Simplifying Your Finances and Staying Organised Can Directly Impact Your Wellbeing
THE JOURNEY WILL BE AN UNCOMFORTABLE ONE
Your journey to financial freedom won’t always be a comfortable one. There will be times when stock markets tumble, when legislation goes against you, when things don’t work out the way you had hoped they would.
Even if you’re an optimistic and relaxed person, the uncertainty and the inevitable setbacks may, at times, lead to stress and anxiety and detract from your overall feeling of well-being and happiness.
But whilst the setbacks themselves are out of your control, how you react to them is down to you.
Imagine that your £500,000 retirement pot has dropped to £400,000 in a matter of months. It may well have done just that in early 2020. A 20% fall like that is undoubtedly going to grab your attention.
WHAT SHOULD YOU DO ABOUT IT?
This isn’t about whether you should buy or sell. Human beings have an unfortunate tendency to buy high and sell low. That’s a different story. Here, we’re interested in the emotional impact of that drop, how you come to terms with the pain of this negative event, so that you can stop it constantly popping back into your head and move your attention onto something more enjoyable.
This is where the AREA model (Attend - React - Explain - Adapt) from the academic paper Explaining Away: A Model of Affective Adaptation can help.
The authors found that if we can “explain away” events (both positive and negative ones), this will transform them from extraordinary events that keep grabbing our attention into ordinary ones that don’t. They found that explanation speeds our recovery from negative events.
In Happiness by Design, Paul Dolan uses the example of having an ache in your leg. If you know that this was due to a sports injury, you’ll quickly withdraw your attention from the pain and adapt to it. If, however, the pain is unexplained, it will continue to draw attention to itself.
It’s intuitive, isn’t it?
SOME IDEAS TO BETTER STRUCTURE YOUR FINANCIAL DECISIONS
Two actions spring to mind:
The first is to simplify. Simple solutions are inherently easier to understand than complex ones and there are more than enough simple solutions out there to help you reach and retain financial security. If you can simplify your finances - for example, having a logical investment philosophy that you understand, buy into, and stick with - it stands to reason that you’ll be better able to explain away the inevitable setbacks to yourself. This will allow you to adapt quickly and get on with more positive aspects of your life.
The second is to make a note of any painful thought about money that comes into your head and then take steps to deal with it as a priority. An example might be a dislike of completing your self-assessment tax return. If you are the sort of person that usually gets round to it close to the 31st January deadline, how many times have you had negative, happiness-draining thoughts about it in the preceding months? You could promise yourself that you’ll be more organised next year and do it as soon as possible after 6th April.
If you can find a way to explain away a worry or anxiety, not only will it help you in the present moment but it might help you to eliminate, or at least minimise, the impact of a similar event in the future.
That way you’ll quickly be able to move on to something more positive.
We try to make life happier for as many people as we can. If you would like help simplifying your financial position to improve your life satisfaction and happiness, please give us a call on 020 3488 9505.
The value of your investments can go down as well as up, so you could get back less
than you invested.
Tax and Estate planning is not regulated by the Financial Conduct Authority.