Money woes keeping you up at night? Whether you’re worried about padding your retirement fund or paying off debt, you’re in good company.
Gallup’s annual Economy and Personal Finance survey found financial anxiety is on the rise. A whopping 60 percent of Americans worry about not being able to cover medical costs for a serious illness or accident, for example, while 34 percent have anxiety about not even being able to pay their monthly housing costs. And nearly two-thirds of Americans fear they won’t have enough money saved by retirement.
“We’re afraid of the thing itself and we don’t know what to do about it or how to address it,” says Hersh Shefrin, professor of behavioral finance at Santa Clara University.
So, how can you wrangle runaway financial anxiety?
First, identify the source of your fears, which could be one of the five common ones below. Then it’s all about taking actionable steps to put you back in the driver’s seat. We’ve got some to get you started.
1. Never Getting Out of Debt
The hard truth is that eight in 10 Americans are shackled to one type of debt or another. And the average indebted U.S. household owes more than $15,000 in credit card balances. Debt itself isn’t necessarily a problem, provided you pay off your balance each month. But carrying a balance can cost you big, thanks to accruing interest.
Shefrin points to debt consolidation as one way debtors seek to reduce their anxiety. Even though they’re not eliminating debt, they may feel some sense of relief because, as Shefrin explains, it’s psychologically more painful to have a series of small debts, as opposed to one large one.
While this can be a good strategy if it helps you score a lower interest rate, an even better way to quell your fears is to come up with a repayment plan to get back in the black, says Carlson. She suggests writing down all your debts—including the balances, monthly payments and interest rates.
Then pour your energy into creating a budget that helps put more money toward paying off your debt. Feeling in control of your cash flow and debt payments can help ease your anxiety, and tracking your spending can also help you identify areas of wasteful spending, so you can redirect that money toward debt repayment and pay it off faster.
2. Being One Paycheck Away from Disaster
This one, it turns out, isn’t such an irrational fear. According to a 2016 Bankrate survey, only 37 percent of respondents said they had enough cash saved up to cover an unexpected $500 to $1,000 expense.
“I have very few clients who walk in, paying themselves first and saving any part of their paycheck,” says Carlson. “I hear time and time again, ‘My emergency fund is my credit card.'”
Yet the importance of building up a liquid cash reserve can’t be overstated. If your rainy day fund is nonexistent, aim for at least $1,000 to start, and build from there. The ideal target is anywhere from three to nine months’ worth of essential expenses, depending on your level of job security.
Not sure you earn enough to make real headway on your savings? Go back to basics and examine your spending. You’ll likely find temporary cutbacks—like eating more meals at home or pausing your gym membership—that can help you get your emergency fund off the ground.
3. Outliving Your Money
Are you on track for retirement? If the question alone inspires a wave of anxiety, you aren’t alone. A recent survey found that a quarter of Americans are afraid they’ll outlive their money.
Not being clear on how much you actually need for retirement, not having a specific plan for exactly how you’ll save for a comfortable future or not saving until later in life can all contribute to this fear, says Mary Bell Carlson, PhD, a financial therapist in Washington, D.C.
If that’s you, attack your fear of the unknown with action: Enroll in your company’s 401(k) plan—and contribute enough to earn an employer match, at least, if they offer it. Then gradually ramp up your contributions until you’re contributing about 10 to 15 percent of your income to a retirement account. If you’re still unsure how to maximize your efforts, Carlson recommends meeting with a financial advisor to help fill in the blanks.
4. Being Laid Off
Thirteen percent of U.S. workers feel it’s “very” or “fairly” likely that they’ll lose their jobs in the near future, according to Gallup. The most obvious anxiety-reducing tactic here is to grow your emergency fund, which will see you through a period of unemployment, and to start looking around now.
“Take a little bit of time and do some informational interviews to keep track of what other employment opportunities are available,” says Shefrin. “Keep that process on simmer so [you’re] connected to the job market…even when you’re fully employed.”
This means staying socially connected to prospective employers and others who might be able to offer viable leads should you need them. Waiting until you lose your job to build your network isn’t a winning plan.
5. Losing Money In the Stock Market
You certainly don’t have to work in finance to leverage the stock market to grow your wealth. But for a lot of people, one thing stands in the way: investment anxiety. GoBankingRates surveyed over 5,000 U.S. adults last year regarding their biggest financial fears, and losing their money in the market was on the list.
But this worry might be somewhat inflated. “In 2007 and 2008, there was so much fear in the stock market,” says Carlson. “And now, what a lot of people focus on is the short term, instead of the long-term perspective.”
While the stock market can go up and down, historically, over time, it has gone up significantly. The past isn’t necessarily a prediction of the future, but it should help you sleep a little better.
Shefrin drives home the importance of having a long time horizon. If you’re investing for medium or long-term goals—say, five to 20 years out—the stock market can provide an opportunity to grow your money in the meantime. The key is ignoring daily fluctuations along the way.
“You can look, but don’t react…because in the long term, the odds are definitely in your favor,” Shefrin says.
October 7, 2016