Sherry over at Save. Spend. Spluge. recently asked an important question: What drives your financial decisions? Unfortunately, I came up with my answer all too quickly: fear.
Fear of not having enough. Fear that my job will go away in the face of increasing competition in the industry. Fear that all of the money I wasted catering to Tim’s “needs” — many of which disappeared or vastly diminished once he had to support himself, funny thing about that — will doom me to never retire. Fear that I’m not really as frugal as I think I am and will still be unable to put enough money away, even without Tim’s seemingly constant bills.
Of course, I know how to deal with money anxiety. But not all of this is anxiety. Some of this is cause for genuine concern.
The fact is that I spent my 20s unable to work. That I spent my late 20s and early 30s taking what money we did have and throwing it at Tim’s student and medical debt. That I had to spend $26,000 on Tim’s dental implants. That our house had incredibly old windows that needed replacing, so there went another $10,000.
All of this meaning that I was 39 before the money in my savings account wasn’t earmarked for some other cause. And that because of all this — and admittedly sometimes because of following the wrong priorities — I’m getting a late start on retirement.
That’s all pretty scary stuff, so I’d argue that a lot of my fear is rational.
Fear as a tool
See, there’s a difference between anxiety and fear. The former can be irrational, like my worry that I’ll never stop getting hit with irregular expenses. That’s just unlikely, and it’s waste of energy. On the other hand, fear that I’m getting too late a start on saving… Well, that’s pretty logical — understandable even. And it’s something I probably should bear in mind when I get a craving for fast food.
So while anxiety can be crippling and pointless, fear can be motivating and useful. After all, fear is a survival tactic.
Back in the (way) old days, an unknown noise could have been a predatory animal looking to make you dinner, so a little apprehension could save your life. Similarly, being afraid of an unknown food could keep you from eating something poisonous. And just think about all those women that would’ve survived horror movies if they’d listen to their fear at a creak of the floorboards or a fleeting shadow!
So it’s sane — and arguably even healthy — to have some fear in your life. It keeps you sharp, and it can keep you safe.
But does that translate to finance? Yes, actually.
Be afraid, be (a little) afraid
If you’re afraid for your financial future, then you’re going to be very keenly aware of your spending. You’re going to constantly be looking for places to cut expenses and trim the budget. In short, there’s no danger of your getting complacent.
Don’t get me wrong, you shouldn’t let it get to the point that you have bag lady syndrome. But there’s a difference between being convinced that you’re going to end up homeless and being convinced you could save more money. The latter could lead to your doing new challenges to save and to your finding better, more economical ways to live.
If nothing else, fear will make sure you don’t backslide in your spending. Because let’s face it, almost all of us relax at some point, let our guard down, and spend a little more than we should. A little bit of fear could keep us on our toes.
Of course, too much fear is decidedly unhealthy. It’s not just bad for your constitution, it’s bad for your decision-making. Fear can cause you to react rather than to act. That is, to make a rash decision rather than to think something through rationally, then make a choice.
But arguably a little fear makes you think through each decision very carefully, assiduously weighing the pros and cons.
So once again, fear has both positive and negative effects on personal finance. I guess the question is: How much fear is healthy and how much is simply the sign of clinical anxiety? And can we ever find a healthy spot on that spectrum?
Because obviously we can’t live our whole lives through a fear response. It’s bad for our bodies, not to mention our sanity. So the key is to not let fear rule your life, but to let it keep you alert.
How do we find this sweet spot? By figuring out your magic number. That number that will make you feel safe, ease your fear, but that keeps you on track (and yes, a little afraid) while you’re working toward it.
In short, you have to figure out your “enough” — which is tougher than it may sound.
First, you need to figure out what you mean by “enough.” Enough to retire early? Enough to feel rich? Enough to simply feel insulated from life’s little surprises? Each one will obviously have a different answer.
I can’t retire early. That’s not in the cards. But if that’s your goal, then the good news is that your “enough” is pretty easy to calculate. While you have to choose your own comfort level, there are equations and rules of thumb to help you determine how much is enough to live on in early retirement.
Granted, if you’re trying to retire early — short of trying to retire before health conditions debilitate you — fear probably isn’t a major factor in your life. You’re more about aspiration than worry. But if you do have fear, then the good news is that you’ve got nice hard numbers to determine a definitive (or as definitive as you can get) financial safe spot.
“Rich” is a different beast altogether. It’s one that means different things to different people. I used to think of any household earning $100,000+ as being rich. But I as my own income has climbed, I’ve stopped seeing that as the benchmark of riches.
Instead, now it’s more about assets than income to me. I think I’d feel rich if I had $50,000 between savings and my emergency fund, plus about $500,000 in retirement. I don’t know that I’ll reach the latter even by retirement age, so feeling rich probably also isn’t in the cards for me. And even if it were, there’s no guarantee that my standards wouldn’t once rise and redefine “rich” again.
But if you can make, keep and reach a benchmark of feeling rich, then fear shouldn’t overwhelm you. And you’ll have reached a point where it’s less necessary for fear to keep you on your toes.
Or perhaps you just need to feel safe from so many of life’s unexpected expenses. That is, financially secure. Alas, that’s even harder to pin down than “rich.” It’s an important one to figure out, though, because there’s nothing that perpetuates fear like the feeling that you’re at the mercy of life’s capricious, nasty sense of humor.
Like “rich,” “financially secure” can be a moving target. I thought for sure I’d feel safe once I had $10,000 in the bank. Spoiler alert: I don’t. Because all it’d take is the HVAC unit dying and a nasty car repair bill to all but kill that little nest egg. Hopefully, I’ll feel safer if I can get (and keep) $15,000 in savings. But maybe it’ll take $20,000.
You might have the same problem I do in defining a safe savings amount, but at some point you also have to accept that this becomes the result of anxiety rather than rational fear. If you can realistically weather more than a couple of nasty surprises and still have a few thousand in the bank then you’re probably financially secure. Knowing that objectively should help you deal with your anxiety. But only after the more rational fear (of life’s little surprises) has helped you pad your savings account.
Lemons into lemonade
But in the end, there’s no guarantee that the fear will ever completely go away. Which, again, might not be the worst thing. It keeps you aware of potential dangers to your finances, even when that’s just going a little overboard on spending.
I guess my point is that fear is a necessary, if sometimes — okay, a lot of the time — inconvenient part of life. So it’s time to make our peace with that. That’s not to say that we should let anxiety run rampant. But we also have to make the best of our lot in life.
Drawing a parallel, I don’t like being bipolar, but I’ve come to accept and even work with it. Now when I occasionally cycle low-level manic, I’ve learned to make use of my state. I take the extra nervous energy and I clean more or run errands I’ve been putting off.
We can do the same with fear.
Sure, we could wail and gnash our teeth about being plagued by fear. But that just leaves us with sore throats and TMJ. So why not just accept that at least some fear will always be there and use it to our advantage? Why not use that nervous energy to stay frugally motivated, keep an eye on investments or whatever else it takes to keep your financial house in order?
In short, why not let fear be a tool rather than a hindrance?
Does fear keep you motivated? Can there be a healthy balance? What does your “enough” look like?