How are you feeling? If you’re anything like me, this weekend’s news cycle made you feel like you’ve been on a tilt-a-whirl.
First, we got the news about Michael Flynn with all its implications for the Trump administration. Then the Senate passed its tax bill in the middle of the night with hand-written amendments. All week, I’ve caught myself wondering, “Is this for real?” over and over . The onslaught of social media posts and comments, emails and calls from clients and friends have only compounded that anxiety.
We all feel anxiety, especially when it comes to our money. Times like this, when our emotional brain takes over, make it tough to keep events in perspective. It’s easy to get stressed out, which can make us react in ways that hurt our health and wealth. That’s why I don’t subscribe to the theory that we should take emotion out of money. Emotions show up whether we like it or not. Instead of denying them, we should embrace our humanness and plan accordingly. I want to offer three tips on how you can do just that. You can even use your money anxiety to your advantage.
Get organized
I see a lot of different versions of money anxiety in my practice. Some people hide their heads in the sand, others analyze decisions so much that it leads to paralysis and still others make shotgun decisions without understanding the consequences.
Most of this insecurity comes from fear of the unknown. We’re scared about what’s going to happen next, certainly. But we’re also frightened, a lot of the time, because we haven’t made the effort to understand what we can control: our own specific financial situations. Time and again, I see a sense of relief and empowerment once clients know where they stand, where they want go and can articulate a workable plan for getting there. Getting organized can help you understand your situation. We’ll talk about creating a strategy next.
I help my clients get organized by showing them how to use a portal where they can access all of their information and important documents in one place. If they need to know their net worth, monthly spending or deductions taken on their tax return, they can easily find it. Additionally, they can easily access documents they might need in an emergency, like an insurance policy or estate-planning document.
You can find similar personal finance tools like Mint, You Need a Budget, Quicken or Moneydance online. You can also create your own system with spreadsheets and cloud storage like Dropbox. You just need to be able to access information and documents relating to financial situation quickly and easily. Not only will it help when an actual emergency arises, you will have a greater sense of control over your specific situation, no matter what goes on around you.
Create policies that help train your automatic brain
In Nudge: Improving Decisions about Health, Wealth, and Happiness Cass R. Sunstein and Richard H. Thaler (the 2017 Noble Prize Winner in Economics) show how even smart people often make irrational decisions. That’s because we rely two systems to make decisions — our automatic system and our reflective system.
The automatic system, which we call our gut, reacts rapidly and instinctually. When someone throws a ball at you and you duck, that’s your automatic system at work. It’s also in charge when you smile when see someone you love. You don’t really think about the choices your automatic system makes. They just happen.
The reflective system works differently. It kicks in when we take deliberate or self-conscious action like solving a math problem or deciding a route to take for a trip. While our gut reactions can have some accuracy, we get in trouble when we rely too much on our automatic system, especially when it comes to unfamiliar and complex issues.
So what do we do? Turns out we can train our automatic brain by setting up parameters in our decision making called nudges. These nudges lead us to make beneficial decisions even when our emotional brain takes over. Sunstein and Thaler argue that nudges can alter behavior in a predictable way while still allowing freedom of choice. In the personal finance world, one very useful nudge is policy-based financial planning.
Policies connect your goals and values with concrete actions. They are broad enough to encompass any new event that arises and specific enough that you know what action you need to take in each circumstance. Some examples include:
- We will save 10 percent of our net (after-tax) earnings.
- We will keep our budget, including debt service, within one salary.
- We will control our costs and diversify our portfolio by investing in index mutual funds or ETFs that cover five distinct asset classes.
- We will insure our income against loss to guarantee continuation of saving.
- We will review our taxes twice a year to make sure we have the appropriate amount of estimated taxes.
Creating a good policy entails 1) knowing what you truly value and what you want to accomplish, 2) identifying the specific planning areas those principles apply to, 3) combining the values/goals and planning principles and 4) testing the policies.
Turbulent times like this serve as a great test for the policies that you create. They can keep you on track towards your long-term goals, even when you’re anxious. Of course, they’re not set in stone. If significant tax law changes occur, you might have to modify your policies. But having policies in the first place gives you the framework to make sure your reflective and automatic systems work in sync to achieve what matters to you most.
Become friends with your anxiety
I started seeing a therapist about a year ago, and it changed my life. As extremely left brained person, I was often unwilling to engage in emotions that I didn’t find useful. (Hence my husband calling me a robot.)
But after more and more sessions, I realized that it’s important to recognize my emotions and understand how they make me act. If you can do that, you can learn to use your emotions to motivate yourself, either to take action or stay put, whatever your situation demands.
Behavior Gap author and personal-finance nerd Carl Richards say that whenever his imposter syndrome shows up he knows he’s about to do something cool. He even talks to it:
“Hey, Mr. Imposter Syndrome. I know you’ve been my friend, you’ve kept me safe, you’re a close relative of Fear who’s kept me alive. Last thing I want to do is punch Fear in the face…but right now, I’m just hitting Publish. No one’s going to die over here. You sit over there on the couch and hang out so that when we go outside, you can be with me.”
It may sound corny but knowing that you've felt this fear before, dealt with it in a productive, or even an unproductive, way will help you prepare for the next time you’re afraid. And next time will come. Bubbles and bursts have been happening for centuries. So has political change. Both will continue to occur. But the next time fear arises, say hello. Recognize that your fear can help you reflect on what actually matters to you most. It can also tell you when you need to take a breather. Reflection and feedback can contribute to positive results.
So what is your anxiety telling you? Do you need to get organized and gain more control over your finances? Do you need to develop some policies or a plan that keeps you focused on what matters to you most? Time to take a break from the news? Whatever its purpose, realize your fear and other emotions, have a place in your financial life and can lead to better decision making.
