As a psychologist and Chief Behavioral Officer, I’ve listened to and counseled some of the best financial professionals in the country over the last few weeks. You see, my job is to teach advisers how to control excessive emotionality en route to making optimal financial decisions. As I spoke with these advisers, one theme has emerged: fear. Health-related fears. Financial fears. Fears about the future of our country. Fears about the uncertainty shrouding the world.
There’s no shame in being scared, but fear becomes problematic when it paralyzes us or stands in our way. Even just thinking about something positive activates our internal reward system, which leads to increased risk-taking, increased impulsivity, and greater general physical arousal. Fear, understandably has the opposite effect, making us timid, protective and risk-averse. Both positive and negative emotions, if taken to their extremes, can hamper sound financial decision-making, but since fear seems to be the predominant emotion du jour, it’s worth examining some of our most common fears around money:
- Fear of missing out: Anxiety around not being a part of market upswings can lead to excessive risk-taking.
- Fear of volatility: Discomfort with the ups and downs inherent in capital markets can lead to excessive conservatism.
- Fear of uncertainty: Not knowing what will happen next leads to two common behaviors — compensatory overconfidence or assuming the worst — neither of which leads to great financial choices.
To help us all overcome fears that could hold us back financially, please consider the following tips:
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Learn from your fears
Realize that some amount of fear and stress is beneficial. Fear, in moderate doses, can instruct us to better prepare for an uncertain future. For example, an appropriate fear of death or disability might lead someone to protect their assets with insurance. The fear that a single company or country might underperform might rightly lead someone to diversify their assets.
Fear isn’t all bad, and we must first ask ourselves if there is something this fear can be teaching us.
Face them
The paradox of fear is that to overcome one you must confront it. Avoiding fearful conversations or feelings can give them more power than they actually have, which is why 90% of those with specific phobias are cured by facing their fears. The irony of procrastinating or avoiding a financial reality is that it only gives it greater power.
So, open those bills, pay that credit card statement, and even make the phone call asking for leniency if you find yourself in a tough situation. Action has the effect of reducing anxiety incrementally, while inaction only feeds those fears.
Fake it
There’s good science to the adage, “Fake it till you make it.” We typically assume our behaviors are a result of our thoughts, but research has shown actions drive feelings as much as feelings drive action. Now is the perfect time to exercise, get dressed, take a shower, and go about your normal routine, no matter how difficult it may feel.
As for your finances, investing in risk assets and setting aside money for a rainy day may be the last thing on your mind as you try to navigate the realities of our new every day. But I can promise you the sooner you can begin acting as you know you should, the more natural it will become.
Make it meaningful
A crisis tends to bring out both the best and worst in human nature. Just as surely as there is fear, there are more opportunities for service than ever before. Making hardship meaningful is a time-tested way to transform suffering into something more palatable.
Support a local restaurant, buy groceries for a neighbor, or write a letter to the medical professionals on the front lines. All of these acts will have the effect of turning fear on its head.
Connect with others
Oxytocin, a chemical released when we connect with those we love, has been shown to reduce fear. Social distancing may have changed the way we connect, but it is more important than ever to maintain strong relational ties. Find creative ways to connect with those you love, like via video chat, letters or a quick phone call. Raising your spirits by staying connected pays benefits in many ways.
By connecting with others and reducing your stress, you will keep yourself in a centered place where you are better able to make rational choices about your health and your wealth.
Take care of yourself
The connection between body and mind is powerful and underappreciated. Excessive caffeine or alcohol consumption can amplify fear responses — not a good thing when it comes to making financial decisions — whereas exercise and adequate sleep tamp down stressful reactions. Your mind will only be as calm as your body allows.
In these frightening times, mental health care is every bit as important as washing your hands and maintaining appropriate social distance. And being in the right frame of mind is important for everyone as we move through the economic ups and downs of the coronavirus pandemic.
I hope the tips above will help you manage whatever comes next.
-
The Most Tax-Friendly States for Investing in 2025 (Hint: There Are Two)State Taxes Living in one of these places could lower your 2025 investment taxes — especially if you invest in real estate.
-
Want To Retire at 55? See If You Can Answer These Five QuestionsWho said you can’t retire at 55? If you say yes to these questions, you may be on your way to an early retirement.
-
Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on RetirementWhile some provisions might help, others could push you into a higher tax bracket and raise your costs. Be strategic about Roth conversions, charitable donations, estate tax plans and health care expenditures.
-
One Small Step for Your Money, One Giant Leap for RetirementSaving enough for retirement can sound as daunting as walking on the moon. But what would your future look like if you took one small step toward it this year?
-
This Is What You Really Need to Know About Medicare, From a Financial ExpertHealth care costs are a significant retirement expense, and Medicare offers essential but complex coverage that requires careful planning. Here's how to navigate Medicare's various parts, enrollment periods and income-based costs.
-
I'm a Financial Planner: Could Partial Retirement Be the Right Move for You?Many Americans close to retirement are questioning whether they should take the full leap into retirement or continue to work part-time.
-
From Mortgages to Taxes to Estates: How to Prepare for Falling Interest RatesAs speculation grows that the Federal Reserve will soon start lowering interest rates, now is a good time to review your financial plans for housing, estate, taxes, investing and retirement to make the most of potential changes.
-
This Is How Lottery Winners Build Lasting Legacies, From a Financial ProfessionalWinning a massive lottery jackpot, like the recent $1.4 billion Powerball, requires seeking immediate legal and financial counsel, protecting your identity and winnings and planning your legacy.
-
I'm an Investment Strategist: This Is How the Fed's Next Rate Move Could Impact Your WalletInterest rate cuts might be coming, which could affect everything from your credit card debt to your mortgage. It's smart to prepare now — here's how.
-
I'm a Retirement Planner: These Are Three Common Tax Mistakes You Could Be Making With Your InvestmentsDon't pay more tax on your investments than you need to. You can keep more money in your pocket (or for retirement) by avoiding these three common mistakes.
