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As talk heats up about the possibility of a recession, so does your anxiety.
While a downturn is not a foregone conclusion, some experts have recently raised the prospect of a recession in the near future. Citigroup, assessing global economic growth over the next 18 months, sees a 50% chance of a global recession, and Goldman Sachs has put the outlook for a US recession in the next year at 30%.
Others, like UBS, aren’t convinced it’s happening. In any case, the mere prospect of a recession is enough to fuel anxiety.
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“When we talk about anxiety, we’re talking about uncertainty,” said licensed psychotherapist Bea Arthur, CEO of The Difference, which provides on-demand teletherapy for businesses and communities.
“We can’t see how long the recession will be or whether it will come,” she added.
The official definition of anxiety, according to the American Psychological Association, is “an emotion characterized by feelings of tension, worried thoughts, and physical changes such as increased blood pressure.”
That emotion can have a direct impact on your financial life. Those who are anxious or stressed are more likely to engage in costly financial behaviors, including borrowing from high-cost financial services companies and withdrawing cash from retirement accounts, according to a report by the Financial Industry Regulatory Authority’s Investor Education Foundation and Global Financial Literacy Excellence Center.
Here are five ways to deal with anxiety before it harms your mental and financial health, according to psychologists.
1. Narrow your focus
Pay less attention to macroeconomic news and focus more on your specific situation, said financial psychologist and certified financial planner Brad Klontz.
“It will actually save you about 75% of the stress,” he said.
When you receive news about the outlook for a recession or other economic reports, watch them, but don’t absorb them, Arthur said. After all, the human brain is designed to have the capacity to care only about those closest to us, she pointed out.
“We are being asked to expand and allow so many crises, so many stressors to enter our energy field, that we have to step back,” she said. “We must regain our power.”
2. Meet with a financial advisor
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Because anxiety is really uncertainty about future events, talking to a financial advisor can put your mind at ease, said Klontz, an associate professor of the practice of financial psychology and behavioral finance at Creighton University’s Heider College of Business.
Northwestern Mutual’s 2022 Planning and Progress Study confirms this. About 54% of American adults said they are somewhat or very worried about their finances, according to a survey conducted Feb. 8-17 by Harris Poll and based on a sample of nearly 2,500 people.
However, that percentage drops to 46% for people who work with financial advisors and 47% for those who self-identify as disciplined planners.
3. Do a ‘worst case scenario’ exercise
This is Klontz’s favorite exercise, walking you through what would happen in response to a series of events.
Talk about your fears, such as “I’m worried about the recession,” and then ask yourself, “What would happen then?” Go from there, so if the answer to the first question is “I could lose my job”, ask yourself “What would happen then?” Continue running all scenarios from there, Klontz said.
“Exercise at its worst is like jumping off an emotional cliff,” he said. “When you go through the scenarios, it’s not life-threatening and it’s not as bad as they fear it will be.”
On the other hand, stress can do real damage.
“Financial stress can kill you, but it’s rare that our financial situation is life-threatening,” Klontz said.
4. Take a moment
It might sound corny, but taking a moment to pause and take a few deep breaths can really help, Klontz says.
“When we become emotionally overwhelmed, we become rationally challenged,” he explained. “The key is to calm your emotional brain before making any decisions.”
This can prevent you from making poor financial decisions, such as panic selling stocks when the market falls.
5. Expand your frame of reference
When the market sells off and the weekly chart looks like it’s fallen off a cliff, that’s a narrow frame of reference, Klontz said. However, as a long-term investor, you want a broader frame of reference. When you do that, the cliff actually looks more like a pothole, he explained.
“Extend it to 10 years, 15 years,” Klontz said. “It’s a steady climb up the mountain, with a few potholes along the way.”
Also remember that people tend to invest in more than one asset class, so when you see the market go down, know that your diversified portfolio may not be sinking as deep.
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