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When financial fear is your ally

November 07, 2014

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

financial fears

According to the National Foundation for Credit Counseling (NFCC), 92 percent of Americans fear running out of money. When you look at the specific sources of their fears, this is not surprising. However, fear does not have to be a paralyzing or defeating force. It can be the motivation that drives people to successfully address what scares them.

The NFCC numbers are based on a poll conducted on the organization's home page, so the respondent base was likely skewed toward people looking for information on credit counseling. Still, given the number of Americans wrestling with debt and having difficulty saving, the NFCC numbers are probably not all that far out of the mainstream.

Why Americans are financially fearful

According NFCC poll respondents, here are the specific reasons they are afraid of running out of money, listed from the most to the least common answers given:

  1. Paying each month's bills. This garnered a clear majority of all responses, and it is particularly scary because it is so immediate. If you are struggling to pay your expenses from month to month, what hope do you have of meeting longer-term needs? While sometimes difficulty making ends meet is genuinely a matter of inadequate income, the hard truth is that most Americans lifestyles have some room for trimming expenses. A couple solutions the NFCC recommends include cutting debt and living on a cash basis. Obviously, these are related, and can work positively together. Interest charges are expensive, so cutting back on debt will gradually make each month's bills easier to meet. Meanwhile, living on a cash basis makes you less prone to compulsive spending -- the NFCC reports that people who do this spend 20 percent less than people who use credit.
  2. Affording a comfortable retirement. This is a prominent fear because people know they have not done enough to save for retirement. The NFCC suggests you start by directing any raise, bonus or financial gift straight into savings. This is new money you shouldn't miss, so get it into a savings account before you have time to spend it.
  3. Meeting unplanned expenses. Fear of the unknown is understandable -- after all, you can't plan for everything. Still, as the NFCC points out, you can at least cushion yourself against unpleasant financial surprises by establishing an emergency fund. They recommend generating a reserve equal to one month's worth of income. That's a good starting point, but once you achieve that, strive to build your emergency fund up to four month's worth of income, because that's about the median period of unemployment these days.
  4. Paying for children's education. Given how education costs have skyrocketed in recent years, this fear is very understandable. One way to address it is to be pragmatic about putting your kids through college. Thoroughly explore all financial aid options before letting your children take on debt, and consider cost-effective choices, like state schools. Don't let your kids just blindly take on debt to afford college, because this will simply start the cycle of financial fear for the next generation.

Often, the best cure for fear is action. Working to address your fears might put them to rest, and if nothing else, knowing you have done all that you can will save you from being bothered by fear's ugly companion: regret.

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