I’ve talked about how fear can be a good, motivating thing. The problem is when fear is combined with what I increasingly suspect is an anxiety disorder. That combination can just lead to paralysis or, arguably worse, poor money priorities. And I can’t let that happen. (Or more correctly keep happening.)
So here’s how I’m coping when I find fear overrunning logic.
Wait out fight or flight
Anxiety triggers a shutdown in my higher thinking. Sometimes I feel flat-out terror. Other times it’s just dread in the pit of my stomach as I picture terrible scenarios: savings being depleted, being financially vulnerable, going into debt, etc.
But that’s just the initial rush of adrenaline flooding my brain. So it’s important to stop and try to breathe through the panic. Try to calm down and realize that I’m in no physical danger. In fact, even the financial issues probably aren’t an immediate danger — if they’re actually a danger at all.
I just need to remember that anything I’m picturing is conjecture, not reality. No matter how visceral it feels in the moment.
Picture the worst case scenario
My brain is going to do it anyway. So I just let it happen. But rather than soak in fear while I watch this mental horror flick, I try to examine the facts.
Brain’s assertion: If we take money out of savings for X, Y or Z, we’ll be financially vulnerable. A ton of expenses will hit, savings will be depleted and we’ll wish we still had the money we spent.
My rebuttal: We still have thousands left plus an emergency fund. What’s the likelihood that I get hit with so many expenses that I use up both? Not high. (Even with my luck!)
Assertion: Too much competition in our industry. Job might go away one day. Must. Pay. Off. Mortgage. ASAP. Retirement can wait.
Rebuttal: At worst, I’d take a pay cut, and my expenses are low enough that I can live on significantly less than I make now. Meanwhile, we’re losing out on years of compound interest that we can’t get back.
Picture the best case scenario
Then I picture if everything went right. I take money out of savings and am able to put it back in nice and quickly. I retire with lots of money, while still paying off my house quickly.
I get a nice surge of peace that helps counteract the paralyzing fear.
Assume something in between
Then I realize that the reality will probably be somewhere between the two. And I try to make myself see how that’s still okay.
I’m not going to be able to replace savings quickly — not if I want to still focus on retirement and the mortgage — but I will replace it. And in the meantime I still have a cushion for other things going wrong.
I won’t pay off my house as soon as I’d like, but I can get it done within the next decade (probably a few years sooner) while still increasing my retirement contributions now. And while I won’t retire with lots of money, I should be able to live comfortably if a little carefully — which is a lot better than working my entire life.
Now here’s how I’m practicing being less fearful about money.
Savings vs. Roth
Someone on Twitter was debating whether she should take money out of savings (bringing it below her comfort level) in order to max out her 2018 Roth contribution. Guys, it had literally never occurred to me use savings for my Roth, even though I have the money in the bank.
Why didn’t it occur to me? Because: fear.
The idea of taking money out of savings makes my brain seize up in panic, so it would never enter my mind to take the funds out for anything other than a bill that I can’t cover with my paycheck.
But now that the idea had been planted in my brain…
The mental lockdown
Not shockingly, my first reaction was panic. Blinding panic, to be precise. I felt like I couldn’t think straight. My whole body was screaming “DANGER!” so loudly that you’d have thought a giant-mawed tiger or pissed off bear was headed straight for me.
The lockdown was especially bad this time because savings is already going to dip thanks to two big expenses headed my way: $1,600 of home upgrades that need to happen and $1,800 in taxes that somehow I under-withheld and will need to make up.
So yeah: predator-level panic. And all I could think about were the reasons I shouldn’t do it.
Well, really, there was just one reason: the hit savings would take. Or rather how vulnerable I’d be made by that hit.
It’s not as though $1,900 is a small amount of money. In fact, it’d be about 1/5 of what I’ll have left after I pay for the repairs and the taxes. That’s a lot, and it means my savings account balance will be down below my comfort level — by about $2,000.
While financial vulnerability was the main theme, just for funsies my brain also threw in a new notion: that $1,900, while a lot for savings, isn’t that much money in terms of retirement. Not compared to the hundreds of thousands so many people seem to have.
And so — my stupid, panicky brain argued — it really wasn’t worth pulling money out of savings for what would constitute a drop in most people’s retirement bucket. It’s not as though it’d make up for the years I lost not maxing out my Roth, either.
But I’m proud to say that I fought through the rising panic.
I asked myself whether I would really be that vulnerable, even if savings was lower than I wanted. Wouldn’t there still be thousands left in the account? And didn’t I have an emergency fund? Yes and yes.
When I thought about that, the panic ebbed a little. Not much, but a little.
Onto the next argument: whether $1,900 is actually that much money. Um, yes, yes it is. Especially with my (relative to other people I read about) low balance. In fact, it turns out $1,900 would cause a 4% increase in my overall retirement account. That’s a pretty big deal!
And no, this wouldn’t make up for the multiple years I failed to max out my Roth (even when I could afford to), but it’s something.
The panic didn’t go away. I still felt afraid — actually, physically afraid. But I just kept repeating the logic to myself over and over until I finally felt like I was thinking clearly. After a few (okay, many, many) repetitions, it became obvious that maxing out the Roth was the most logical decision.
So despite a not inconsiderable remaining amount of alarm, I forced myself to go over to Ally’s website and transfer $1,900 out of savings. I winced as I did it, but I did do it.
And it was a much happier transfer when I set up the contribution to Vanguard the following day. I may have bounced around in my seat a little in excitement.
In short, logic won out, and I feel confident that I made the right choice. And that’s spurring me on to tackle this other area of anxiety.
Mortgage vs. SEP-IRA
As mentioned, I’m eager to make up for as much lost time with my retirement accounts as I can (inasmuch as that’s possible when you lose out on years of compound interest). Buuuuut I’m also anxious about getting the house paid off. I’ve been giving the two equal weight, and I think that needs to stop.
As I’ve discussed in the past, competition in my company’s industry has heated up considerably in past years. I’ve been assured the company is still healthy. Unfortunately, my anxiety still sees me as potentially jobless in the future, and it demands I pay off the house asap.
But as I mentioned earlier in this post, at worst I’d take pay cuts, which I can weather financially and which would be a heads up to maybe start reprioritizing the mortgage after all.
Besides, thanks to a ridiculously low mortgage, the guest house rent covers 75% of my payment. So even if I did lose this job, I could probably work part-time (about all I’m capable of outside of the house) and still cover my bills.
Plus I’m already putting enough extra against the mortgage between the guest house rent and saved savings. That’s is an additional $700ish a month. Add in the principal being paid down with the minimum payment, and I’m lowering my mortgage by $900 to $1,000 a month. That puts me on track to pay off my house within five and a half years, as long as the guest house stays rented.
That’s plenty early. So I don’t need to put any additional money against the mortgage. If anything, I should consider putting saved savings against the SEP-IRA instead, but that’s a mental battle for another day.
In the end, I finally made an agreement with myself not to put any more funds against the mortgage (over and above saved savings/guest house rent) but instead to focus on the SEP.
Taxes: To overpay or not to overpay
Taxes have made me very anxious lately.
I calculated that I’d owe around $13,000 this past year. TaxAct says I owe around $9,700. Which means I’m due a big refund. It also means that my calculations for this year’s taxes are probably way off.
But my anxiety won’t let me trust that, even though TaxAct knows far more about taxes than I do. Hell, it found a $4,000 qualified business income deduction I’d never heard of.
So I’m trying to look at this logically.
Logically, it’s far more likely that TaxAct got the numbers right than I did.
Logically, it’s silly to overpay your taxes by thousands of dollars when it’s money that could go into your SEP-IRA.
Logically, I can’t apply a refund to my SEP — the funds have to come out of my business account — so it makes sense to keep the money and invest it now rather than wait for the funds in April.
And logically, I have money in savings to cover myself if I’ve guessed incorrectly.
So really there is no sense in keeping that $240 a month with the IRS. Especially since those SEP-IRA contributions will lower my tax burden further!
In the end I decided to withhold less from my taxes and put the additional funds into my SEP. In other words, once again logic is eking out a victory over anxiety (even if just barely)
What are some ways fear tries to rule your finances? How do you get around it?