Who's Afraid of the I.R.S.?
My heart fell when I saw the return address on the envelope: Internal Revenue Service. Sure enough, as I skimmed the 4-page letter inside, I saw it: “Amount Due: $1,306.” NOOOOOOO!!!!!
I’d been so careful. How could this be? I should have called the I.R.S. then, but I was paralyzed by fear. For days, the letter sat in its envelope. The day payment was due I finally reached for the phone, heart racing, and learned what I held in front of me was “not a bill.” I simply had to fill out a couple forms and answer a few questions. I’d probably still owe, but much less than $1,306.
Within a day, an accountant had filled out all the proper forms and explained why I’d likely only need to shell out about $600 – less than half the amount I’d nearly sent the I.R.S.! I was stunned. Was my fear of dealing with the I.R.S. and its labyrinth of paperwork so strong that I was willing to throw away hundreds of dollars?
In a word: yes. Not everyone’s afraid of the I.R.S., of course. But financial fears are more common—and more costly—than you might think. Here are four that can hold you back, and how to get over them.
Fear of Uncertainty
No one wants to lose money. But the fear of uncertain returns can actually stop you from making money. (You may not earn anything with a money-under-the-mattress strategy, but at least you won’t lose anything—or so the thinking goes.) “People sometimes operate from the premise of ‘I can’t afford to lose my money!’” says financial advisor Peg Webb with the Wealth Enhancement Group in Minnesota’s Twin Cities. And it can spook them away from potentially high-return investment options like stocks. (Nearly half of American households don’t own any stock at all right now, according to a recent Gallup poll, though average annualized returns over the last 20 years for the Standard & Poor’s 500-stock index have been about 8%).
How to get over it: Diversify. Put some money into a savings account, some into stocks, and some into bonds—and pick stocks and bonds that balance each other out. “Knowing you have an asset class that does not follow or track traditional stocks and interest rates can give you more contentment,” says Webb. (Want some pointers on how to start? Go.)
Fear of Facing Your Debt
Have you ever been shocked by the balance on a credit card statement? You’re not alone. Almost half of U.S. households have credit card debt, as of early 2013, and the average balance is more than $15,000. The fear of being unable to pay that off--or of the sacrifices you think that will require--can actually keep you from taking action to pay it down. “You feel as if your whole life can go into a spiral,” says Ken Settel, M.D., psychoanalyst who specializes in personal and professional anxiety with the Bozwell Group in Brookline, Mass.
How to get over it: Write out a payment plan. That deceptively simple step will shift your mindset, and allow you to feel more in control. If you have a lot of high-interest balances, you might also consider working with an accredited credit counseling agency, which may be able to negotiate lower interest rates and waived fees. (Check the National Foundation for Credit Counseling and the Association of Independent Consumer Credit Counseling Agencies, as well as the Better Business Bureau, for one in your area. The Federal Trade Commission’s web page on “Coping with Debt,” also offers good information and resources.)
Fear of Outliving your Money
“Running out of money before you run out of time scares the bejeebies out of us,” says Webb. The current low-interest rate environment, which slows down rate of return, doesn’t help matters. Webb says she sees this fear often in her female clients, who tend to be more conservative with their investments than men.
How to get over it: Back into your money goal. Once you figure out how much money you think you’ll need, work backwards to figure out how much you should be socking away each year. Be prepared: The number may shock you. But better to be surprised now, when you have time to do something about it , then in retirement, when you find you’re running out of money. (Check out our resident financial advisor’s breakdown of how to save $1 million.)
Fear of Being Poor
“Poverty anxiety” plagues even the most successful people, says Dr. Settel. “People who grew up under tough financial circumstances harbor guilt for being financially comfortable,” he says, and often a fear of plunging back into poverty.
How to get over it: Making sure you have enough money socked away to cover expenses in case you have a drop in income (a good idea regardless) can provide a hedge against anxieties. But talking to a therapist or financial advisor to suss out the root of your fears can help you address them directly and, ultimately, change your mindset about money.
You might also like: