How to Overcome Financial Anxiety

We tend to think of anxiety as a bad thing, and do a lot to avoid it or numb ourselves to it.  But anxiety isn't always an enemy.  It's an alarm system.  It's our bodies' and brains' way of getting our attention and letting us know that something is wrong.  Just like a smoke alarm lets us know there's a fire, anxiety is a signal that alerts us to danger.

Constant, low-level anxiety has several negative results for our mental and physical health, so it's important to figure out the cause and take what steps we can to relieve it.  Of course, we can't insure ourselves against every bad thing, but often there are steps we can take to gain more control and make our situation better.

In other words, don't ignore the smoke alarm, or let it continue to sound off.  Put out the fire!

The sources of financial anxiety

When it comes to personal finances, many of us are playing with a dangerous, raging fire.  Just consider some of this data from the United States, which more or less applies to many other parts of the world:

• A large majority of Americans are living paycheck to paycheck.
• Over one-third of Americans say they wouldn't be able to cover a $500 emergency.
• The average American has debt totaling $104,755.  (That's per person, folks.)

If you're in one or more of the above categories, your body's alarms should be ringing loud and clear.  You are in danger!

You can't feel safe when you can't plan for your future because you're still paying for your past.  When your finances are a wreck, everything related to money – a credit card statement, a medical bill, or even an unexpected flat tire such as what I had recently (thanks, piece of metal that made a large hole near the sidewall) – is going to spike your anxiety.  Your brain triggers your fight, flight, or freeze response and floods your body with stress hormones.

And trying to numb the stress with pills, alcohol, screens, or other addictive behaviors just makes the problem worse.

Remember, this is what your brain and body are designed to do.  These are survival mechanisms.  But they only work if you respond appropriately.

8 tips for overcoming financial anxiety

With the right plan, you can take control of your money and remove most of that anxiety.  This not only lets you sleep better, but leaves you with more strength and energy to deal with other situations where control is impossible.

1.  Invest in relationships.

Too often, anxiety causes us to try to numb or soothe ourselves, maybe with a drink, some fattening comfort food, or even a shopping trip and some indulgent purchases.  We're trying to deal with the fear and isolation, and we're totally missing what's important.

When you're anxious about money (or anything else), pay attention to the people in your life.  Work harder at connecting with them and showing them how much they mean to you.  Those relationships are your true assets.

If you're married, develop the type of relationship where you discuss and solve money problems together.  Talking about money – your fears and your hopes – helps you understand each other better.  Be a team!

If you have children, be careful about dumping your fear and frustration on them.  You can be realistic about finances without making them feel insecure.

2.  Reduce screen time.

What's the first thing you do in the morning?  If you're like a lot of people (some surveys say as many as 89% of us), you roll over, grab your phone off the nightstand, and start scrolling.

The 24/7 news cycle promotes doom-and-gloom stories to keep you watching or listening.  Social media is designed to trigger your alarms so you'll keep clicking, clicking, clicking.  But almost all of the time, this news has no direct bearing on your life.  It doesn't serve you.  It just keeps you anxious and vulnerable to manipulation.

Tune out the noise.  Reduce your time in front of a screen, and refuse to be part of the panic.

3.  Understand your money habits.

We make money decisions for all sorts of emotional and relational reasons, and if you want to create some lasting changes, you need to understand why you do what you do.  Take some time to honestly answer questions like these:

• Whose example are you following when it comes to money choices?
• How do you feel about making a budget, and why do you feel that way?
• Why can't you control your spending?

4.  Rethink debt.

You've probably heard that debt is a tool, and some debt is "good" debt.

Hmmm.  There might be a grain of truth in those statements, but you need to be cautious.  Debt is a cage.  It limits your choices and makes you vulnerable, exposed, at risk.  Maybe college debt is "good" debt, but only if you'll be able to get a job that lets you pay it off in a short, easily-managed time.  And only if the debt is for tuition and books, rather than pizza and parties.

If you're in debt, start today to get rid of it for good.  You have to be committed and intense.  Pay off credit cards, auto loans, student loans, and more.  Living debt-free will give you more freedom and peace than you can imagine.

5.  Live on a budget.

One of the root causes of anxiety is feeling out of control.  And the reality is that life is unpredictable.  We have less control than we'd like to admit.  But one area that we can control is our spending.  The key to that is living on a budget.

A budget is simply a plan.  Instead of being a victim of circumstances, impulses, or less-than-optimal habits, a budget puts you in control.  It becomes a road map that lets you reach your goals by spending money the way you want and need to.  It aligns your spending with your values.

For example, if you want to save for a down payment on a house, but you "run out of money" every month without managing to save a penny, you've got a disconnect between your habits and what's important to you.  A budget can help you get a handle on that.

6.  Build an emergency fund.

When you barely scrape by from one payday to the next, every day is filled with anxiety.  The next time an appliance breaks down, your child needs new glasses, or you receive a larger-than-expected utility bill, you'll be left with bad options – such as defaulting on a payment, overdrawing your account, or maxing out a credit card.

But you can turn that emergency into an inconvenience.  Before tackling debt, build a minimal $500 emergency fund.  Once you're debt-free, gradually increase that to a balance that will cover at least three months of living expenses.  Then when – not if – you face an unexpected money problem, you don't have to feel so anxious about it.

7.  Plan for the future.

Replace anxiety with confidence by planning for your future.  Once you're debt-free (except perhaps for a mortgage) and have an emergency fund, invest 15% of your household income for your retirement.  Whether by choice or circumstances out of your control, you will stop working one day.  Now is the time to prepare.

8.  Learn the joy of less.

In a culture that defines success by how much we've accumulated, choosing to own less may be seen as going backward, giving up, settling.  And yet, when my husband and I made the decision to own less, we gained so much.

For us, owning less didn't just mean fewer things to clean, maintain, insure, and replace.  It didn't just mean fewer distractions and more time.  It meant that we could put our energy into things that really mattered to us.  Instead of using our talents and knowledge to get more money and more stuff, we could concentrate on the things we cared about.  By owning less, we gained true freedom – freedom to make choices to go in the direction we wanted to go.

Financial peace doesn't begin with accumulating more money.  It begins with desiring less.

How to live well

Money anxiety is real.  It's scary, and it can make you do things you regret.  But it doesn't have to be that way.  You don't have to be a slave to your spending habits or give up your hopes for the future.

Like me, you can respond to the alarm and decide to leave your money mistakes in the past.  You can develop a healthy financial life that provides security, serenity, and satisfaction.

If you liked this post, check out my books Simple Money and The Wealthy Minimalist.  Together, they discuss multiple subjects, with tips to help you manage your money simply and effectively.  Look for my Minimalist Money series on Amazon.*

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