The ‘Three R’ Approach to Managing Financial Stress

If you are feeling stressed about your finances lately, you’re not alone. According to a recent study by the National Endowment for Financial Education, nearly 9 out of 10 participants reported that that they were feeling more financial stress as a result of COVID-19. Interestingly, the study found that concerns over finances were felt by participants from both lower and higher income groups. This suggests that stress does not discriminate and can be a very real problem, even when there is no immediate threat to one’s current financial situation.

In times like this, it can be helpful to manage financial stress using a multi-faceted approach:

Recognize – The first approach is to recognize your feelings without judgment. While it might sound counter-intuitive, the more you acknowledge and allow stressful feelings to surface, the more quickly they are to dissipate. In fact, some financial coaches and psychologists suggest that identifying exactly what your worst-case scenario is and then talking it through with your advisor can be beneficial in reducing stress levels.

Reframe – After acknowledging how you are feeling in the present moment, a good next step would be to try to re-frame the situation. Kelly McGonigal, a researcher on stress at Stanford University, found that stress actually can be beneficial for our physical health, to our mental wellbeing, and even to our relationships. Similar to rigorous exercise, stress can build our resilience and our capacity to pivot over time if we can re-frame it in positive light and look for silver lining opportunities.  You can learn more about McGonigal’s research on stress here.

Respond – Finally, our brains like to act and problem-solve. The more we can respond to the situation by taking action around the things we can control, the less stress we are likely to feel. While we cannot control market returns or changes to the global economy that affect our business or income, areas that we do have agency over include: spending habits, tax strategies, refinancing on mortgages and other loans, and taking advantage of government relief programs.

In a way, we could consider this time a turning point for how we think about and manage our finances in general. When it comes to our spending, the COVID-19 crisis is an opportunity to hit the re-set button. Over the last few weeks, we have lived with the absence of some things that may have been regular line items in our discretionary budgets – restaurants, travel, retail, personal grooming, etc. Which of these items do we truly value and what do we want to bring back, intentionally, now that we’ve experienced some time without them? As difficult as this crisis has been, it presents an opportunity to make sure our spending and financial goals are truly aligned with what we value and deem most important.

Financial stress is very real and can result from an actual financial emergency or  a perceived one due to the general uncertainty surrounding the COVID-19 pandemic. But it can be managed using the Recognize, Reframe, and Respond approach and perhaps be a catalyst for new opportunities over the long-term.

https://www.nefe.org/press-room/news/2020/with-this-crisis-does-financial-literacy-matter.aspx
https://www.apa.org/research/action/speaking-of-psychology/financial-anxiety-covid-19
https://news.stanford.edu/2015/05/07/stress-embrace-mcgonigal-050715/