Americans are coping with a lot of financial stress. While this isn’t surprising during the time of coronavirus and the resulting recession, the reality is that millions of people had concerns about the state of their finances before the pandemic — and they’re likely to continue worrying once COVID-19 is in the past.
While everyone’s financial situation is different, the majority of Americans share some common fears. In fact, a recent Northwestern Mutual study revealed five of them. Here’s what they are, along with some tips for managing them.
1. An unplanned health emergency
According to Northwestern Mutual, 77% of Americans report feeling financial anxiety about the possibility of an unexpected health issue. This is understandable, as a medical crisis could result in both high healthcare bills and lead to a drop in income if illness or injury makes work impossible. Preparing for a health emergency involves addressing both of these areas.
You should make certain you have comprehensive health insurance, which you can purchase on the Health Insurance Marketplace if you don’t receive it through an employer. If your policy has a high deductible, it’s a good idea to have money saved to cover it — ideally in a health savings account if you’re eligible for one.
You’ll also want to be prepared for a possible loss of income if you get sick. Purchasing disability insurance is one option, and you should also save up an emergency fund that covers three to six months of living expenses. The money in your emergency fund can be used to cover out-of-pocket care costs and to pay other bills if a health crisis interferes with your ability to work.
2. An unplanned financial emergency
For 77% of Americans, an unplanned financial emergency is a major source of financial worry. And that’s also a justifiable concern because many types of unexpected expenses could arise — and they could lead you into debt if you aren’t ready for them.
Maintaining an emergency fund is also the best way to alleviate this concern. When you have money in the bank to cover surprise expenses, you don’t need to worry about what you’ll do when they come your way.
3. Your income
Income is a top source of financial stress for 76% of Americans. Fears about income could include worrying about the possibility of losing your source of money or concern that you aren’t earning enough.
Addressing issues with your income is a little more challenging. While an emergency fund can help shield you against the loss of your paycheck, you may also want to take other steps such as developing multiple income streams and keeping your fixed expenses reasonable. If you don’t commit to spending most or all of your income, you can better cope with a reduction in earnings if your hours are cut back, you lose your job, or you need to change careers.
4. Inability to afford healthcare
A total of 68% of Americans say that an inability to afford healthcare is a major source of financial worry. The solutions to this are similar to preparing for an unplanned health emergency. They include getting the right insurance coverage during open enrollment as well as making sure you have money set aside to cover any out-of-pocket expenses.
If you have trouble affording insurance, you can also look into whether you can qualify for Medicaid coverage. The Affordable Care Act expanded eligibility in most states, so you may be able to get coverage that way.
5. Level of debt
Finally, 60% of Americans report their level of debt is a source of financial anxiety. Being in debt is definitely something to be anxious about because paying high interest costs can affect your ability to live on your income or accomplish important financial goals.
If you have concerns about how much you owe, paying down your balances would eliminate this problem. There are a few approaches to paying down debt, including paying extra to your loan with the lowest balance or to your loan with the highest interest rate. You’d pay the minimums on all your loans, devote as much extra as you can to the one you’re focused on repaying first, and then move on to the next one until all your creditors have been paid back.
You can also consider using a personal loan or balance transfer credit card to refinance your debt. If you can reduce the rate, paying it off should be easier and you may be less concerned about your outstanding balance.
Hopefully, if you share these five money worries with your fellow Americans, following some of these tips could help you overcome your fears so you can sleep a whole lot better at night.
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