Financial Anxiety - is it holding you back? - Episode 70

Episode 70 – Financial Anxiety - is it holding you back?

I’ve spoken in past episodes about the potential for overwhelm to lead to procrastination. Procrastination is evil because it results in no progress. You’re stuck in the cement.

But there’s another element to the no-progress problem, and that is financial anxiety or financial stress.

If you’ve never worried about money in your life, I’d say you are a very rare human being. For most of us, most of the time, money worries are a transient thing that we get through, and then move on to planning our next holiday or getting the kids to basketball practice.

But having worked with many, many people over the years, I’ve come to recognise that often, the reason we don’t make progress on the big, really important life and financial goals, is because of financial anxiety. So in today’s episode, we’re going to explore what are the most common causes of this financial stress, and some strategies you might be able to use to reduce or perhaps even remove this worry, letting you make clear and confident decisions to move forward on your financial autonomy path.

There are 3 main types of financial anxiety that I come across on a regular basis:

Inherited Debt Longevity

Inherited financial anxiety is the most common and debilitating. It is experienced by those who have grown up in households where their parents regularly argued and fought about money. Money therefore becomes this stressful topic, and so the thought of sitting down and doing any sort of planning is about as attractive as volunteering to have a root canal done by a first year trainee dentist.

Those suffering inherited financial anxiety tend to follow one of two patterns. Either they put their head in the sand. They don’t open their superannuation statements, don’t budget, and certainly don’t discuss financial matters with their loved ones.

Alternatively they go to the other extreme, and micro analyse everything, to the point of complete paralysis. They’re convinced that whatever decision they make, it will be the wrong one.

The next type of financial anxiety that I see is that caused by debt. In 99 out of 100 cases of debt induced financial anxiety, credit cards will be a central element. And there is never just one. Often there’ll be a car loan and perhaps a mortgage, but credits cards certainly seem to be the gateway drug to debt related financial stress.

The final form of financial anxiety that I see I’ve somewhat imperfectly termed longevity. This manifests itself in being stressed about the normal ups and downs of investment markets – actually not so much the ups, but definitely the downs.

For people suffering this form of financial stress, they worry so much about market volatility, that they either buy and sell at the completely wrong time – selling when markets are down and buying when they are up – or they hold all their savings in cash or similar, and in so doing actually damage their long term financial well-being. (See Episode 48 – The 10 worst things you can do to prepare for retiring early).

So what can you do to prevent Financial Anxiety from holding you back?

The first thing to do is have a separate bank account for your bills and regular expenses, and have an automatic transfer from your everyday account every time you get paid, to top it up.

Go through your bank statements for the last 3 months and tally up all of your regular expenses – electricity, phone, insurance, etc. Whatever number you get, multiply it by 4 to get your approximate annual spend, and then divide that number by how many times you get paid in a year, so if you get paid fortnightly, divide it by 26. Whatever that number comes in at, round it up to the nearest $50, and set up your regular transfer. Ideally, you’d put an initial one or two thousand into this bills account to act as a bit of a float for the natural lumpiness of your bills.

With this system up and running, you will know that whenever a bill comes in, you have the money sitting there waiting to pay it. This means, a) no more stress, and b) no need to hit the credit card.

The next thing is to clear your unproductive debts. Determine which debt is the most expensive and focus all your attention on getting rid of it. Again, use automatic transfers as much as possible to avoid the risk of weakened willpower. Once that especially horrible credit card is paid off, you can move onto the next one. And whilst it won’t happen overnight, eventually you’ll get all these debts paid off and then the money you had been using to clear these could instead be put into savings, putting you on the path to financial autonomy.

Another useful way to alleviate financial anxiety is to have some projections done, so that you have a good sense what the long-term outlook is. You’ll find that your super fund website will have a projection tool so you can get an estimate of where your retirement savings will end, and site like the government’s Money Smart has some good calculators for this purpose too. If you want some help, we have our financial modeling service too.

Worst case planning can be another great way to reduce worry, and so would almost certainly help alleviate your financial anxiety. This is where you list out the biggest worries that you have, and then determine what action you’d take if those things actually occurred. The actions may not always be pleasant, but just knowing that you have a plan can remove that dark cloud floating around in the back of your brain, and enable you to move forward. I explored this strategy in detail in episode 59 – The Beauty of the Worst Case.

Finally, don’t be afraid to talk about your finances with your partner or other loved ones. Especially for couples, you’re a team, and chances are, if you’re worried about your finances but too afraid to discuss it, so is your partner. Don’t pass your inherited financial anxiety down to your kids.

I know there’s a bit in this episode, so I’ve put together another free downloadable toolkit to help you take action. It’s a bit of a bumper edition – I’ve summarised the strategies from today’s post, and also pulled in some of the tools from past episodes – the debt control template, a look at risk vs reward, and tips on how to avoid running out of money. 

That’s it from me for this week, I hope you have a great week ahead and continue to make progress on your Financial Autonomy goals.

Important Information:

This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.