It’s not surprising financial fears keep most of us up at night, rivaling mortal fears like dying or being alone forever. Money determines our comfort in life, and the U.S. financial system is such that one financial misstep could snowball, robbing people of the basic ability to provide for themselves.
While it’s wise to be mindful of the possibility that your financial situation could change, becoming debilitated by fear is damaging to your psyche and emotional state.
GOBankingRates recently conducted a survey to find out people’s biggest money fears — here are seven financial fears highlighted from our poll and how to overcome them with some planning and financial savvy.
1. Always Living Paycheck-to-Paycheck
It’s common for young adults to live paycheck-to-paycheck at the beginning of their careers when savings are minimal. With no money in your account, you can become trapped in a cycle of waiting to pay your bills until pay day. However, the paycheck-to-paycheck mentality can be broken if you build up enough savings.
In July, GOBankingRates and the Penny Hoarder found that 73 percent of Americans have less than $1,000 in emergency funds. If that’s the case, they might have even less on hand in their checking and savings accounts to cover regular costs. If you’re not in the habit of saving and don’t know how to start, try by saving a certain dollar amount up front each month. By putting $400 in your savings account each month on the first, you’ll ensure that you’re saving money systematically and not coming up short.
2. Falling Into Serious Debt
Once you’ve accumulated student, credit card and auto loan debt, it can seem impossible to resolve it all. That’s likely why even those who lack debt fear the possibility of it. Debt not only keeps your cash supply strapped, it makes everything else cost more. With a poor debt-to-income ratio, people can struggle to obtain decent loan interest rates or qualify for the loans and financial products they need.
Similar to the notion of saving to escape a paycheck-to-paycheck existence, growing a large savings will mitigate ones fear of debt, since he’ll have enough to cover unexpected expenses and will be able to put down more money up front on loans when borrowing.
3. Becoming Homeless
This fear is the result of many other common financial fears colliding: losing a job could result in not being able to pay your bills, which could cause you to fall into debt — maybe even lose your home.
Growing a savings, diversifying your investments and maintaining a degree of liquidity to your funds can all ensure this doesn’t happen to you. If you’re in a position where you realize you can no longer afford your mortgage payments, there are many resources and mortgage products that can be of service to you before you’d have to sell your home. Furthermore, selling your home doesn’t have to result in becoming homeless. Downsizing to a smaller, more affordable housing option will keep a roof over your head and help free up funds to cover expenses that have now become hard to manage.
4. Losing Your Job
This fear is understandable, as 8.7 million jobs were lost in the Great Recession. With recent memories of wide-spread layoffs and downsizing, employees are aware that their company’s performance has a direct impact on whether they’ll maintain their jobs.
Having more than a month’s worth of expenses in your account will help you start to get past the paycheck-to-paycheck lifestyle, but an emergency fund is a resource worth building to get over your fear of unemployment. An emergency fund is only supposed to be touched in case of medical emergency or job loss — not to cover your dinner out or shopping spree.
A good rule of thumb is to save up between six and eight months of earnings for a comfortable emergency fund. It will take time to both grow your regular checking account and an emergency savings, but this fund will ensure you can float in the interim should job loss occur.
5. Getting Your Identity Stolen
With credit card security breaches making headlines, this fear is understandable. If your sensitive banking and social security information get into the wrong hands, your savings could be drained and credit history tarnished.
Some preemptive measures can be taken, however, to protect your identity. For one, don’t carry your social security card in your wallet. Should you lose it or have your purse or wallet stolen, a social security number is the Holy Grail for an identity thief. If you’re worried about debit card security, opt for a credit card or prepaid card, which are more secure payment options.
A credit freeze is another affordable security measure. For just $10 to each of the three credit bureaus, you can freeze your credit, which will prevent your credit information from being released without your expressed consent. It costs just $2 to $10 to temporarily unfreeze your credit with each bureau should you need to do a credit check for a new apartment or loan.
As commonly advised, use various passwords on the web for your banking and online shopping use, and be wary of suspicious emails or calls requesting your personal information. Being proactive can help you overcome this financial fear.
6. Having to Work Forever
Luckily, this is a preventable fear. With most people entering the workforce in their 20s, time is on your side from the start. By opting into your company’s pension and retirement plans as soon as possible, employees can ensure that they’ll have enough to retire when that day comes.
Changing your mindset to prioritize your future over your immediate wants can empower you to save for retirement. Yes, it’d be nice to have a few extra hundred dollars a month, but due to compound interest and growth rate of retirement funds, that money will accumulate into enough wealth to sustain you for decades if you save early on. That $100 each paycheck in your 401(k) is just $100 today, but it will increase in value over time and provide more gratification in the future if saved.
Take advantage of employer benefits and always max out any matching your employer is offering. Think of that as free cash on the table that will help abate this fear.
7. Losing Your Life Savings in the Stock Market
You shouldn’t be putting all your savings into the stock market to begin with. Just like how a healthy portfolio features a mix of low- and high-risk options, your money should be distributed between various assets and accounts: your home, liquid checking and savings accounts, IRAs and maybe some CD accounts. Only invest to your capabilities and comfort level.
Yes, higher risk comes with higher reward, but this fear is in your hands. Pick an investment option that you’re comfortable with and only gamble what you are OK potentially losing.
Photo credit: Cliff