How to Fight Your Financial Fears: 2025 Edition
If all of the recent changes at the Federal Government have you feeling fearful and uncertain about the future of the country, the economy and your money, you are not alone.
I am hearing from many of my clients that they feel scared and unsure of whether they should be doing anything differently with their savings or investments.
My resounding response always starts with these six words: Focus on what you can control.
Here are some examples of what you CAN’T control: tariffs, inflation, recession and the stock market.
Here are some examples of what you CAN control: how much you save and spend, how much credit availability you have and how much risk you take in the markets.
“Focus on what you can control.”
What You Can Control #1: How Much You Save & Spend
The portion of your earnings that goes into a savings account, whether that’s for retirement, for your emergency fund, or a special vacation in a few years is definitely in your control. Many people choose their lifestyle first and then calculate how much is left to save.
The better approach is to calculate how much you need to save, and then spend what is leftover. Another way of saying this is “pay your future self first”. A popular target is to save at least 20% of your gross income towards various savings goals.
Saving into other types of accounts can also be helpful to support you through tough times. Many retirement accounts allow for a small hardship withdrawal. And contributions to your after-tax Roth IRA can be distributed anytime without early withdrawal penalties (only earnings are subject to the 10% early withdrawal penalty).
I like to say that the Roth IRA is a “break-the-glass” emergency savings account. Ideally, you wouldn’t need to pull funds out early, but we don’t always get to choose the ideal situation.
The more you have in savings, the more cushion you have to sustain your financial life through hard times. It’s a good idea to have 3 to 6 months of your essential living expenses saved up in an emergency savings account. If you are a single income household or self-employed, then I would consider saving even more, up to 12 months of essential living expenses. I say “essential” because if you are in a situation where you need to tap into your emergency savings, you likely have the ability to cut back on discretionary purchases like eating out or travel.
It’s a really good idea to know exactly where your money is spent every month. The more familiar you are with where your money goes, the quicker you can react to pull back your spending if there is an emergency. I work with Monarch Money with many of my clients, but there are lots of other apps or even excel spreadsheets that can help you track your spending.
What You Can Control #2: Your Available Credit
It’s normal to use credit cards for everyday expenses to earn points, or to take advantage of a zero-percent interest rate loan to cover the cost of a new garage door (something my husband and I did this last year). But carrying large balances on your credit cards is very risky because you are not only responsible for paying large monthly interest payments, but it also limits your ability to borrow more money in the future if you are in a tight spot and need money.
Our new garage door! Wondering how long it will last under that basketball hoop? me too.
I like to prioritize saving at least a little bit (think a minimum of $1,000) into your emergency savings account before paying down any debt and freeing up credit availability. But if you are in a position where you need to both build your emergency fund AND pay down high interest credit card debt, I recommend working on both simultaneously, starting with paying down the highest interest rate card.
If you are a homeowner with more than 20% equity in your home, then you might also consider taking out a Home Equity Line of Credit or a HELOC. A HELOC is a way to borrow from the equity of your home without changing anything about your current mortgage. HELOC Interest rates are typically much better than unsecured credit cards, but are more than regular mortgage rates. HELOCs are useful to cover unexpected home repairs or can also be used to borrow money if you have used up all of your savings.
You need more than just equity in your home to open a HELOC though- you also need to show proof of income to cover the potential monthly payments.
Don’t wait until you’ve lost your job and your proof of income to open a HELOC– put it in place now.
You can open the line of credit and keep the balance at zero for as long as you want and it won’t cost you anything.
What You Can Control #3: How Much Risk You Take When Investing
There are a handful of time-tested ways to limit or control the risk you take when investing.
The first is to only invest money in stocks that you won’t need to touch/spend for at LEAST 5 years.
Within the next 5 years, there is still a 10% chance to lose money in the stock market (based on history, see chart below).
Your emergency funds and savings accounts are for expenses or goals that will happen in the next five years. These accounts should be invested in a high-yield savings account, in bank-issued CDs or in money market accounts that earn “risk-free” returns. Right now the “risk-free” rate is about 4%. They call it risk-free because you should not see any losses on your principle.
The second decision that is 100% in your control is how many individual stocks you own. It is recommended to invest in a minimum of at least 30 different companies. I would consider having more than 10% of your assets in the stock of one company to be too much “concentration risk”. This is why many advisors recommend investing in funds and index funds (whether they be mutual funds or exchange-traded funds), because they invest a little bit in hundreds of different companies across all sorts of industries.
The third decision that is in your control is choosing WHERE in the world to invest. Many investors suffer from something called the “home country bias”, where they invest mainly in companies from their own countries because they are more familiar or comfortable with them.
Investing across the globe provides you with another way to diversify your investment risk by getting exposure to different economics, different interest rates, different currencies and different inflation rates. (Click here to learn more about International Investing from my blog post “International Investing: Why now may be a good time to diversify”.)
The next decision, and possibly most important, is to choose the right blend of stocks and bonds in your portfolio. If you have more stocks than bonds, then the portfolio will be riskier than if you own more bonds than stocks.
For example, you might find retirees in their 70s who are living off their portfolios to be at 40% stocks, 60% bonds. A young professional in their early 30’s with 30+ years to invest may be invested in 90% stocks and 10% bonds.
The key is to take the right amount of stock risk that allows you to stay invested through the ups and downs of the stock market.
One of the worst case scenarios for your wealth is to see it fall 30% in a market crisis only to lock in your losses if you sell at the bottom and don’t participate in the eventual market recovery. If you wait to regain the nerve to “get back in”, you’ve missed out on most of the gains.
Conclusion
While this list is not exhaustive, it is a great place to start. There will always be something to worry about– and no one has a crystal ball. By focusing on what you can control, you can feel more empowered and confident about your financial future, knowing that you have prudently prepared and preemptively managed risk the best you could.
Full Disclosure: Nothing on this website should ever be considered to be advice, research or an invitation to buy or sell any securities. Please see the Disclaimer page for a full disclaimer.
Stacy Dervin, CFA, CFP® provides fee-only financial planning and investment management services in Eugene, Oregon.
Tailored Financial Planning (TFP) serves clients as a fiduciary and never earns a commission of any kind.
As a financial advisor, Stacy is on a mission to help Gen X and Gen Y be truly proactive about their financial futures.
