Financial Planning

How Fear is Sabotaging Your Financial Security

Fear is a fascinating concept. From an evolutionary standpoint, fear protects humans and helps them avoid potentially dangerous situations. But when it comes to finances, fear can do just as much harm as it can good. Fear can even be sabotaging your financial security.

Outside factors and our own personal fears can wreak havoc on financial security (not to mention emotional health). So many people refuse to invest, take calculated risks (that could actually increase their income), or even live comfortably because they are so afraid SOMETHING will happen to make them lose everything.

There is ALWAYS something to be afraid of. Or so you think…

Personal finance is incredibly psychological. Believe it or not, being too frugal can be just as damaging as out-of-control spending. Many people cheat themselves out of living the life they want–and can afford–just because they’re afraid of losing their money at a moment’s notice. They’re so paralyzed with fear that they will refuse to spend money on the basics in the slim chance something catastrophic happens.

How stressful does that sound!?

What’s the point of working hard and saving money if you aren’t even using those things to enjoy life?

Personally, I’m just too lazy to be afraid of everything.

Sure, I try to stay educated and not make horrible mistakes with my finances, but I refuse to let the political or social climate prevent me from managing my money how I see fit. Regardless of what’s happening outside of my home, I plan to budget, pay off debt, save for retirement, and give the rest to charity.

Finances can be stressful enough. There’s no reason to worry about additional things that 1) you may not be able to change, and 2) might not affect you anyway!

Stay informed, stay motivated, but don’t let these four types of fear sabotage your financial plan!

How Fear is Sabotaging Your Financial Security

Fear of politics.

Do you know how much doom and gloom I’ve heard since November 9th? Well I’ll tell you…

About as much doom and gloom as I heard four months after November 9th, 2008!

Whether it was in November or back in 2008, I bet you know at least one person who tried to convince you the United States was headed straight to hell in a hand basket.

It happened in the 1960’s, it happened in 2008, and it’s happening today.

Every election, I hear multiple people say they’re going to move to Canada or some other country because the U.S. is going to be destroyed by whoever is in office.

Newsflash–No, you’re not because other countries have immigration rules, too. So unless you’ve already secured a job and can provide documentation to that fact, you’re staying stateside with Democrats and Republicans alike, homie.

And if you do end up relocating for this reason, will you still enjoy living there after nothing terrible happens?

Wars, recessions, crappy budgets, and conflicting ideologies–it doesn’t matter who’s in office or which party is in power. There is always SOMEONE who thinks the end of the world is near! Everyone’s a critic. Or maybe I just have enough faith in the diverse makeup of the United States that I don’t believe the country is headed for ruin.

From a financial standpoint, the likelihood of some political disaster immediately obliterating your savings is pretty low. What triggered the most recent recession in 2008? The housing market! There are so many factors in play, you can’t become paralyzed by one thing you’re afraid of.

I’m not going to say that politics won’t affect your finances. After all, this is where economic policy is created. However, politics should NEVER dictate what YOU do with your finances. If you want to pay off debt, then pay off debt. If you want to build that retirement account, then build that retirement account. Hoarding your money so that President X can’t come take whatever it is that you have isn’t going to help you in the long run.

It’s OK to consider the political climate when you make financial decisions, but keep a level head.

Fear of world events.

Some of you might be thinking, “Oh REALLY, Emily? What about nuclear war? That’s political, and it’s going to kill us all!”

Well, in that case, your financial worries will be over, won’t they?

If The Walking Dead has taught me anything, it’s that if civilization goes to hell, you might as well spend your money while you can because it’ll be useless before long. In a worst-case-scenario, whether it be all-out war or a zombie apocalypse, money doesn’t matter as much as you think it does.

It may surprise some people to know that refugees from all over the world used to live in nice places, have money, own homes, and live like you and me. People caught in conflict certainly don’t plan on fleeing or being uprooted from their lives. Hoarding money would not have made a difference in a situation like this.

Instead of worrying about what MIGHT happen, I believe it’s far better to keep living your life and try to make a positive difference in your community. What better way to prevent negative world events than BEING a positive part of society? No matter the cause, using your time, talents, and money to improve the world is a far better plan than freezing and waiting for disaster.

Many people obsess over world events and tune into the 24-hour news loop (DO NOT DO THIS) because they’re just waiting for a disaster.

People talk themselves out of investing, starting a business, or pursuing ambitious financial goals because of the “political and economic climate.”

Similar to political fear, they believe SOMETHING is going to happen to tank the economy, crash the market, and decimate their finances.

Which brings me to…

Fear of a volatile stock market.

Spoiler Alert: The stock market is not and has never been a guarantee.

If you’re too afraid of riding the waves of the stock market, you probably won’t make much money in it.

However, do you know one of the best ways to counteract this one?

Start a retirement account. Right now.

The more time you have to contribute to a savings account that earns a return from the market, the less you’ll have to worry about a volatile stock market. The reason is that the market always fluctuates and you can use this to your advantage.

If you were to take a snapshot of the market right now, it might look pretty unpredictable. Returns are rising and falling in jagged lines, appearing to skyrocket and then plummet with no warning.

S&P 500 1999-2012
Data Credit: Aswath Damodaran, who teaches Corporate Finance and Valuation at the Stern School of Business at New York University // www.Damodaran.com

If you zoom out to the long-term view of that same picture, it looks completely different. Some of those jagged lines level out or disappear altogether. The longer you’re contributing to that account and keeping those funds in the market, the less those events will affect your overall savings and return.

Annual ROI S&P 500
Data Credit: Aswath Damodaran, who teaches Corporate Finance and Valuation at the Stern School of Business at New York University // www.Damodaran.com

Only focusing on the short-term snapshot is the reason people freak out, pull their money out of the market, and completely miss out when it levels out again. The BEST advice I’ve heard regarding the stock market is, “Don’t open your monthly statements.”

It sounds pretty dumb, right? WRONG! Interestingly enough, I’ve heard this advice from successful, financially-savvy people who, literally, put their money where their mouth is.

Time is your friend and you should take full advantage. Contribute what you can and let that money work for YOU!

“It’s easier said than done.”

The hardest thing you will ever have to do is convince yourself to NOT BE AFRAID.

A lot of people NEVER achieve this.

Many people refuse to change because it’s “too hard.” They are so set in their ways that they can’t imagine doing anything different.

It’s a lot easier to stay afraid than take charge of your finances and live with a purpose. Considering outside factors that affect your finances is smart, but using them as an excuse to freeze in place is cheating yourself out of the life you deserve.

Contrary to popular belief, finances aren’t all-or-nothing. There are many ways to strike a balance between financial freedom and security.

One way to do this is by building an emergency fund. Decide how much you need to live on for a given amount of time (e.g. 6 months) and rest assured that, no matter what, you have that money in case of an emergency.

If you’re interested in investing, invest a small amount at first and see how it goes. After you learn more and gain some confidence, you can increase your contributions.

If you’re worried about the political or social climate, step out into your community and get involved. Contribute your time and money to causes you believe in (it really does make a difference).

A lot of fear stems from feeling out of control, whether it be in your finances, career, or personal life. Taking steps to prepare for emergencies and getting involved in something larger than yourself helps you take control of your finances and life in general.

Think of it this way–in all likelihood, you are going to get old. Would you rather have experiences, memories, and a comfortable home (remember, “comfortable” is different from “large”) to grow old in, or would you rather be a slave to a hoard of money? Smaug hoarded his gold in the Hobbit, and it got him nowhere!

Personally, I don’t want to reach 90 years old and realize I spent my life living in fear, preparing for the apocalypse that never came, and not enjoying any of my hard earned money with the ones I care about.

What fears do you have? Have your fears ever prevented you from pursuing a financial goal? 

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2 thoughts on “How Fear is Sabotaging Your Financial Security

  1. This is a great post, Emily! You know, I was almost too afraid to invest in real estate in 2012 at (what turned out to be) the bottom of the market. $400,000 for a little 3-bedroom in LA sounded crazy to my born-and-raised-in-the-midwest brain! But for all the reasons you listed above, I sucked it up and took the calculated risk. The property value has increased nearly 40% since and is cash-flowing $820/mo! Plus my renters are paying down the mortgage for me, and I get the rental property tax breaks. Best financial decision I ever made. But I had to get over, well at least momentarily disregard, my fear of financial ruin.

    PS: “I’m just too lazy to be afraid of everything.” OMG, I love that so much 😉

    1. I totally don’t blame you for being afraid at first, that sounds intimidating to me!! But I’m so glad it worked out for you–so often the best choices are the ones that terrify us at first. 🙂 But, as you said, sometimes sucking it up and taking a calculated risk is necessary in order to make it to that next level.

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