Fear about not having enough money robs us of our joy and quality of life. With news reports full of negativity, it can be easy to focus on the worst possible scenario. Two keys to minimizing fear are to gain knowledge about your situation and to take action.
Here are five common money-related fears and solutions for overcoming them.
Fear #1: Outliving your savings and running out of money
According to the 2024 Annual Retirement Study by Allianz Life, almost two-thirds of Americans (63 percent) fear running out of money more than they fear dying. This concern is being driven by high inflation, the reliability of Social Security and the impact of high taxes; 43 percent say high inflation alone contributes to their worry about running out of money.
Solution #1: Set and follow a budget
One way to prevent running out of money is to live within your means. An effective way to accomplish this is to figure out how much money you bring in each month and how much you spend. Most people have no idea what these numbers are! Setting and following a budget might sound daunting, and maybe depressing, at first, but doing so can help you gain control over your finances. Once you start following a budget, chances are, you will wonder how you ever lived without one.
Set a goal for how much money you can comfortably save per month. There are many rules of thumb; one is to aim toward saving 15 percent of your income each year. We recommend working with your financial advisor to establish a plan to follow.
Next, go through your credit card and bank statements to figure out how much money you are spending in various categories, such as rent/mortgage, utilities, dining out, personal care, auto expenses and entertainment. Find areas where you can cut back. This requires that you set priorities. What is most important to you? What are you willing to give up to achieve more savings per month?
Solution #2: Invest in tax-advantaged savings
As mentioned, the impact of high taxes is one source of people’s money worries. There are tax implications for pretty much any financial move you make, and they can be complicated. Plus, tax laws are always changing, both at the federal and state levels, so it can be hard to keep up with all of it. This is one area in which it is extremely important to work with a financial advisor. We can recommend strategies that will enable you to manage your tax burden best, given your current situation and your vision for the future.
For example, paying taxes now so you can keep from owing taxes later can be helpful if you expect to be in a higher tax bracket in retirement. Saving money on taxes after you retire can leave you with more cash to spend. A traditional 401(k) and a traditional IRA allow you to invest pre-tax money now and pay taxes on the money once you withdraw it in retirement. With a Roth 401(k) or a Roth IRA, you invest money you’ve already paid taxes on, so you won’t have to worry about paying taxes when you make withdrawals during retirement.
Fear #2: Not being able to retire
An AARP survey released in January 2024 found that more than half of adults ages 50 and older (61 percent) were worried they will not have enough money to support them in retirement, and 20 percent had no retirement savings. The study also revealed a decline in an overall sense of financial security among men, with 42 percent of men describing their financial situation as “fair” or “poor,” up from 34 percent at the beginning of 2022.
Solution #1: Save as much as you can, as early as you can
The best way to increase your chances of being able to retire is to save as much money as possible toward retirement. If you work for a company that has a 401(k) retirement plan, make sure you are contributing the maximum amount allowed. If you are self-employed, make sure you are contributing to a one-participant 401(k) plan, a SEP IRA, a SIMPLE IRA or a Keogh plan. Consult with your financial advisor to figure out which plan is most appropriate for your current needs and future plans.
As always, the sooner you begin saving, the better. The longer your money sits in those accounts, the more it has an opportunity to grow, thanks to compound interest.
Solution #2: Plan for retirement based on your risk tolerance
Risk tolerance is the degree of risk you, as an investor, are willing to endure given the volatility in the value of an investment. In general, younger investors can take more risk with their investments, while investors closer to retirement typically should be more conservative.
Again, this is an area where your financial advisor can provide great value in guiding you toward a comfortable retirement.
Fear #3: Losing money through investing due to market volatility
We never know when the stock market will fluctuate, or by how much, but one thing we can be sure of is that it will do so.
Market volatility is the frequency and magnitude of price movements, up or down. The bigger and more frequent the price swings, the more volatile the market is said to be. However, market volatility is a normal part of investing and is to be expected in any investment portfolio.
We can measure market volatility by finding the standard deviation of price changes over a period of time. The statistical concept of a “standard deviation” enables us to see how much something differs from an average value. In general, the higher the standard deviation, the more a portfolio is going to deviate from the average, either up or down.
Solution #1: Stay the course — It’s often not wise to bail out of the market because of a downturn
The best way to avoid losing money because of market volatility is to stay the course. Investing in the stock market is a long game. Invest it and forget it!
Investors who are hyper-focused on the performance of their portfolios can run the risk of reacting emotionally during a market downturn. When you see those numbers decline on paper, it can be tempting to bail out of the market. However, this is always a losing proposition.
This is largely due to the nature of cash. Once you cash out a stock that has dropped in price, you move from a paper loss to an actual loss. Also, cash does not provide the same growth in value; in fact, inflation erodes its purchasing power over time. Cashing out after the market declines means that you bought high and are selling low, which is the worst possible investment strategy.
Fear #4: Not being able to pay off debt
It is expensive, and unwise, to carry debt. The average personal debt per individual American grew from $21,800 in 2023 to $22,713 in 2024, not counting mortgages, according to recent research from financial services company Northwestern Mutual. Carrying debt erodes your purchasing power and eats into your potential retirement savings.
In 2023, U.S. credit card debt hit a record $1.115 trillion, with the average balance per American reaching $6,501. Also, credit card utilization rates rose to 30 percent in 2023, while average APR for interest-bearing accounts climbed to 22.75 percent in the first quarter of 2024.
Solution #1: Stop using your credit cards, and start paying them off
One of the best ways to minimize or overcome a fear is to take action. When it comes to paying off debt, the best action you can take is to stop incurring debt and to begin paying off the debt you have. Work with your advisor to explore options for paying off your debt, which include minimizing new charges, cutting your spending, taking advantage of balance transfers to lower your interest rates and considering taking out a consolidation loan.
Solution #2: Use only cash for a while
Before credit cards became commonplace, people used cash to pay for everything. In some ways, cash is easier to manage because it’s tangible. You can see how much you have, and you can adjust your spending accordingly. We don’t really see our money anymore — our income is typically deposited into our accounts automatically, and we make most of our purchases electronically.
In 2023, this concept of using cash only made a revival on TikTok among young people, and it’s often called “cash stuffing.” The idea is that you “stuff” envelopes with cash for various expenses — one for your mortgage or rent, one for your utilities, one for groceries, one for clothing, one for entertainment and so on. Set a budget and use this method to manage your spending, at least until you gain more control. You might like this strategy so much that you continue to use it.
Fear 5: Losing your job and having no income
Gone are the days — at least for most people — of keeping the same job for life. The fear of losing your job can be both emotionally and financially devastating, whether you leave on your own or are laid off or fired. We saw the devastating effects of this reality during the COVID-19 pandemic, called “The Great Resignation.” In 2021 alone, about 47 million Americans left their jobs.
However, the trend continues. In May 2024, new data from LinkedIn and Microsoft showed that approximately 85 percent of professionals in the United States are thinking about changing jobs this year. One primary reason for this trend is that many workers feel overworked and undervalued.
Solution #1: Build up your emergency fund
In most cases, a loss of your job also means a loss of your health insurance. One way to minimize the potential devastation of a job loss is to build up your emergency fund, which is a vital part of any budget. More than half of Americans — 56 percent — say they have less than three months’ worth of expenses saved, including 27 percent who say they have no emergency savings at all. Not only will an emergency fund get your vehicle back on the road in the event it breaks down or help you repair your roof quickly if it springs a leak; it will keep you from paying for these unexpected expenses with a high-interest credit card.
The recommendation for how much money to keep in your emergency fund varies. Some people advise having at least three months’ worth of actual expenses in your fund. Others advise having more, especially if your income varies from month to month.
Solution #2: Transfer the risk of losing your job to an insurance company
In many cases, people lose their jobs because of an injury or illness. If these conditions are the result of a workplace situation, then of course you will be entitled to workmen’s compensation. However, most illnesses and injuries are not work-related.
You can protect your future income by purchasing life insurance, disability insurance and other types of insurance, which means you are transferring the risk of losing your income to an insurance company instead of absorbing it yourself.
Another type of insurance to consider is job loss insurance, a form of payment protection that is typically available as an add-on feature to credit protection life insurance for mortgages, personal loans and credit cards. Job loss insurance can also be available in conjunction with disability insurance as one package. If you involuntarily lose your job, payments are applied toward your mortgage, personal loan or credit card balance on a regular basis for a limited period of time. Not everyone qualifies for job loss insurance, however, and it is not typically available outside of credit protection group coverage.
Again, we recommend that you meet with your advisor to determine which types of insurance, or protection, products are right for you and your situation, given policy costs and limitations.
An policy guarantees are based on the claims paying ability of the insurance company.
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One of the best ways to gain knowledge about ways to prevent potential financial loss is to meet with your advisor and to have a financial plan that is tailored to your specific situation, needs and goals.
According to a 2023 survey, almost nine in 10 (88 percent) investors felt more confident that they could make the right investment decisions, even during extreme financial crises, by having a plan for their investments. And investors with an advisor proved to be less nervous and more confident than those without an advisor in their ability to protect their finances in the event of another financial crisis, after living through prior episodes.
Which of these fears do you have? Please don’t hesitate to reach out to us. We will work with you to gain control over your finances and plan for the future.
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Any opinions are those of the author and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Investing involves risk and you may incur a profit or a loss regardless of strategy selected. No investment strategy can guarantee your objectives will be met. Past performance is no guarantee of future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
Investment products are: Not deposits. Not FDIC Insured. Not guaranteed by the financial institution. Subject to risk. May Lose Value.
