I recently posted an image on Twitter of a snake that my wife and I came across while taking a morning walk in Aspen, CO. I hate snakes. They absolutely terrify me. In fact, snakes are my “Room 101.”
Those of you familiar with George Orwell’s dystopian novel, 1984, will remember Room 101. That’s where the Thought Police take those particularly difficult cases in the final step of their “re-education” journey. In Room 101, they’re forced to face their greatest fear. In the case of the protagonist, Winston Smith, Room 101 contained…well, I’m not going to spoil it. You’ll have to read it for yourself. Suffice it to say, mine would be a room full of snakes.
In 1984, Orwell demonstrates a deep understanding of the human psyche and how both rational and irrational fears can not only be used as a powerful tool to manipulate and control others but can drive us to make choices we otherwise would not.
Fortunately, I didn’t suffer any deep psychological damage as a result of my brief encounter with the Aspen asp. I simply gave it a wide berth and calmly walked around it. (Okay—I might have had a little jog in my step.) Nonetheless, it got me thinking about how we deal with fears and obstacles along the path to accomplishing our financial goals. While it’s easy enough to sidestep a snake on a footpath, we can’t simply ignore or sidestep our financial fears without serious repercussions down the road.
The first step in facing your fears is realizing that you’re not alone. This year has given many people cause to be apprehensive where their financial wellbeing is concerned or to question if they’re still on the right path. As we continue to grapple with the uncertainties of a global pandemic, the ensuing economic fallout and a contentious U.S. election season, many Americans feel less confident about the future and their ability to accomplish all of their goals within the timeframes they have set. According to a recent retirement confidence survey, 58% of Americans are more concerned about retirement today than they were at this time last year. Among those who have not yet claimed Social Security benefits, 57% worry about Social Security drying up, and 52% worry they will outlive their savings. In addition, 47% of respondents are concerned about their ability to pay for medical bills in retirement, and the same percentage are concerned about their ability to pay daily living expenses when they retire.
That’s a lot of anxiety. And, as we know, worry and anxiety about money matters can have a significant effect on both mental and physical well-being. As hard as it may seem, facing your financial fears and creating a plan to deal with them is the only way to reduce the angst you may feel about today’s financial circumstances or your ability to accomplish tomorrow’s financial goals. Fortunately, doing so may not be as difficult as you think. Even small steps in the right direction can help you to gradually overcome financial concerns by building your confidence— along with your bank account and net worth.
Start with the six steps below to get back on the path to a confident financial future.
- Develop a budget. Basic? Yes. But also highly effective. That’s because budgeting provides a clear and consistent picture of your cash flow—what’s coming in versus what’s going out. Without it, you’re operating in the dark and things always seem scarier in the dark. Shining a light on savings and spending enables you to begin to tweak what’s not working and build from there. Begin with your essential expenses for housing, food, clothing, utilities, transportation, childcare and healthcare. Next, make savings a priority, including both emergency and retirement savings. And don’t forget debt maintenance such as auto and student loans and credit card accounts. What’s left is your discretionary spending for things like entertainment, shopping, and leisure activities. Not sure where to start? Download our free guide The Family Budget: Financial Empowerment at Your Fingertips.
- Recognize the difference between need and wants. Unchecked spending is a leading cause of financial anxiety. To get spending under control, begin by defining your priorities for discretionary spending. If you have a spouse or partner, engage in this exercise together to make sure both parties have a fair say. Ideally, each dollar you spend should align with and support your lifestyle goals. Many people have experienced a decrease in spending during the pandemic. That makes this a great time to re-evaluate your spending priorities. Maybe some of the things you regularly spent money on in prior years are less important now. If so, consider redirecting some of those savings to other priorities, such as your emergency fund or retirement savings.
- Identify your goals. It’s tough to prioritize spending if you haven’t taken the time to identify and prioritize your goals. Often, people misunderstand the objective of the goal planning process. It’s not about setting target dollar amounts for specific long-term goals. Goal planning is about how you choose to live your life. For example, setting a goal to retire when you have amassed $1 million in retirement savings is meaningless if you haven’t defined your ideal retirement lifestyle, including when you want to retire, where you will live, how you will spend your time and who you will spend it with. As a result, you don’t know if $1 million is more than you may need, or well below what you may need to sustain your lifestyle for another 20 or 30 years. That’s where comprehensive planning comes in.
- Make a plan. The planning process helps to align your financial assets and your lifestyle goals while also allowing for unexpected events along the way. We often talk about life as a journey. Think of your plan as your map or GPS, helping to guide you along the path toward your goals. It should be flexible enough to accommodate detours and change, but also provide a structured path as you move through each stage of your life. It brings your financial future into crisp, clear focus, which can go a long way toward alleviating anxiety.
- Follow a disciplined, repeatable process. Your investment portfolio is the centerpiece of a well-constructed long-term financial plan. As such, your investment strategy must be aligned with your specific goals, risk tolerance and timeframe to not only help you remain on course toward accomplishing your goals, but avoid emotional decision-making, which can derail your plans. Staying on course requires a disciplined and repeatable process for balancing the level of risk and reward that’s appropriate for you. While it’s possible to do this on your own, most investors lack the time and resources to effectively manage all of the moving parts on a consistent basis, such as financial market and portfolio manager research, understanding when to buy or sell specific holdings, how to assess the tax liability of positions sold, and how to rebalance your portfolio. More importantly, as humans, fear—which is a powerful emotion—can cause us to deviate from our strategy. We saw that in March of this year as the markets fell and many investors fled to cash, only to miss the rebound weeks later. That’s where professional advice can really help.
- Work with someone you trust. Maybe you had a bad experience in the past working with an advisor, where you didn’t understand or trust the advice you received, or you just didn’t connect with them on a personal level. Don’t let a poor past experience stand in the way of finding the right advisor for your needs. Advice is more important than ever during these unprecedented times. The right advisor will show you how your money can be used as a purposeful tool to pursue your goals and create opportunities in your life. Begin with seeking out an independent, fiduciary advisor or firm. Fee-based, independent advisors have a vested interest in the success of your strategy as their compensation will typically increase as the value of your portfolio increases and decrease if the value of your portfolio falls. Advisors serving clients in a fiduciary capacity are also required to disclose all potential conflicts of interest and are committed to ensuring full transparency across all aspects of your relationship. Remember, trust is earned. Don’t be afraid to ask a potential advisor how they plan to earn your trust. If you’re not satisfied with their answer, move on. They’re not a good fit for you.
Taking the right steps to overcome fears and improve your financial wellbeing during times of change and uncertainty is critical for protecting your long-term financial health. But it can be hard to do on your own. If you have questions about how you can ensure you receive the value you expect from your financial advisor, download our free guide: 10 Questions to Determine if Your Advisor Meets Standards.
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