genesis domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /services/webpages/f/i/financialpsychologycenter.com/public/wp-includes/functions.php on line 6114The pandemic\u2019s daunting psychological challenges are largely behind us. Now it\u2019s time to deal with the financial challenges. These are uncertain, upsetting, unprecedented economic times. Savings are being eroded by inflation and stock market losses. Credit card debt is growing more costly due to rising interest rates. Just keeping a roof over one\u2019s head is harder due to skyrocketing rents and home prices. And many businesses still struggle with tight labor markets and troubled supply chains.<\/p>\n
Financial advisers are full of advice for weathering today\u2019s challenges, but\u00a0Bottom Line Personal<\/em>\u00a0asked Alex \u00adMelkumian, PsyD, financial psychologist and founder of the Financial Psychology Center, how to handle the psychological impact of 2022\u2019s economic upheaval\u2026<\/p>\n Inflation eats away at the value of our savings, leaving us all worried about whether we\u2019ll be able to pay our bills in the future. It can seem like an unstoppable, invisible force that is robbing us and potentially putting our survival at risk. That\u2019s why inflation causes widespread anxiety and even outright panic.<\/p>\n What to do:<\/strong><\/em>\u00a0Break down your budget into needs and wants. You\u00a0need<\/em>\u00a0to pay your utility bills\u2026you\u00a0want<\/em>\u00a0to take a trip to Europe. If you\u2019re middle class or wealthy, there\u2019s a good chance that even steep inflation won\u2019t truly threaten your ability to pay for your needs. Do some quick calculations to prove to yourself that your needs are safe. Just doing that can help you overcome inflation-driven anxiety and panic. Inflation that forces you to scale back spending on your\u00a0wants<\/em>\u00a0might make you unhappy, but unhappy is very different from anxious and panicked.<\/p>\n Next, consider whether there\u2019s anything you could do to boost your earnings until inflation eases. If you\u2019re retired, maybe you could take a part-time job\u2026if you\u2019re still working, maybe you could apply for better-paying jobs\u2014hiring remains strong in many sectors\u2014or earn some extra money on the side. Remind yourself regularly that you\u2019re earning this money to offset inflation\u2019s erosion of your savings. This should give you a sense that you\u2019re taking control of the situation\u2014a lack of control is a big part of the reason inflation can trigger such powerful anxiety and panic.<\/p>\n The Federal Reserve has increased interest rates repeatedly in 2022 as it attempts to confront inflation. Rapidly rising rates can be a big financial blow to anyone who has significant amounts of credit card and other variable-rate debt. Just one year ago, you could find credit cards with rates below 15%, but these days many charge 20% or more.<\/p>\n The financial solution to rising interest rates is obvious\u2014pay off variable-rate debt quickly. But the psychological solution requires greater nuance.<\/p>\n Aggressively paying down credit card debt can be like going on a crash diet\u2014most people who attempt it make progress for a while, then backslide and end up right where they started or worse. The crash-diet approach to paying down debt often fails because most people who are deep in credit card debt got there due to a long-term overspending habit. Shifting suddenly from this chronic overspending to extreme frugality triggers a sense of deprivation\u2026and that only increases the drive to overspend.<\/p>\n What to do:<\/em><\/strong>\u00a0If you\u2019re a chronic overspender trying to pay down debt, include a \u201cmandatory splurge\u201d in your monthly budget. In other words, require yourself to spend some predetermined amount, perhaps 2% to 5% of your budget, on something that you want but don\u2019t need. This monthly splurge can prevent the deprivation mindset, similar to how a \u201ccheat day\u201d is helpful for many dieters.\u00a0Potential exception:<\/em>\u00a0Avoid mandatory splurges if you have credit card debt not due to chronic overspending, but because of a single unexpected event, such as uncovered medical bills.<\/p>\n The S&P 500 lost nearly 20% of its value in the first half of 2022, and many analysts are predicting further declines ahead. Like inflation, a bear market is a force that threatens our savings. Unlike inflation, there\u2019s an obvious option for investors who want to take control of these losses\u2014they can sell their stocks and leave the market. Trouble is, that can be a costly mistake\u2014investors who flee the market often miss the subsequent rebound.<\/p>\n Meanwhile, home values are showing signs of weakness and could fall in value in many parts of the country as well.<\/p>\n What to do:<\/em><\/strong>\u00a0Take psychological control of declining stock values by deciding to not take your money out of the markets until stocks rebound. When you\u2019re tempted to abandon stocks, remind yourself that selling locks in recent losses\u2026while not selling means short-term losses can\u2019t affect you. Since World War II, the average bear market has lasted less than 12 months, so patient investors usually can simply wait it out.<\/p>\n If you\u2019re retired or unemployed and must tap your investments to pay your bills, trim your budget so that you don\u2019t have to sell more stock than absolutely necessary. Tell yourself you\u2019re making a choice to live frugally for a year or two as a way to contain your stock market losses\u2014framing frugality as a personal choice helps avoid the deprivation mindset mentioned above.<\/p>\n If falling real estate values are a major worry, tackle a relatively inexpensive DIY home-improvement project that will make your house a more pleasant place for you to spend time. This can provide a useful reminder that our homes are, first and foremost, a place for us to spend our lives with the people we love. Their resale value is secondary.<\/p>\n There are winners and losers in any economy, but the line between those groups has seemed especially stark lately. Some sectors and businesses that could easily transition to remote work flourished during the pandemic and its aftermath\u2026others floundered because they were forced to shut down during the worst days and\/or they couldn\u2019t obtain the employees or supplies they needed in the aftermath. It\u2019s perfectly understandable if people who find themselves on the wrong side of that divide look at their neighbors who prospered and think,\u00a0This isn\u2019t fair.<\/em>\u00a0Interacting with people who are doing well financially adds to the pain of those who are struggling. There\u2019s a saying in the world of financial psychology\u2014\u201ccompare and despair.\u201d<\/p>\n What to do:<\/em><\/strong>\u00a0When you catch yourself thinking,\u00a0It isn\u2019t fair<\/em>, tell yourself,\u00a0No, it isn\u2019t fair\u2026but it also isn\u2019t over.<\/em>\u00a0The pandemic didn\u2019t create winners and losers\u2026it created winners and people still fighting for their wins. This isn\u2019t a football game where the clock has hit 0:00\u2014you haven\u2019t lost until you decide to leave the game.<\/p>\n Tap into your feisty side to combat the defeatism that unfair setbacks can foster. In the business world, people sometimes speak of \u201cpeacetime CEOs\u201d and \u201cwartime CEOs.\u201d Many executives are effective peacetime CEOs\u2014they can run their businesses well when seas are calm and things are normal. But we\u2019re not living in calm, normal times. Right now, your career\u2014and your business, if you\u2019re an entrepreneur\u2014require you to be a wartime CEO. The pandemic and the post-pandemic economy have gotten some hits in\u2014how will you hit back? Framing the current economy this way can break the victim mentality and help you fight for the win that still might be within your reach.<\/p>\nInflation<\/h3>\n
Rising Interest Rates and Credit Card Debt<\/h3>\n
Stock Market\u2014and Maybe Real Estate\u2014Losses<\/h3>\n
Unfair Division of Economic Winners and Losers<\/h3>\n