April 12, 2022

Paranoid? Maybe You Should Be — Common Financial Fears

Eric Bank
Former Citadel Director of Business Analysis

Financial paranoia can run deep, especially when it's justified. Symptoms include sleepless nights, joyless days, and elevated blood pressure. 

Take a deep breath.

The best way to handle financial worries is to address them directly. Here are five leading causes of financial fear and ways to overcome them.

1. Unplanned Medical Costs

Many Americans fear the medical bills resulting from an accident or severe illness. Even good health insurance policies can have large deductibles and inadequate reimbursement for out-of-network visits. Financial fears keep many from seeing their doctors, making matters worse. 

Solution: Review your health insurance plan and supplement it if necessary. Earmark some savings to cover unexpected medical bills. And examine your lifestyle to see if you are making healthy choices. Finally, do not avoid your annual checkup.

2. Loss of Income

Do you worry about job security? You're not alone. Many folks fear losing their jobs, perhaps due to age, obsolete skills, automation, office politics, or economic problems. 

Solution: You need to create an emergency fund that will cover six months of expenses. Make yourself more valuable by learning new skills and extending your education. Consider taking on a home-based side gig to create a second income stream. Many freelance workers who were once employees have been able to reduce their job-related stress levels.

3. Outliving Your Money

Worrying about a lack of retirement savings is often justified. Part of the problem is not knowing how much money you'll need to afford retirement. Folks now live longer, but financial fears can make a long life sound scary.

Solution: You can begin saving for retirement now, even if it's late. Budget contributions for your 401k or IRA and make them a top priority. Understand how Social Security works and how long you can wait before claiming it. Consider downsizing and moving to a less expensive location. Work with a financial advisor to set up a retirement plan that will last a lifetime.

4. Credit and Debt Worries

Debt worries can be oppressive. They can stem from student loans, credit cards, an expensive mortgage, and other debts. You might fear property loss and lawsuits that force you into bankruptcy court. 

Solution: Pay down your debt, even if it takes a while. You can work with a nonprofit debt counselor who can show you productive ways to reduce your debt. Understand your refinancing options and look for ways to cut your expenses.

5. Losing Money in Investments

It's not paranoid to worry about losing money in the stock market  —  it happens every day. If the fear is constant, you are investing beyond your risk tolerance.

Solution: Work with a financial professional who can show you how to reduce your portfolio risk and still earn a respectable return. Diversification and asset allocation are the tools you can use to control risk. By investing in many types of assets, you reduce the chance that they'll all go south simultaneously. The result is less overall volatility and a better night's sleep.

Address your worries, get professional advice, and make necessary changes to lower your stress level. These are the best ways to defeat your financial fears.

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