Face your financial fears!

Husband and wife appear scared while they look at laptop as they face their financial fears.
October 19, 2023 | Bill Jacky

Yes, money matters can be intimidating – even frightening. It’s easy to run away from financial concerns that keep haunting you, and tempting to curl up in a ball and hope they’ll go away. You’re not alone: According to a Mind over Money survey, 77% of Americans are anxious about their financial situation. And more than half of Americans have difficulty controlling their money-related worries.

But don’t trick yourself into treating these fears like they’re imaginary. You only heighten your fright by putting off those things you know you should – and shouldn’t – be doing with your money. Taking action can help silence nagging fears and increase peace of mind. To help get you started, let’s unmask four of Americans’ top financial fears, along with manageable steps you can take to put these fears to rest.

Fear! Not being prepared for scary surprises

Let’s jump right in with Americans’ biggest fear: Having an unplanned emergency. According to a Northwestern Mutual study, 38% of Americans share this fear. How to face this fear? Build an emergency fund. Even a small emergency fund can help offset the unexpected costs that invariably accompany unforeseen circumstances, and maintain financial stability when you need it most.

There is debate about how much you should put away in an emergency fund. Some experts suggest a fund that covers three months of living expenses, but the majority recommend an emergency fund that covers six months or more of living expenses. Why six months? That’s about how long it takes most people who are laid off to find their next job, and will cover the out-of-pocket expenses for most people facing a major illness (provided they have medical insurance).

When it comes to preparing for uncertainty, one thing is certain: People are using high-yield savings accounts—often designated as emergency savings accounts or supplemental savings accounts—as their method for starting and growing their emergency funds. High-yield savings accounts make great emergency funds because they:

  • Are designed to be separate from your “regular” savings so you’re not tempted to dip into it.
  • Offer the amount of liquidity you’ll need so you can pull out money whenever an emergency arises. Accessibility could be essential – even urgent – so your emergency fund shouldn’t be tied up in a long-term investment fund or even a shorter-term fund like a certificate.
  • Make growing an emergency fund less intimidating. You can easily monitor how your account is doing online or on your smartphone. You can set up automatic transfers to keep the fund growing with little effort. Ease-of-use may make it easier for you to stick to your savings goal.

Best of all, once you’ve established an emergency fund, the thought of situations like job loss, medical bills or major home or car repairs are less scary.

Fear! Being in the dark about how much you need to retire

32% of Americans fear not having sufficient funds to retire. How to face this fear? Do a gut check on your progress by your age, then take steps to save as needed. Here’s some basic guidelines, keeping in mind that everyone’s financial needs are unique.

  • If you’re in your 20s, definitely get started. Although it’s easy to dismiss the need for retirement savings when you are so young and retirement seems so far off, if you start in your 20s, you’ll benefit from having more years during which your retirement savings can grow via the compounding of your earnings.
  • Fidelity Investments suggests that by age 30 you should have one time your annual salary saved. In other words, if you’re earning $55,000, you should have $55,000 banked for retirement.
  • By age 40, it’s time to get serious about savings. You should aim to have three times your annual salary saved.
  • By age 50, you should have six times your annual salary. Your 50s is the time to play catchup. You should consider consolidating 401(k)s from previous jobs. 
  • By age 60, you should have eight times your salary saved for retirement. By 67, your total savings goal is 10 times your current annual salary.

Preparing for retirement–at any age–requires a clear financial strategy with a financial advisor. If you want to get a more exact picture of where you stand financially, and what you need to do to pursue a more secure retirement, meet with a personal financial planner. Together you can to review your current assets and savings situation, and receive an expert’s evaluation and recommendations. A 2022 Northwestern Mutual study suggests people are less fearful when they work with an expert, finding people who work with an advisor “feel they are on more solid ground.”

Fear! Falling prey to identity theft

Just 16% of Americans fear identity theft…but with one in every 20 Americans being affected by this crime each year, maybe more of us should be worried. How to face this fear? Keep vigilant about protecting your identity

  • Monitor your accounts and credit reports. Set up account alerts that keep you informed when there’s a large transaction or other unusual account activity. Subscribe to a fraud monitoring service that will alert you when an account is opened in your name. And monitor your credit reports regularly: You can get three free credit reports a year from AnnualCreditReport.com.
  • Use smart passwords. Choose phrases or quotes instead of a single word and never use your phone number or family names. And try not to reuse a password on multiple websites or one breach of one password could jeopardize all your accounts.
  • Be wise to phishing emails and malware. Don’t click links in emails from unknown senders, and don’t open an attached file if you’re not sure what it is. You could infect your computer and/or compromise your personal information.
  • Guard physical documents and IDs. When paying bills by mail, drop your outgoing mail in a locked USPS mailbox; thieves can take unsecured outgoing mail to get your address and checking account info. Likewise, use a paper shredder to destroy statements, bills and credit card offers. Better still, switch to electronic statements since printed statements can get lost in the mail and/or intercepted by thieves.
  • Recognize phone scams. Don’t share your security or login info with any caller, even if they’re asking to “verify” your information. Likewise, if someone calls or texts asking you to wire them money for an emergency, ask to call their phone to verify whether it was really them calling. Ask what police station or hospital the caller is (supposedly) calling from, then call that location to confirm the crisis is real.

Fear! The walking debt

According to a 2022 Northwestern Mutual study, 32% of Americans’ monthly income on average goes toward paying down debt other than mortgages. Additionally, debt has caused people to delay making a significant purchase (31%), saving for retirement, even getting married or having children (both 8%). How to face this fear? Focus first on credit cards, the top of source of debt (excluding mortgages).

Personal finance expert Suze Orman suggests that even if you have other forms of debt—student loans, mortgages, etc.— focus on credit card debt first. While all debt may feel negative, remember some things are considered “good debt” by lenders, like student loans and mortgages. These types of debt are viewed as an investment in your future.

There are multiple methods for paying off credit card balances. To start tackling your debt, first add the minimum payments of all your credit cards together. Then, find 20% of that total amount, and pay that extra 20% to your highest-interest credit card. For example, if you owe $200 in minimum payments total, you’d make the minimum payment to your highest-interest credit card, and pay an extra $40 on top of that.

Once you’ve paid off your credit card with the highest interest rate, you can put the extra 20% to your next highest-interest card and so on until you’ve successfully paid off all balances to zero.

Getting credit card debt under control is a process, and unfortunately can't be done overnight. Trust in the process and know that these things can happen to everyone.

What financial fear are you ready to face? Alliant is here to help you work through what’s keeping you up at night. Learn more about our high-yield savings account, retirement services and more at alliantcreditunion.com.

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