Confidence is a key when it comes to financial success. When you’re insecure, you’re out of your comfort zone, which can cause you to make bad decisions or avoid doing what’s necessary to make good ones — and that’s a recipe for disaster. Learn which insecurities can cause you to lose a grip on your finances, so you can stay in control.
1. Insecurity About Financial Competence
There’s a common assumption that people should automatically know how to handle their finances. Many people worry others will think less of them if they ask for help or advice. They start out by making financial mistakes, keep repeating them and end up in financial trouble that they’re too embarrassed to talk about.
“Financial problems rarely go away on their own,” said Michael Fuhr, chief operating officer and financial advisor at SageVest Wealth Management. “There are people who have had to sell their family home because they didn’t seek help before the money ran out.”
If you aren’t as financially savvy as you should be, start educating yourself now. And if you’re in trouble, reach out to a friend, family member or financial professional before it’s too late.
2. Insecurity About Financial Status
Some people take the saying “fake it till you make it” too far, especially those in their late 20s to early 30s, said Keeley Teemsma, a Brooklyn-based psychotherapist. A lot of young adults are emotionally insecure about their financial status. “There is a great deal of pressure on young adults to have status,” she said. “Success is ultimately measured by finances and lifestyle.”
To cope, these young people “social climb,” Teemsma explained. They put on a front about their income and lifestyle to boost their social status and hope their finances eventually catch up. Meanwhile, they’re racking up credit card debt or sharing tiny apartments so they can drive luxury cars.
Blowing your money by trying to impress people won’t boost your status. In fact, it usually leads to poor investment choices and a lack of savings, said Teemsma. It’s better for you — and your finances — if you stop social climbing and live within your means.
3. Insecurity About Long-Term Planning
A 2014 Federal Reserve survey found less than half of the respondents had enough money to cover a $400 emergency. Many people only live in the present and are more concerned about spending money now than they are about preparing for the future. Ultimately this is because they’re not comfortable thinking about what’s going to happen down the road.
Being short-sighted is often caused by psychological insecurities, hesitations and lack of a clear direction in life, noted author John Vespasian. “Individuals who lack a long-term perspective tend to feel insecure about saving and investing,” he said. “They tend to be unable to save money consistently, and they’re also unable to spend it wisely.”
If you over-prioritize the present, you’ll do so at the expense of your future. Long-term planning is an important part of managing your money. If you don’t develop that discipline, you’re likely to make foolish financial mistakes now that will hurt you later on.
4. Insecurity About Stocks
Some people simply cannot stomach the idea of putting money into the stock market. They stick with what feels safe, which is often cash or bonds, and think they’re steering clear of risk. But they’re wrong because there are other types of risks besides market risk, explained Fuhr.
“Purchasing power risk is the risk that assets will not be worth as much in the future due to inflation,” he said. “Reinvestment risk is the risk that when a CD or bond matures, a person is unable to reinvest the proceeds at a similar or better rate.”
Don’t get so focused on avoiding market risks that you forget to weigh the other risks you’re exposed to. In fact, stocks have proven to be one of the best assets for beating inflation and getting growth over the long-term, so stocks can be great investments.
5. Insecurity About Investment Decisions
Some people do invest in stocks, but are insecure about their investment decisions. At the first sign of volatility, they’ll yank their money out of the market or switch investments. These people tend buy high and sell low, said Fuhr.
Many people second-guess their decisions because they hear contrary opinions from so-called financial gurus in the media. They start to think that these other people are smarter and in a position to give advice, but they really aren’t, explained Paul Tarins, president and founder of Sovereign Retirement Solutions.
“You have to remember, [financial gurus] don’t know you or your situation. They’re speaking to the masses. It’s not geared to give you specific advice,” said Tarins.
Don’t base your own financial decisions on the media or take the advice of every so-called “financial guru.” And don’t let volatility scare you because when your time horizon is 10, 20 or 30 years out, short-term market movements aren’t important.
6. Insecurity About Change
Some people get too comfortable with their investment decisions and avoid change at all costs. They’re uncomfortable with the idea of doing something with an unknown outcome.
“They are so set in the way they’ve been doing things that they’re afraid to sit and evaluate things that may put them in a better place,” said Tarins. “So, they just do nothing at all and stay with the status quo because they don’t want to have think about it.”
Don’t assume sticking to what’s familiar is a safe or savvy idea. By doing so, you could miss out on lucrative opportunities and experience unnecessary losses, Tarins added.
7. Insecurity About Your Own Value
A lot of people sell themselves short by not asking for what they’re worth. Actress Jennifer Lawrence, for example, blamed herself for making millions less than her male co-stars. She wrote an article for a newsletter called “Lenny” explaining that she had failed as a negotiator. She didn’t fight hard enough for more money because she was concerned about being liked.
Low-balling yourself because you’re insecure about your value, or how others value you, can cost you big time. It can especially cost you if it’s a mistake you continue to make over your lifetime. According to Salary.com, about one-fifth of workers never negotiate their salaries, and a person who fails to negotiate a first salary stands to miss out on more than $500,000 by age 60.
Remember, money you don’t ask for is money you don’t earn. Determine what you’re worth and ask for it. Don’t be afraid to show how valuable you are.
8. Insecurity About Relationships
If you’re concerned about the status of your relationship, it creates a lot of uncertainty about how to handle your finances. This is especially difficult when you know the outcome is a pricey divorce.
“There’s a lot of moving parts to think about,” said Tarins. “Emotionally, you’ll have a lot of pendulums swinging throughout the day.” You have to cope with the mental strain of a life-changing event, and you might have to deal with dividing assets and figuring out how to live with a new financial reality. Many people find it hard to focus in this situation, but it’s important not to neglect your finances.
“Your [financial] decisions could be very costly. There could be a big tax burden,” said Tarins. Bad decisions can haunt you for a long time. If the situation is complex or you’re overwhelmed, get professional help to minimize the carnage.
9. Insecurity Driven By the Economy
A turbulent economy can rob you of your security, as you can become afraid of losing something — your home, your job, your healthcare. Because of this fear, you might stop taking risks and pursuing opportunities. People with salaries that aren’t cutting it won’t dare look for a new job, and people who have accumulated money get so scared they’ll lose it that they pull out of the market and sit on the sidelines.
“But when they harbor cash, they’re not keeping up with inflation so they do lose money,” said Tarins. Economic uncertainty drives people to abandon rational decisions for emotional decisions, which is never a good thing when you’re dealing with finances.
“Whatever the economic condition, always take steps forward to see if there are better opportunities for you,” said Tarins. “Even when the investing arena seems very challenging, there are still different asset classes and products that you can explore to keep moving forward and growing your nest egg for retirement.”
Keep Reading: 10 Best Retirement Plan Options
10. Insecurity Driven By Loss
Financial disasters can happen to anyone. You could lose your job, your home or a hefty portion of your portfolio in a down market. Such an experience is definitely disheartening, but it’s not the end of the world — unless you decide to make it that way. Ultimately, the outcome depends on how confident you are about your ability to recover.
“The worst thing you can do is throw your hands up and give up, which many Americans end up doing,” said Elle Kaplan, CEO of LexION Capital Management. “Rather than throwing in the towel, which will solve nothing … approach the problem rationally, and realize that there’s always a long-term financial solution with clear skies ahead.”
To get there, you have to put your emotions aside. Start by developing a financial plan, and remember achieving goals requires determination and perseverance.