Spending: Future-Proof Your Anxiety

If the pull of the present is too strong for the spendthrift, future uncertainty could become overpowering for a typical financial worrier. This extreme behaviour can affect your well-being and rob you of the joy of living in the present.

Saving and financial security are important, but worrying too much can be restrictive. The underlying emotion here is not as much about loss as it is about the fear of what may come in the future.

Diagnose The Behaviour

There is a marked difference between those who may be unsure about reaching their financial goals because of their earnings or other reasons and are, therefore, overly anxious, and those who worry about the future, irrespective of their financial situation or support system. Both are worriers—one due to specific circumstances and the other due to a compulsive mindset, perhaps rooted in the past.

Says Ramesh Vishwanathan, CEO, Financial Planning Standards Board (FPSB) India: “To know if you are being financially prudent or overly restrictive, you should ask yourself, ‘What am I saving for?’ If you are saving for a reason like building an emergency fund, planning for retirement, or achieving a life goal you are probably making a sensible decision about your money.”

Nilesh Gupta, professor of behavioural finance at the Indian Institute of Management, Nagpur, identifies two possible motivations for becoming a worrier: wanting to remain financially independent forever, or wanting to sacrifice for others.

For instance, there are parents who cut back on their own needs to ensure their children receive a good education. Then there are parents who wouldn’t want to be financially dependent on their children during retirement.

In short, a financial worrier is not someone who is simply afraid to spend. The behaviour and compulsion to not spend is usually rooted in responsibility, independence, family experience, past adversities, or a strong need to protect the future, says Gupta.

The mindset is also linked with the experiences of an earlier generation that had fewer opportunities to create wealth and knew that falling off a secure career path could have serious consequences.

When It’s A Problem

Being a worrier may have a sensible origin and still become excessive.

First, it can affect your quality of life in a big way. A worrier may have enough money for a holiday, hobby or another planned expense and still feel that spending it means losing something. This can easily create emotional crises in a family situation, when the effect of your actions are not limited to you, but also the life choices of others.

Second, if you are preoccupied with how much money you have, you may end up being overly cautious in investments or simply stick to debt instruments that you find safe. But the financial cost can be steep in these cases.

Arijit Sen, a Securities and Exchange Board of India-registered investment advisor (Sebi-RIA) based in Kolkata, points out that money kept in a savings account or other low-yield instruments can lose purchasing power to inflation and taxes. For long-term goals, staying entirely in low-risk assets can also mean giving up years of potential compounding.

What Should You Do?

Ultimately, the objective of having enough money is to live a comfortable life.

Try to pin down the reason why you worry about money.

If it’s about future security, the key is knowing how much is “enough”. Sen recommends ring-fencing 6-12 months of essential expenses as an emergency fund and then allocating the remaining money according to goals and time horizons.

Beyond that point, holding more cash may provide psychological comfort without necessarily providing proportionately more financial protection. If you need that psychological comfort, set a limit that eases you up.

Vishwanathan makes a similar distinction. “The point of planning your money is not to never spend, but to make choices about your money.” Once essential expenses, savings and long-term goals are accounted for, planned spending does not have to be treated as a financial mistake. In fact, proper planning can ensure that you spend without worrying because deep down you know you have done what’s required to secure your future.

Whether we like it or not, the future is uncertain. All we can do is plan for it, but sacrificing your present completely for the future may not be the best idea, precisely because it’s unpredictable.

Just like a spendthrift is not necessarily wrong for wanting to enjoy life now and help others wherever possible, the worrier is not necessarily wrong for wanting to be financially secure. The problem begins when either instinct becomes so dominant that money stops serving its larger purpose: helping us live well financially and mentally, both today and in the future.

Your Superpower

You are disciplined about saving, and are likely to achieve your financial goals if you invest prudently

Your Blind Spots

Your quality of life may be much lower than others

You won’t be able to balance between the present and future

Your anxiety may not allow you to take investment risks for growth

priyanka.debnath@outlookindia.com