Have financial security

Financial security — the confidence that you can handle unexpected expenses and sustain your lifestyle — matters more for psychological wellbeing than the total amount of money you earn. Elizabeth Dunn and Michael Norton's research, published in "Happy Money" (2013), found that how people spend and manage their money predicts happiness far better than how much they earn. The threshold effect in financial psychology shows that moving from financial insecurity to security produces the largest jump in life satisfaction; beyond that threshold, additional income yields diminishing emotional returns. A 2015 Federal Reserve survey found that 46% of American adults could not cover a $400 emergency expense without borrowing, and that level of precariousness correlates with chronic stress, sleep disruption, and relationship conflict. Financial security means having an emergency fund, manageable debt, and a realistic plan for the future. It does not require a high income — it requires intentional management of whatever income you have. When money worries stop occupying mental bandwidth, you gain capacity to invest attention in relationships, health, and personal growth.

• 1
  An unexpected $1,000 expense would force you to borrow money or use a credit card
• 2
  You avoid opening bills or reviewing your financial situation
• 3
  You have no emergency fund or less than one month of expenses saved
• 4
  Financial arguments are a recurring source of tension in your relationships
• 5
  You lie awake at night worrying about money at least once a week

Consider these questions to understand where you stand: