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Stop Allowing Fear To Guide Financial Decisions

September 2, 2009 by Frugal Dad

o think how many of our decisions are based in fear? I’ve been doing it myself pretty much my entire life. While there is much to be afraid of these days, I hope to find the peace to begin making financial decisions for other reasons.

Finding that peace is an uphill battle thanks to entities like the media. I’m willing to bet none of us can go through an entire day without hearing about swine flu, a terror plot, identity theft, an airplane crash, a horrific car accident, a celebrity death, or a nefarious government conspiracy.

Traditional media does a great job of perpetuating their own motto, “If it bleeds, it leads,” but they aren’t alone. New media is getting in on the act, too. One of the hottest trends on the web the last week or so involved a website that shares death risk rankings. How inspiring.

This fixation on the negative has left us all in a constant state of worry. We live in a perpetual state of fear – of dying, of going broke, of losing our freedom, of losing a loved one, and on and on. Don’t believe me? Why do you think pharmaceutical companies, especially those with leading drugs for anxiety and depression, advertise heavily during the nightly news?

I’m not just picking on pharmaceutical companies. There are a number of industries whose main purpose is to sell consumers products that make them feel more secure. From life insurance, to identity theft protection, to those make-your-own last will and testament software providers, many companies exist to help alleviate your fears.

Those companies are not necessarily bad, and most of us in and around finances generally agree their products are a necessity (at least when it comes to insurance and wills). However, this fear bleeds into other areas of our financial lives.

How many of us are terrified of applying for a new credit card, or canceling our current credit cards, because of the impact it might have on the great FICO gods? It’s sad when we allow our behaviors to be dictated to us by some secret, highly-protected, highly-complicated algorithm dreamed up to dummy down lending decisions.

This thought occurred to me the other day as I paid off yet another old credit card account, from a company that had provided horrible customer service over the years. We had already introduced the credit card to our sharpest pair of scissors, and now I was ready to call and cancel the card.

As I’m dialing the customer no-service number I remembered the same advice I’ve given here at Frugal Dad before – don’t close your oldest credit card because length of credit history is an important factor in calculating your FICO score. Same for credit utilization, which would also be affected if I canceled this card with a high credit limit.

Thankfully, at that moment my common sense kicked in and I said out loud, “Screw FICO.” Blasphemous, I know. I’m not going to carry around this old account from a company I can’t stand just because it might affect my credit score. I’ll do business with whoever I want to, and for as long as I want to. I dialed the remaining numbers and canceled the credit card.  Good riddance!

I’ve also spent too much of my life obsessing over my finances. I’ve stayed awake at night counting credit card balances instead of sheep. I’m afraid of something happening to me, leaving my wife and kids without enough to survive. Do I have enough life insurance? Do I have enough in emergency savings? Do we have enough saved for the kids college plans? Will I ever be able to retire? The list of financial worries is endless.

At some point you just have to live your life. I’m not advocating throwing caution to the wind, burying your head in the sand, or not taking basic steps to secure you and your family’s future adequately. But I am advocating that we try to sort of put things on autopilot so we can stop worrying, and obsessing over our finances.

Over the last couple years, simplifying our financial life has been a big goal for us. We’ve consolidated accounts, set up automatic transfers where possible, put retirement savings on auto pilot. Besides periodic checks on balances or fund performance I rarely look at the “big picture” stuff. I focus on winning today, and being “present” for my kids. As long as we keep winning the daily battles with money, the “big stuff” will take care of itself in time.

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