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3 Reasons Why You Are So Stressed About Money (and How to Deal with Financial Turbulence)

The difference between employees, investors, and business owners

The difference in handling financial stress depends on where you land on the cashflow quadrant.

Back in the day, no one discussed money. In fact, it was a topic that was often avoided. At the time, the key to a secure financial future was to get a college degree, and a high-paying job.

That vision wasn’t always true; and most people who relied on high-paying jobs for income never attained true wealth. Unfortunately, that path is still taught as being the only way to reach financial freedom. But instead, those who take this path find themselves stressed more than ever about money.

You are stressed about money because of bad financial advice

To this day, the wisdom of so-called "financial experts" is that being a high-paid employee is the most secure place to be financially. There is no shortage of lists helping you to determine what those highest-paying jobs are. Coupled with this is the standard advice that in order to get a good job, you must get a college degree." If you want a career path that is leading to high incomes and raises year after year, which psychologically really matters to people, that overwhelmingly requires a college degree," tells Indeed's chief economist, Tara Sinclair, to MarketWatch. And as MarketWatch points out, "A college degree is more expensive and more necessary than ever to earn a decent living."

The party line on all of this is that a college degree will net you a high-paying job, and a high-paying job will give you financial security. Yet, interestingly, according to PwC's "2016 Employee Financial Wellness Survey", as reported by U.S. News & World Report , "Among U.S. employees, 52 percent reported feeling stressed about their finances…among them, 28 percent reported that financial stress had impacted their health."

Why would this be?

It’s because people have had bad advice about how to make money. The so-called experts have told them that getting a high-paying job is the surest way to wealth, which often includes getting a college degree. But as the 2020 record of 3.3 million unemployment claims showed us, being an employee, whether high-paid or not, is actually a precarious position to be in if you want to build wealth.

At the end of the day, it’s the business owners and investors who consistently profit the most, while employees and the self-employed take the brunt of the pain.

You are stressed about money because you have no control

Those who are employees have no control; whereas business owners and investors have all the control. Just ask anyone who has been unexpectedly laid off or fired how secure he or she felt after. Even if an employee feels like the business is making bad decisions, there is often little they can do about it. They are reliant on the owners to make sure their business succeeds.

What if you have stock options or stock in your company? This is a common question, and often it shows financial ignorance. It is important to understand that there are different types of stock. The stock options that most employees have may seem like a form of control because they are common stock. However, most companies have different classes of stock.

Take this example from Investopedia:

Suppose XYZ Corp. had two classes of common stock, Class A and Class B, and both types of shares carry equal claim to the firm's assets. In other words, if the firm has 100 common shares in total, 50 are Class A shares and 50 are Class B shares.

Let's assume that the B shares entitle the shareholder to one vote, but the A shares entitle the shareholder to 10 votes. If you owned one Class A share, you would own 1% of the company's assets, but wield 10 votes at company meetings. An investor who owned one Class B share would have the same 1% claim to the firm's assets, but wield only one vote at company meetings.

And even if a company doesn't have different classes of stock, they will still make sure that the founders don't option out more than a controlling stake in the company to any one employee or block of employees. By doing this, they ensure a controlling stake in the company.

When it comes to setting up these classes of stock and determining the percentages of stock given out, who do you think has the control? The business owners and investors. They do not set up their option plans to allow for losing control of the company. The only way that could happen is if a successful and wealthy investor was able to purchase a controlling share. No employee is going to do that.

At the end of the day, options are a forcing function to make an employee feel like he or she has ownership and control in a company when in fact they have none. This is reinforced by daily interactions at the company, and deep down all employees know this. It creates a low-lying sense of anxiety.

You are stressed about money because you pay the most in taxes

Employees pay the most in taxes of any income bracket. For employees, there is little-to-nothing they can do to reduce their tax burden. Come tax time, they have to pay up.

The business owner and investor, on the other hand, has the ability to expense many things and to use financial vehicles like depreciation to create phantom income, that is income that looks like a loss and reduces tax burden. Many business owners and investors can severely reduce or even eliminate their tax burden through the tax law using things like phantom income.

This is something illustrated by the CASHFLOW Quadrant.

Those on the left side of the quadrant, employees (E) and self-employed (S), pay the most in taxes because of the kind of income that they earn. This income is called earned income. It is a salary or a direct payment to the person. Basically, it is recognized as income that is paid directly in connection to work that you do. And it is the highest-taxed form of income.

Those on the right side of the quadrant, business owners (B) and investors (I), pay the least in taxes because their income is considered passive income. Passive income is not tied to your direct work. Rather it is a result of having cash-flowing assets that generate wealth outside of your direct efforts.

A simple example is to look at each McDonald's hamburger as an asset that creates $1 for the owner of a franchise. The owner pays the employee earned income out of the hamburgers turned dollars, takes care of the costs to run the business, and then enjoys a dividend from the business with what is left that is considered passive income. It is the lowest-taxed income.

This comes back around to a form of control. Business owners and investors have all the control over how they can lower their tax burden. Employees do not. This too creates an underlying anxiety.

You are stressed about money because you have no safety net

As an employee, you effectively sell your time. If you think about that for a few minutes, you’ll undoubtedly start forming money stress depression!

If you are not working - or are unable to work - you do not get paid. This presents a real challenge for employees who become sick or have an injury. They usually have no safety net that protects them when they are not able to work.

This is realized when one thinks to themselves “if I no longer had my salary, how long could I survive?”

Successful business owners and investors, however, have passive income that comes from the products they sell or the income their investments generate. Even if they aren't working, they are making money. That is true financial security.

It's important to point out that this is different from savings, which dwindles each time you withdraw money. Successful business owners and investors create assets that generate income without them working. In fact, many times these assets grow.

So… what does this all mean?

Put simply: your stress regarding money is rooted in where you land on the cashflow quadrant. It’s easy to see why employees, who are supposed to feel secure, have such high levels of stress when it comes to money. Conversely, many entrepreneurs and investors have low levels of stress about finances because they understand how to make money work for them, enjoy passive income that covers their expenses without them working, and have a safety net to protect them in the case of a tragic health issue. They also have a different mindset when it comes time to handle stress.

But how do you shift your mindset? It all comes down to how you handle turbulence.

How do you deal with turbulence in your life?

Pilots deal with turbulence immediately. They have no choice as the safety of their passengers and crew are at stake. They use their experience, training and instincts to make good decisions quickly. Most successful investors, entrepreneurs and business people deal with turbulence right away too. They assess the situation and use their knowledge, support structure and financial education to make intelligent decisions… even when the decisions are not easy to make.

If you’re just starting out on your road to financial freedom, it can be much easier to push your turbulence aside and deal with it later. If this sounds familiar, you are not alone.

A system for turbulence

Resiliency, the ability to recover from setbacks, should be at the core of your support structure. You create your own system that allows you to deal with the inevitable setbacks and stumbling blocks along your journey.

With each bit of turbulence you face, say these two things to yourself:

• “This too shall pass.”

• “Something good will come from this.”

You may not be smiling when you say them, but eventually you’ll believe!

The truth is, turbulence can be scary, and the longer you wait to deal with it, the more anxious you can become. Plus, it’s something you need to deal with on your own. Your loved ones can give you support, but you shouldn’t rely on them to make decisions for you. According to an article in Science Daily, scientists call this "self-regulatory outsourcing." Basically, this is when you unconsciously rely on someone else to move your goals forward, and this causes you to relax in your own efforts to make decisions.

So you’re a new investor and insecure about all of the decisions you have to make, how do you deal with turbulence? Take a breath and ask yourself these questions:

• What happened?

• What exactly is the turbulence I’m dealing with?

• What can I do now?

• Who can I call now who knows more about this than I do?

• What information do I need and where can I find it now?

• Considering my options, what action am I going to take now or at the first possible opportunity?

By answering these questions and acting immediately, you’ll start to take control of the situation and stop a problem, and unnecessary worry, from growing.

The value of turbulence

There is an English proverb that says: A smooth sea never made a skillful mariner.

Sometimes it’s just a small mistake, a disappointment, a problem, or a failure. It all comes down to the result of something you didn’t know. The key is distilling that “something” out of the turbulence.

And always remember this: if you operate your financial journey to avoid turbulence, two things happen:

1. You don’t learn; and

2. You make zero money.

So while you’re traveling away from the E and S quadrants to the B and I quadrants, arm yourself with all of the financial education you need to accompany you along the way. It’s going to be a bumpy ride, but buckle up! It’ll be worth it every step of the way.