For some people, talking about money conjures the same emotion as public speaking or going to the dentist: fear. That’s because money is personal. We use money as a barometer for success, and it can reveal our personal habits and desires. Hence, money is often treated as a taboo subject along the lines of politics and religion.
According to one survey, 71% of Americans say they fear speaking with a financial adviser for one reason or another. The reasons cited range from being afraid to receive bad news about their financial situation to the potential cost of meeting with an adviser. Such fear may help explain why the average person spends more time planning vacations than retirement.
There’s the rub. In order to achieve your financial goals – the vacations, the dream home, a comfortable retirement – you must plan. Creating a financial plan is exceptionally difficult in silence. You need to open up about where you are and where you want to go. First, you may have to face the fears that cause you to clam up whenever the word money is mentioned.
Here are common money fears and tips on how to overcome them so you can become comfortable talking about your finances and start planning for your future.
Fear #1: You will outlive your money
A 2010 survey found that the majority of people ages 44 to 75 feared outliving their money more than death. Money can do funny things to our emotions. This fear may cause some people to avoid risk – especially with their money. In a Gallup survey, more than 80% of investors said they were nervous about investing. While no one wants to outlive their money, it’s also likely no one wants to be the richest person in the graveyard.
Solution: Expose yourself to what you fear. Research has shown that exposing yourself to your fears, known as exposure therapy, can reduce your anxiety. When it comes to money, it can only grow if you expose it to risk. (There are no free lunches.)
Avoiding risk -- that is, investing too conservatively – limits your growth potential. You shouldn’t invest in only bonds or cash investments unless you are extremely certain your savings and other incomes sources will meet your financial needs for the duration of your retirement. Many investors will likely need a balanced portfolio of stocks and bonds that can allow some growth but also protection from significant loss.
Fear #2: You lack financial knowledge and will be judged for financial mistakes
A study by the Financial Industry Regulatory Authority found that the average American adult could accurately answer only 2.9 out of 5 basic financial questions dealing with such topics as risk, inflation, interest rates, etc. When you don’t know what you’re doing, it’s easy to make mistakes. And, no one enjoys having their mistakes examined by someone else. This may cause you to think twice about meeting with a financial adviser, even though the goal is to prevent those mistakes.
Solution: Be vulnerable. According to Brene Brown, researcher at the University of Houston and bestselling author of Daring Greatly, vulnerability can help us become brave and overcome our fears. Similarly, being honest about your finances, to others and yourself, can help you make better financial decisions.
If you work with a finance professional, don’t hesitate to ask questions and acknowledge what you don’t know. Most financial professionals actually spend a great deal of time on client education in addition to financial planning.
Additionally, assess you current financial situation. Make a list of all of your assets and liabilities; compare what you own to what you owe. This will tell you where you are financially, and provide insight as to what you can do to improve your financial life.
Fear #3: You’ll never be able to save enough to retire
The median 401(k) account, according to the Employee Benefit Research Institute, is $18,433. Additionally, the average worker between the ages of 55 and 64 had $111,000 in retirement savings, which amounts to more than $400 a month. For many, the prospect of a comfortable retirement seems out of reach.
Solution: Practice acts of bravery. Some psychological researchers suggest repeatedly performing acts of bravery can actually develop courage. In the financial sense, continually saving and investing – even small amounts – can improve your chances of living the life you’ve always wanted. Create and follow a budget with tangible goals in mind. Start small and build your way up. You’ll become comfortable living below your means and may find your goals are closer than you initially feared.
Fear #4: You’re unable to keep emotions out of financial decisions
Our emotions have a way of sabotaging our financial decisions, and data show this. The S&P 500 index generated a total return of 11.1% annually over the past 30 years, according to research firm Dalbar. Meanwhile, the average investor in U.S. stock funds experienced 3.7% annual total returns during the same period. Experts attribute this performance gap to emotions such as fear and greed influencing investment behaviors.
Solution: Acknowledge your fears. In many support groups or self-help programs, the first step is acknowledging that you have a problem. Research suggests that overcoming your fear requires you to acknowledge those fears before you can begin tackling them. Understand how your emotions affect your financial habits, and then incorporate methods that help keep your emotions in check. For example, tune out the noise by limiting how often you check market performance. In many respects, a financial adviser acts as a roadblock between you and your emotions, or rather you and ill-advised decisions. Expert guidance and investment advice can help keep you calm and focus on your goals.
Fear #5: The unexpected
The loss of a job. A medical emergency. Major home or car repairs. These potential events can happen to anyone and derail their financial goals. One survey found that unexpected events cost $117,000 on average for people 50 to 70 years of age. For many, anxiety over imagined or real events creates unhealthy levels of stress in their lives.
Solution: Seeks ways to manage stress. Research indicates stress is caused by fear of an event, whether it’s likely or improbable. You can find peace of mind through preparation. An emergency fund can help alleviate worries about the costs of the unexpected, as you’ll be financially prepared. Consider building a fund that can cover your expenses for two to six months.
Fear #6: A financial adviser costs too much
Some people may be under the impression that all financial adviser charge exorbitant fees or only serve those with million-dollar portfolios. The reality is financial professionals have become widely affordable and often compete to offer low advisory costs to investors. Some advisers, such as Advance Capital, will even provide an initial financial plan for free.
Lastly, one of the most important things to do in your financial life is to remain positive. In a study on Olympic athletes, those who practiced visualizations and positive self-affirmations were better able to handle pressure and performed better than competitors.
To help you stay positive, focus on your financial goals. Where do you want to travel? What new career do you wish to have? Focusing on your goals can imbue good feelings about money as you work toward achieving them. You can start by talking about them with a financial adviser.
