We are witnessing a truly remarkable but also unprecedented period in human history. Our times are characterized by the greatest technology, the greatest wealth, the greatest population, the greatest achievements and the greatest systems that humans have endeavored to build and maintain. Yet coexisting with these great accomplishments, we also witness the most systemic stresses that humanity has ever endured. First, global climate change is elevating human stress concurrently with expansion, a pervasive stress on all humanity with many effects, punctuated by local crises. Secondly, there has been human tragedy and catastrophe before, but we now experience global coherency and immediacy of that stress. By this I mean that the global society is integrated by media where knowledge, access, leverage, power, wealth and networks have global extension and thus have the ability to competitively pit nations against nation, company against company, community against community, person against person. Whole economies are slowing, confounding the accumulated experience that low interest rates, low energy costs, fiscal and monetary stimulus can stimulate stable growth. Though we think our world is vast with diverse opportunity and challenge, it is also competitive and stressful. Uncertainties in employment, weather, educational expectations, cybersecurity, public health, economic stability and social expectations are rising in this less predictable world. This stressful, uncertain environment is subtly gradual but pronounced over time.
Manifestations of Financial Anxiety
Anxiety is expressed in our economic and financial behavior. It is not uncommon for individuals in our society to have little or no emergency savings, to engage in compulsive spending, to speculate in investments, hide resources from a spouse or partner, or more commonly to avoid planning for retirement, taxes or major goals. All of these behaviors are attempts to avoid facing or deflect anxiety producing decisions regarding our financial obligations or life’s uncertainties including aging, difficult relationships, death or social acceptance. Financial and economic anxiety is a fact of life, and humans either postpone the discomfort that accompanies these anxiety fraught decisions, or deal with the issues in a manner that enables one to cope with the anxiety and plan for various contingencies. While postponing financial analysis and decisions (i.e. procrastinating) tends to have the most adverse consequences, people who cope with the issues are never able to totally remove these anxieties as there are no certainties in our world, only relative uncertainties.
Control of Financial Anxiety
For most people, it is possible to manage anxiety and thus control behavior and stress levels. These control strategies- outlined below- can be either generic or specific to financial activities:
Focus on what you can control. Your domain of control is primarily your personal life, responsibilities, family and finances that you directly influence. Over-emphasis on the world’s problems- often a result of excesses of TV watching, surfing the internet, or listening to talk radio- creates an overhang of anxiety with no means of personal resolution. If you can limit the pressure of these uncontrollable anxieties while spending precious time on your important personal issues, you will increase your sense of control.
Develop financial disciplines that provide financial controls, taking the burden off your discretionary decisions. These financial disciplines involve debt limits, savings, budgeting, investment strategy, healthcare spending, goal planning, and estate planning outlined below:
Control your monthly debt payments relative to your income so that you are never over your head in any given month by debt interest and principle payments. Maintain a rule of thumb regarding your total debt burden to income ratio. Most advisors suggest this ratio should not exceed 20% on a recurring basis.
Maintain adequate cash reserves in case of financial emergency. The level of appropriate cash reserves is subjective but based on how long it may take to find re-employment, your monthly home, health, food and transportation expenses, and other forms of family income such as spousal employment or social security.
Annually take time to sketch out your family budget, including all income and expenditures that recur monthly, quarterly and annually. This is your primary control mechanism to avoid a cash crunch or financial crisis mid-year.
Always join your company retirement plan and take full advantage of employer matching. This may not fully fund your retirement, so make sure that you are budgeting supplementary savings into additional retirement savings vehicles.
Maintain appropriate health insurance so that health emergencies will not bankrupt you or your family, or derail other long term goals.
Plan for your goals such as education or a larger home in a consistent manner that is not confused in with normal savings or retirement. This avoids double counting the savings available in your accounts.
Develop an investment discipline that enables you to grow your savings without inappropriate risk, volatility or illiquidity. Factors that should be incorporated into your discipline are appropriate asset selection and diversification, control of fees and charges, use of financial advisors or fiduciaries, tax planning, time horizon until income generation and amount of income generation needed to support your goals. Recognize that day to day volatility is different from long term financial risk, so do not obsess over shorter term volatility, perhaps reviewing positions monthly or even quarterly. Do not speculate in your goal designated investment accounts.
Holding an optimal balance of cash in your investment accounts is an excellent way to reduce your anxiety, and improve your investment returns. To wit, not having cash deprives an investor from being able to benefit when assets are trading at distressed prices during or after significant crises or shocking events. Though this appears opportunistic, it is this kind of attitude that propels the successful value based investor. As Warren Buffett is famously quoted, “Be fearful when others are greedy, and be greedy when others are fearful.” In other words, successful investing depends in large measure on being fully in control of your emotions. This is not speculation; it is the purchase of inherent value at a discount.
You may not be totally objective or have the time to manage all aspects of your life. These aspects may be your finances, your health, or even certain relationships. Those areas that are most out of control are likely the areas in which you are least objective or require significant concentration. Working with professionals in these fields can help you and your family regain control. Regarding personal finances, there are personal financial advisors who can help you manage your financial well-being with a plan, goal oriented savings or investment strategies. It may take time to find a good fit for your situation, but in many situations, it can change your life.
Take time to decompress from the stresses of life. Such stress relief activities can be hobbies, reading, music, art or other diversionary interests, such as cooking or travel. The more stress that exists in your life, the more decompression time and outlets you should allocate. Personal stress relief typically is not associated with managing family finances or investments.
Maintain to the best of your abilities good relationships with family and friends. These people help to reassure and re-center personal priorities and place stress in context. You may not feel comfortable sharing your financial concerns in full detail with extended family or friends, but sharing other anxieties can provide a sounding board and often open the conversation to other possible avenues of support, relieving total stress and becoming a segue to discussing financial issues.
In summary, recognize that financial anxiety, like all anxiety, can and must be managed with discipline, networking and relaxation. Such management enables individuals to live balanced lives, coping with anxiety while being motivated by this common and essential emotion.