Don’t Let Fear Make Financial Decisions for You

We certainly live in unsettling times right now. In mid-March, the U.S. stock market dropped 10% from its most recent high, which is technically a correction. And I know many of you are wondering if we are headed for a bear market.

Our economy could also be heading for trouble if tariffs take hold and impact our trade, which raises the question of whether there may be a recession sooner rather than later. And we all know that the risk of layoffs rises in a recession.

So I won’t tell you not to be fearful of the financial road ahead. But I need you to listen to me: Don’t make financial decisions out of fear.

As I have said for years, fear is one of the biggest destroyers of wealth. When we are fearful, we tend to follow our emotions rather than use our brains to focus on what we need to do—and not do!— to reach our long-term goals.

Notice I said long-term. Reacting to what is going on here and now is never smart. Don’t let short-term emotions drive long-term security. It never works. I encourage you to listen to a recent Women & Money podcast episode I did explaining how to deal with your legitimate fears. Or download my free Women & Money app, where you can listen to podcasts, join the community, and get updates from me. (Download from Google Play or Apple.)

And here’s the short version of what I explained in that important Suze School episode.

Identify the specific fear(s) you have, and then focus on these key questions:

• What does this mean for me?
• Will I be okay?

Worried about a bear market? By now, I know most of you have been through plenty of stock market corrections and bear markets. That does not make it easier, but it should help you remember what you have learned from experience: stocks fall from time to time, and stocks recover.

The smart way to work toward long-term goals is to stick to a diversified investment strategy and not sell when stocks become volatile. And don’t stop contributing more to your retirement accounts. When markets are down, your money buys more shares. More shares that history has shown us eventually rebound.

If you are within five or so years of retirement, I think one of the best ways to know you will be okay no matter what happens is to have at least three years of living expenses set aside in cash. That gives you time to ride out corrections and bear markets without having to touch your stocks.

Worried about a recession? There is no better protection than having at least eight months (preferably a year) of living expenses set aside in an emergency fund in case you are laid off.

Because of all the uncertainty we are experiencing right now, I would also avoid taking on any new debt unless it is absolutely necessary. Keep driving the car longer if it is reliable. And I wouldn’t be in a rush to buy a home right now.

It’s also a great time to work hard on reducing any high-rate debt you have. The less debt you have is always good for your financial security, but it becomes even more important when you are worried about job security if a recession materializes sooner than later.

Not sure where to come up with more money to put toward high-rate debt or to increase your savings? I hope you will take this seriously and give your finances a thorough review to separate your “needs” spending from your “wants” spending. Be brutally honest with yourself. If you are fearful about anything, cutting out “wants” spending will give you money to put toward dealing with fears. For more details, be sure to listen to the full podcast episode.