build-an-emergency-fund.
Take a Walk
Walking is often overlooked as a form of exercise. However, it offers several health benefits for both body and mind. This simple yet powerful activity is accessible to people of all ages and fitness levels, requiring no special equipment, memberships, or training.
Walking is a natural, low-impact form of exercise that can yield notable improvements in physical fitness, mental wellbeing, and emotional balance. Walking has the potential to impact your mental health by:
- Reducing stress and anxiety: Walking can have a calming effect on the mind. It reduces levels of stress hormones and releases endorphins, fostering feelings of relaxation.
- Improving mood and emotional wellbeing: Walking stimulates the production of neurotransmitters (e.g. Serotonin and dopamine), which play key roles in regulating mood and promoting feelings of happiness and contentment.
- Enhancing cognitive function and reducing risk of cognitive decline: Regular walking has been linked to improved cognitive brain function and a reduced risk of cognitive decline in later life. Walking enhances blood flow to the brain, promotes new brain cell growth, and boosts memory, concentration, and creativity.
- Promoting better sleep patterns and quality: Physical activity helps regulate sleep patterns and improves sleep quality, increasing daytime vitality.
The U.S. Department of Health and Human Services recommends adults should do at least 150 to 300 minutes of moderate-intensity aerobic exercise per week. Brisk walking for 30 minutes at least five days a week is a great way to meet that goal and boost your mental health and overall well-being.
