Financial Anxiety: Ways to confront and overcome money-related stress.
Money, or the lack thereof, has become a significant source of stress for many in today’s economy. It’s no wonder, given the ever-increasing cost of living, goods, services and other expenses that we face on a daily basis.
Fortunately, there are strategies to help you face and overcome financial anxiety:
- Identify the source of your anxiety.
- Build an emergency fund.
- Break down your financial goals.
- Focus on what you can control.
- Work on your money mindset.
- Practice stress reduction techniques.
- Seek professional guidance.
These seven strategies can help you break the cycle of financial anxiety and replace it with the confidence and freedom that you need to succeed.
7 Strategies to Tackle Financial Stress
1. Identify the Source of Your Anxiety
To effectively tackle your financial anxiety, it’s crucial to identify the specific reasons behind it. Some may struggle with the burden of debt, a lack of savings, or inadequate income, while others may experience financial anxiety resulting from a combination of factors.
Other times, the cause of financial anxiety can have much deeper roots that trace back to our past, such as fears ingrained during childhood or negative experiences that left a lasting impact on our perception of money.
Each problem has a unique solution, such as developing a debt repayment strategy, implementing a new savings plan, diversifying income sources, or getting financial therapy.
Take the time to fully assess your financial situation and identify any root causes of your anxiety. By focusing on these specific problems with tailored solutions, you can take significant steps toward overcoming your financial anxiety.
2. Build an Emergency Fund
While the root causes of financial anxiety may vary from person to person, there’s a good chance that a sufficient emergency fund can help alleviate a considerable amount of stress and anxiety.
Many people don’t have nearly enough (sometimes nothing at all) set aside for unexpected expenses or unforeseen circumstances. This unfortunate reality can result in a frustrating cycle of making financial progress, only to end up back in the same situation, a pattern that can intensify financial anxiety.
The ideal amount you should set aside for emergencies will depend on your circumstances. As a general rule of thumb, aim for a fund that can cover at least three to six months of living expenses.
A three-month emergency fund might be sufficient if you’re in a dual-income household with a stable job situation. If you’re in a single-income household and/or have dependents, you may consider bumping that up to a six-month emergency fund.
If you’re unable to build an emergency fund due to limited flexibility in your budget, it may be worth exploring ways to increase your income, whether that means getting a new job, picking up a side hustle, or temporarily cutting back on expenses until you establish your fund.
It might require some sacrifices in the short term, but the peace of mind that comes with having a financial safety net makes it a worthwhile endeavor.
3. Break Down Your Financial Goals
Financial anxiety can sometimes arise not only from a sense of financial lacking, but rather from placing an excessive amount of focus on our biggest goals. We envision buying a home, putting kids through college, or retiring early, all of which are substantial financial obligations.
The weight of these goals, the significance we attach to them, and the pressure to achieve them can contribute to feelings of unease and anxiety.
Focusing solely on those big, seemingly unattainable goals may be daunting and discouraging. A helpful strategy is to break down your goals into smaller, more manageable steps.
Let’s consider an example where your goal is to buy a $400k home. Instead of focusing solely on the list price, create a roadmap of actionable steps to achieve home ownership:
- Determine the necessary down payment amount and the estimated associated closing costs. “I want to make a 5% down payment on a $400k home and estimated closing costs are $12k, which is 3% of the purchase price. I’ll need a total of $32k for this goal.”
- Develop a savings plan that aligns with your desired timeline for achieving this goal. “I want to reach this goal within five years, so I’ll need to save $533 each month for 60 months.”
While saving towards your goal, consider the estimated monthly payment for a home of that value. Take into account factors like the down payment you anticipate making, estimated interest rate, homeowner’s insurance, and property taxes. This will help you gauge if you need to make any adjustments to comfortably afford the payment once you move.
Taking small steps makes the process less intimidating and also prepares you for the moment you reach your destination. When trying to tackle a goal, remember that breaking it down into smaller, attainable goals can help you make consistent progress and reach the desired end result.
Lastly, don’t underestimate the power of celebrating small wins along the way. By acknowledging your achievements, you’ll maintain the momentum needed to confidently reach your goal.
4. Focus on What You Can Control
In today’s technologically-advanced world, we are constantly exposed to news that often fuels fear and anxiety.
Whether that information is accurate, false, or exaggerated, it’s easy to get caught up in worrying about circumstances beyond our control. While you may not have the power to alter external factors like the economy or a government financial crisis, you can take charge of your own financial habits and decisions.
When you choose to focus on what you can control, such as saving more, reducing or eliminating unnecessary expenses, or exploring additional sources of income, you can regain a sense of empowerment and reduce financial anxiety.
Making small changes to your finances may not single-handedly eradicate financial anxiety. Still, it can have a much greater impact than you may think, particularly compared to obsessively fixating on things beyond your control.
5. Work on Your Money Mindset
Many overlook the importance of a positive mindset when it comes to finances, dismissing it as unconventional or ineffective. However, the truth is that our thoughts, attitudes, and self-talk around money play an important role in shaping our financial outcomes.
If you constantly dwell on past financial mistakes, feel trapped by your current circumstances, and engage in negative self-talk, making progress and moving forward becomes challenging.
Once you recognize the power of your mindset and work on developing a positive and empowering relationship with money, you can begin to break free from the cycle of negativity and open yourself up to new possibilities and outcomes.
To cultivate a positive money mindset, start by replacing limiting beliefs with empowering thoughts. Rather than telling yourself that your current circumstances are permanent, shift your mindset to view them as temporary challenges and take actions aligned with the belief that your situation will improve.
For example, it’s counterproductive to convince yourself that your financial troubles and anxiety are temporary while continuing to spend lavishly beyond your means. Instead, adjust your actions to match your belief by adopting responsible spending habits, focusing on saving, and making mindful financial decisions.
Here are a few other examples of how to replace negative money thoughts with positive ones:
- Negative thought: “I’ll never be able to get out of debt.” Positive thought: “I’m taking proactive steps to pay off my debts and improve my financial situation.”
- Negative thought: “I’ll always struggle to make ends meet.” Positive thought: “I’m capable of increasing my income/decreasing my expenses and managing my finances effectively.”
- Negative thought: “I’ll never be able to afford that.” Positive thought: “I’m committed to saving and budgeting, and I’ll eventually be able to afford the things that are important to me.”
Your mindset + aligned actions = progress toward a better financial future. Your words, thoughts, and actions can empower you financially.
6. Practice Stress Reduction Techniques
When your thoughts are constantly preoccupied with your financial situation, it can take a considerable toll on your overall health. Financial stress and anxiety can manifest in a range of physical and mental symptoms, including fatigue, insomnia, feelings of hopelessness, guilt, shame, and withdrawal from society and relationships.
Many stress reduction techniques can help alleviate stress, and you may need to experiment with different strategies to see what works best for you.
Some may benefit from physical techniques like regular exercise, deep breathing exercises, or immersing themselves in a hobby or creative outlet. Others may find more relief in practicing mindfulness or seeking support from family, friends, counselors, or therapists.
Managing financial stress is a process, so be patient and compassionate with yourself as you learn to prioritize your health.
7. Seek Professional Guidance
In moments of desperation and heightened anxiety, we sometimes like to seek quick fixes and DIY solutions to our problems. While you may find value in implementing general advice and best practices, everyone’s financial situations are unique, and there isn’t a universal approach that fits everyone’s needs.
If you feel stuck or unable to make your desired progress on your own, finding a resolution to your financial challenges may call for an outside perspective from someone with expertise in the field.
A financial expert who understands the intricacies of your unique situation can give you valuable insights and develop a plan tailored to your specific needs.
Remember that seeking the expertise of a financial professional is not a reflection of your capability or independence. On the contrary, it’s a proactive step toward gaining reassurance, boosting your financial confidence, and alleviating financial anxiety.
Lafayette Federal Credit Union is Your Financial Partner
Coping with financial anxiety is a challenging obstacle that requires resilience to overcome. While it’s entirely possible to overcome it independently, having a support system in place can make all the difference.
At Lafayette Federal Credit Union, we’re more than just a financial institution. For over 85 years, we have provided personalized service to our members. Our mission is to understand your financial needs, offer the necessary resources and tools to help you work towards your goals, and provide tailored solutions to your unique situation. We take pride in being a trusted partner in the financial journeys of our valued members.
