“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?