7 Ways to Cope with Your Financial Anxiety in 2023

From a global pandemic to the highest inflation rate in 40 years and a potential recessionary risk, the last few years have not eased much on financial pressures. Most people have been affected by these negative economic conditions in some way, and it's taking a toll on their financial wellbeing. Financial stress can be caused by job loss or retrenchment, unemployment, losses in your investment portfolio, a significant debt burden, and other factors.

Financial anxiety describes feeling nervous, worried, or always being on edge when engaging with money in any capacity. Financial anxiety is just the emotional response you have which is chronic and internal, it's the constant fear while managing money or making any financial decisions. Financial anxiety happens to everyone to some extent when thinking about personal finances, regardless of how much money you earn or have in your bank account. For instance, financial anxiety shows up as excessive worry and fearful thoughts, which might include:

• Fear of repeating past money mistakes - "I shouldn't have used that credit card frequently that charged 18% interest. I would have saved so much money if I hadn't made that mistake!"

• Worrying about future financial goals - "Am I saving enough to be able to retire in 30 years?"

• Being on edge about your current financial situation - "Am I paying too much rent? Or Will this borrowing increase my debt burden?"

When it comes to money management, you encounter numerous stressors on a daily basis, such as dealing with unexpected auto repairs and medical costs, as well as budgeting your paycheque to keep up with increasing grocery prices. But financial anxiety is more than just worrying; it can also lead to health issues such as high blood pressure.

If you are struggling with financial anxiety and the uncertainties of today's economy are making it difficult to manage your finances, this article can helpful to you.

Financial concerns are constant, especially given the global economic downturn. While worrying about your finances doesn't solve much and merely adds to your financial anxiety, having a plan to deal with financial challenges can help alleviate some of the stress and enhance your financial wellbeing.

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Here are 7 simple ways that will help you calm your financial anxiety and be prepared for 2023:

1. Prioritise things that you can control

First, it's important to understand which financial tasks cause your anxiety. You need to be realistic with your financial situation and take control of your finances. You can't fix everything that's bothering you. Some things are simply beyond your ability to control. If you focus on matters over which you have no control, you will likely experience increased worry.

Instead, concentrate on the areas you have control over so that you can try to better your position. Make a realistic list to break down the problem and address it by focusing on one 'doable' change at a time. For example, you could begin with a monthly budgeting exercise; income sources may be drying up, but savings are something that can be controlled and should be prioritised. Look for ways to save money off your grocery bill, like purchasing cheaper store-brand items. You will not only save your money but the feeling of accomplishment and being in control may also help reduce your stress.

2. Focus on your Financial goals

Financial anxiety and stress can also make people take decisions based on insecurities and thus lead to erroneous or misplaced priorities. Setting S.M.A.R.T financial goals gives you a sense of purpose and direction. Break down your goals into long-term, medium-term, and short-term time frames.

Goals keep you motivated, and you must ensure that your investments are aligned with your financial goals to reach your goals in the desired time. In case of any uncertain events, modify your financial goals if required, considering the changes in your financial circumstances. This will reduce your financial stress, as you will be dedicated to working towards your goals efficiently by investing in worthy mutual funds.

3. Diversify your investment portfolio

Investors can look to diversify their portfolios across different asset classes (equities, debt, gold, commodities, and real estate). This is important because it can help mitigate the downside risk in one's overall portfolio, which causes financial anxiety due to fear of losses.

Apart from asset allocation and diversification, one should never disturb long-term compounding. Consistency of returns matters over the longer term. SIP-ing into worthy equity mutual fund schemes aligned to your long-term financial goals should not be disturbed, unless there is consistent underperformance. Once the compounding process is disturbed, it is much more difficult to get back on track and ultimately may lead to suboptimal results in one's pursuit of achieving financial goals.

Consider diversifying your portfolio with the correct asset mix to reduce risk. While doing asset allocation, it is important to understand that each asset class has its own set of performance cycles and level of risk-reward. Nobody can foresee which of these assets will perform well.

I would recommend PersonalFN's SMART Fund Explorer, which can help you pick suitable funds to diversify your mutual fund investments. As seen in the pyramid above, your investments should have a tactical allocation and provides your portfolio with the required stability and the potential to generate better risk-adjusted returns. This will calm your financial anxiety regarding your investment portfolio, generating negative returns.

4. Be prepared for the worst-case scenario

Planning for the worst and hoping for the best is one of the reliable strategies when it comes to facing adversity of any kind. An emergency fund is a must to cope with your financial anxiety, as it creates a financial cushion to sustain during unforeseen events.

So apart from effectively prioritising and working on things that can be changed, it is important to look at a long-term solution that can be effective in the face of future crises. During an economic downturn, the likelihood of retrenchment or salary reduction is very high, putting your finances under tremendous strain and causing you financial anxiety. Thus, a contingency fund will cover regular expenses until you find another job or a steady source of income.

An emergency fund should, ideally, cover your household expenses for at least 12-24 months, including loan EMIs. Start by putting aside any surplus into a bank deposit or short-duration debt funds; you may invest on an SIP/lumpsum in liquid funds.

5. Pay off essential bills/high interest debts

If you are worried about being able to pay all your bills, prioritise essential bills first. Debt is not bad, but carrying high interest debt is never a good idea. Any unforeseen event can weigh particularly heavily on those with a hefty debt. High interest consumer debt is generally more damaging to financial stability and wealth. There are numerous approaches to dealing with high interest debt, including the well-known snowball method and the avalanche method.

However, do not panic and dip into your savings in an attempt to close outstanding loans. You may consider cutting down on unnecessary expenses and using the surplus to pay off your significant debts. Ensure to maintain a debt-to-income ratio of 40% or below. This will help reduce your financial anxiety and, hopefully, allow you to sleep better.

6. Find ways to earn an additional income

You can only cut your monthly budget to a certain limit, and you want to be careful that your tight budget isn't a source of additional stress. It might be worth looking for ways to increase your income instead so that you are not dependent on just one source of income.

• Consider working overtime: Try talking to your employer about putting in some extra time each week if you're paid hourly or at least eligible for overtime pay.

• Negotiate for a raise: Given high inflation and a tight labour market, you may consider negotiating for a raise based on your performance.

• Take on a side hustle: In an age of remote working, finding the time to take on additional jobs and side hustles from home is feasible.

If job insecurity weighs heavily, this alternate source of income can help in the event of a sudden layoff. This additional source of income can even help build that emergency corpus without having to lock savings from your primary income. It can also help to create a surplus to pay off your existing debt burden.

7. Enhance your financial literacy

One of the common causes of one's financial anxiety is a lack of personal finance education. It is the fear of unknown financial matters or ways to money management, nuances of financial planning, etc. If much of your anxiety comes from a lack of financial literacy, your first step is to equip yourself with the shield of financial knowledge. Personal finance education courses assist you in learning about the fundamentals of financial planning so that you can feel a bit more in control. Today, there are tons of free resources that you can tap into to learn more about money management, whether it's through books, podcasts, newsletters, online articles or e-courses. If you are financially aware, it boosts your confidence in money management, reduces your financial anxiety and helps you to build a secure financial future.

Therefore, if you feel anxious about your finances, take some time to pinpoint what may be causing it so that you can feel more in control about how to help yourself. Financial stress and anxiety are common occurrences, especially when the world seems pitted against you. Though it will take a little effort, following the above-mentioned steps can curb your financial worries.

PS: We at PersonalFN understand that not everyone is equipped with financial knowledge. Here we encourage you to gain and enhance your financial knowledge and become a 'Financial Guardian' of your family. You will understand the financial planning elements to become your financial planner.

PersonalFN's latest special initiative, the "Certified Family Guardian," organised into eight modules with 24 extensive videos, will help you with all the relevant tools and learning modules needed to get better at money management. So, if you wish to be calm your financial anxiety and be financially literate, you must enrol for the "Certified Family Guardian" programme!

MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.

She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.