How Do You Conquer Your Financial Fears?

“Inaction breeds doubt and fear.  Action breeds confidence and courage.  If you want to conquer fear, do not sit home and think about it.  Go out and get busy.”  – Dale Carnegie, American writer, lecturer and self-improvement guru.

Much has been written about fear.  It can be a huge deterrent or a great motivator.  Fear can confuse, frustrate and put up psychological barriers that are tough to knock down, if ever.  Fear can stop our goals from being fulfilled in any life facet.

I have a few fears.  I’m not a fan of heights for one.

My wife fears bugs, any bug actually.

What do you fear?  How does it affect you?

When it comes to personal finance, I have a few fears there as well.  I fear I’ll lose my job at some point and I won’t be able to afford the house I live in because of my fat mortgage.  I also worry that I won’t be able to save enough for retirement or retire early like I want to.

I suspect most of us have financial fears or did at one point.  Here’s what I’m doing to combat my financial fears.

Build up an emergency fund

Some time ago, I wrote about building up our emergency fund.  At this point, our fund is not quite where we want it to be but it is steadily growing.  I don’t like the idea of drawing on a line of credit (LOC) in an emergency if it can be helped.  In an emergency situation the last thing my wife and I want to do is to add-on more debt.  Having an emergency fund is a security blanket that works for us; a blanket that other folks may not need.  No matter how stable our jobs might seem, no matter how good our health may feel, $hit can always hit the fan and because of it I feel some preparations are always better than none.

Make lump sum payments the mortgage

I’ve read many times over the last few months that interest rates may not head higher until well into 2014.  Who really knows when interest rates may rise, but what I do know is this:  rates today are an excellent time to pay down our mortgage.  Yes, money is cheap to borrow but it’s also cheap to pay back.  Using Bank of Canada language with no “imminent” rate hike on the horizon, I’m working to conquer any job loss fear by getting out of debt sooner than later.  I hope to be completely debt free by 2021.

Invest using a two-pronged strategy

First up, let’s discuss the benefits of index investing (indexing).  Indexing works because I’ve learned most actively managed mutual funds underperform the index and even if fund winners are found, the winning streaks against their benchmark don’t last long.  Also, indexing works because it offers great diversification, with high transparency at a low cost.   I enjoy indexing but only do so in my RRSP.  Beyond indexing, I also use a strategy of buying and holding Canadian dividend paying stocks for income and capital appreciation.  Dividend investing takes on more risk than indexing but I feel it’s worth it because of the cash flow it generates today and with rising dividends over time it will generate more cash flow in the future.  My plan is to avoid touching any of these dividend-producing investments today because my plan is to live off most of my dividend income in retirement.

There is absolutely nothing I can do about my job but work hard at it.  There is also nothing I can do about the stock market performance to guarantee high returns.  What I can do is recognize what I fear, react (better) to those emotions and instead of dwelling on them, just get busy like Dale Carnegie says I should.

What financial fears are you busy overcoming? 

If you already conquered some financial fears, what actions did you take to achieve success?

11 Responses to "How Do You Conquer Your Financial Fears?"

  1. I think our fear was the mortgage and not knowing when and if rates would go up. What we did know is what was obvious and true and that was our current rate. Paying off the mortgage is just one way we are conquering our financial fears. Great post!

  2. And @mark and @none, I wonder if that’s not a post topic for you – buying a house in the next couple of years, wise or foolish?

    It may be foolish in the short term, when treated as an investment – but if it’s simply a long term place to live, then maybe the math works out that it’s like index funds – ‘now’ is always fine as long as you’re in it long enough, i.e. trying to time the real esate market won’t work. I don’t know – I don’t think anyone’s looked at it this way before.

    I do know that I don’t really care about house prices. We intend to live in our current house basically forever. And if I was looking for a house for my family, I’d be looking for a house, not speculating on house prices 2 years in the future. Of course that’s not Warren Buffet type of thinking either ;).

  3. @None
    @none, I think there’s other considerations, particularly with a mortgage. If I owe $10 and have $10 cash, I’ll pay off the $10 debt have $0 rather than invest the $10. By the same reasoning, you won’t ever find me leveraging no matter how attractive it is. But that’s not a numerical choice, it’s my specific personal choices overriding what the numbers claim to be.

    I do agree entirely with you on one thing – running the numbers. Substitute facts for appearances, don’t presume anything until you’ve seen it proven, and then make your best decision. The only reason we’ve ended up at different answers is different inputs.

  4. @None
    It’s always a good time to pay down one’s mortgage (assuming you’ve got something in the way of an emergency fund). Suggesting one shouldn’t attempt to pay down your mortgage when interest rates are low is akin to suggesting that we wait until interest rates are high before paying down the mortgage. I just don’t see it. Pay down the mortgage now, no matter what the ‘now’ is.

    The emergency fund vs. loc is probably fair enough, but for most people there’s some side confidence in having cash on hand. I for one am not interested in the possibility of having an emergency where I need cash and at that time being beholden to the bank deciding to give me a loan. I’d rather just have the cash, no middle man.

  5. I had a huge fear of stopping having a ‘safe’ paycheque from a 9-5 job and going to self-employed. The day I quit is seared into my memory. I guess like most fears, you just have to get through to the other side because now I can’t even imagine working 9-5 at an insurance company.

  6. Using a two pronged approach as well (well starting to set them up). In the midst of setting up a TFSA with TD water for some eSeries, and getting some dividends on DRIP.

    Going to try to automate everything so I don’t have to think about anything. [Except for writing OCP checks and going into the TD account to spend the auto payments, every quarter or so]. Don’t have to think about it, don’t have to worry about it.

    Still working on the house thing though, not exactly sure where I’m going with that yet.

    1. Great to hear aB.

      I like the idea of automating finances myself and have written a few posts about that. I used to have DRIPs with transfer agents but not I’ve consolidated things over the years since I don’t need traditional DRIPs anyone, I have many synthetic DRIPs running.

      Still working on the house? Yeah, us too! Damn mortgage. 😉


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