By P Saravanan
Most of us worry about financial issues like debt, job loss, loan repayment and economic uncertainty from time to time, but financial anxiety is different. It is an obsessive fear of things related to money that can often be debilitating. Let us discuss what causes financial stress and how you can manage the same.
What is financial anxiety?
Financial anxiety is not a medical diagnosis, but many financial therapists use the term to describe feeling nervous, worried, or on edge when engaging with money. While financial stress is usually related to an external trigger like losing your job, it tends to be more chronic and internal. And like other forms of anxiety, financial anxiety is unhealthy. It can have an impact on your physical health leading to insomnia, loss of appetite, or an inability to focus.
How to identify it
Well, ask yourself whether any of the above money related issues is preventing you from completing your daily work. Or does it keep you awake at night and leave you feeling exhausted and unfocused the next day? Financial anxiety tends to show up as excessive worry and fearful thoughts, which might include fear about repeating past money mistakes. Anxiety is a warning sign from your nervous system that your mind and body perceive something as a potential threat.
For instance, on going through your credit card bills, you realise that it is charging 36% interest on the outstanding balance. “I should not have used my credit card for that purchase. I would have saved so much more money if I had not made that mistake”, is the recurrent thought flashing through your mind. Again, you may be chronically worrying about your financial situation in the future, wondering whether you are saving enough money today to be able to retire in 20 years. Or you are always on edge about your current financial situation with thoughts such as “Am I paying too much in rent?” crossing your mind on a regular basis.
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Tips to deal with it
Instead of remaining frozen in fear, there are ways through which you can alleviate financial stress and take control of your personal finances. The first thing you can do to reduce financial stress is to get to the root cause of the problem. Ask yourself what is causing your financial anxiety. Is it job insecurity? Loans? Insufficient income? Once you have identified the source of the problem, you can make a plan.
For instance, start by creating a budget. You can do this by making a list of all your monthly expenses and the average cost for each. This way you can see on paper how much money you need each month. You should also consider the 50/20/30 rule when creating a budget — 50% of your income goes towards obligatory expenses such as rent, insurance, provisions, etc., while 20% goes to your savings, and 30% can be used on other monthly expenses, like leisure or entertainment.
For instance, let us suppose debt is the prime reason behind your financial anxiety. You should make a plan that helps to pay late fees and penalties. If you see in your budget that you cannot clear the payments immediately, reach out to your lender to see what options you have, such as increasing the tenure of the loan thus leading to lower cash outflow or consolidation of debt.
Another way to manage financial anxiety is to question anxious thoughts, which tend to spiral out of control. For instance, your credit scores became poor, so your thoughts could be jumping from having a poor credit score to never being able to own a home. Instead, think like this: “Okay, my credit score took a hit, but I can increase it over time. I will take steps to make sure that I pay my credit card bills / loan EMIs on time, and raise my credit score in the next one year and then apply for a housing loan.” As in the above instance, naming the source of your anxiety, and changing your inner narrative from fear-based to fact-based thoughts could help greatly.
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Financial anxiety can negatively impact your emotional and physical health. Thus, follow the above tips to avoid financial anxiety.
The writer is a professor of finance & accounting at IIM Tiruchirappalli