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Financial Peace of Mind Not Always About Dollars and Cents

Readers detail times they made financial sacrifices in exchange for a better night's sleep.

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In an age when our financial well-being is usually expressed in terms of numbers--the size of our paychecks and bank accounts, the amount we need to have saved up before we can retire, and so on--it's easy to forget that the ultimate goal isn't just having enough, it's how having enough makes us feel. If you look deeply enough, you may find that the real goal is to have peace of mind--secure in the knowledge that you can afford the lifestyle you want now as well as later in life, and that you can weather any financial storm.

In some cases, achieving peace of mind may mean making financial sacrifices. Think of a retired investor who is content to settle for the lower returns offered by a 50% stock/50% bond portfolio rather than risk the volatility (and sleepless nights) of a portfolio made up entirely of stocks. Or think of someone who prefers to keep an unusually high allocation to cash in case of emergencies or just to be on the safe side in case the market heads south.

Last week, we asked readers on our Personal Finance discussion board about times when they've made a financial trade-off in order to get greater peace of mind. You can read the full discussion here, and you can read excerpts below.

Taxes, Student Loans, and Early Retirement
One important takeaway from reading through the responses is that peace of mind comes in many different forms. For some it's about avoiding financial uncertainty, while for others it's about eliminating nagging expenses.

For example, Rlovendale said he or she had made a financial trade-off for peace of mind by "paying off student loans quickly rather than investing or putting the money to some other use. The peace of mind that will come from being out of bondage in a few short months is worth more to [me] than any realistic investment return."

For offthegrid2, the key move was retiring this year at age 59. "The peace of mind from not dealing with the company 'management' any longer far outweighs any further financial gain," the commenter wrote.

Others had less impactful but still creative methods of achieving peace of mind.   

Yogiman wrote, "I could have adjusted my W-4 instead of receiving a tax refund each year, but I love the peace of mind of having that forced 'savings.'" 

And GoodyearGuy said, "I pay more than I need to for health insurance to eliminate out-of-pocket expenses and co-pays. It gives me peace of mind to know that unexpected health-related expenses won't impact me financially."

One reader, seaside1, offered up a laundry list of financial trade-offs made by his or her family over the years.

"We chose to send our child to a highly rated private school rather than the local (poor) public schools in our state," seaside1 said. "We decided that the best investment that we could make was in our child. We have never regretted that decision and our child is the better for that decision. Furthermore, during our working lives, we saved as much as possible for retirement. We did not take all those fancy world tours and cruises or buy all those expensive new luxury cars, but put our money away in 401(k)s, IRAs, and 457s. We lived as a middle-class family and saved. ... We were not frugal but methodical in what we did to reach our retirement goal and are reaping the benefits of our actions today."

Investing For a Peaceful, Easy Feeling
Of course, many readers also mentioned financial sacrifices they've made in terms of their approach to investing. Comments like the following, left by Troutfisher, were common: "I've cut back on equities to 60%. I can't take another 30% hit like 2008. Nerve wracking."

"I had to promise my wife I wouldn't invest in individual stocks anymore," said farhorizons. "A couple risky bets didn't work out early in our marriage, so now it's almost entirely index ETFs. Less risk but less reward."

For GlennB8, the financial sacrifice was eliminating some stocks as investment options. "I have not purchased certain types of stocks even though I thought they were bargains and selling considerably below fair value--for example,  Apple (AAPL),  Google (GOOG),  Amazon.com (AMZN)--because I was not comfortable with their volatility and stuck to my dividend stocks like  General Electric (GE) and  Johnson & Johnson (JNJ). I was sure had I purchased them at the time I would have made a very good profit and I turned out to be right but I could not have taken the stress."

Then, there was skipperchg, who seemed to have mixed feelings about one investment choice in particular.  

"I have maintained, and increased, an investment in Pax World Balanced (PAXWX), a socially responsible moderate allocation [fund]," skpperchg wrote. "It is now 3% of my portfolio. Talk about 15 years of blah performance. I should take it out and shoot the poor thing, then move on. But it salves my rampant capitalistic conscience for the rest of my investments."

Cashing In on a Good Night's Sleep
Among the most common peace-of-mind moves mentioned by readers was keeping ample stores of cash.

"As retirees, we keep five years' worth of annual expenses in cash," said Buffettfan. "Our rationale is based on a desire to sleep well at night, a belief that stocks are currently a much better investment than bonds, and a retirement plan based on a 4% withdrawal rate."

Artsdoc wrote, "I'm in my late 50s and I most likely do not need 4-6 months of living expenses in an emergency fund, but I always have this amount in cash (earning 1%!). I realize this money could be invested elsewhere, but it's peace of mind knowing it's readily available."

For bgstuhan, holding excess cash is a way to guard against a potential employment crisis.

"I keep more cash than I need," the commenter wrote. "My experience in and knowledge of my industry suggests that it could take me over a year to find a new job if I needed to, and I am single, so I would have no other income source during any period when I am not working. Therefore, I keep two years of expenses in cash to be on the safe side. ... I am preparing for events that are very unlikely to happen and sacrificing market returns for this safety but feel that the peace of mind is worth it."

A Safe Move With a Payoff
Another common theme mentioned by readers was the peace of mind that comes with paying off one's mortgage, even at the expense of earning higher returns elsewhere.

"With interest rates so low, I was pretty confident I could earn a higher return investing the money," wrote bobk47, "but the peace of mind being debt-free outweighed the chance at a better return. No regrets."

DG99999 described paying off his or her mortgage back in the 1990s as a "poor financial decision, great personal decision."

"We paid off our home mortgage about 1 1/2 years ago," wrote dawgie. "Most experts were recommending investing extra money in the stock market rather than paying off mortgages early when we refinanced from a 30-year to 15-year loan. I am so glad that we ignored the 'experts' and went for the shorter-term loan. It is very comforting knowing that our home is paid for as we approach retirement, and it has had a huge effect on our monthly budgets now that the mortgage is paid off. That is allowing us to save much more money now and also spend some on things that we like."

But for another reader, festus, peace of mind comes from not borrowing in the first place, although he or she admits there is a downside to the approach.

The commenter wrote, "If you are like me and pay everything in cash without borrowing anything from anyone, then your credit score suffers--even if you have more money than folks with a good a rating, you are looked at like a risk. ... So, I guess that's the one that [sticks in] my craw the most." 

Some comments have been edited for clarity and brevity.

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Adam Zoll does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.