In the previous post I talked about taking control of you finances. In this post I want dive in a bit further and explore some of the things that control us. This post is about how fear effects the economy and more importantly your finances.
The Effect Fear Has On The Economy
This is a subject I’ve been interested in researching lately. How fear has hurt are economy. In fact I had a hard time writing this post due to the fact that it’s not something you can easily see or write about. No fear is something that is felt.
I’ll give you an example of an economy full of fear. Just a few months ago AIG reported that they were about to go bust and they needed a bailout. The news smacked the headlines of millions of newspaper and news broadcast everywhere.
In fact I had several people ask me if they should pay there next months car insurance payment to AIG. At this point I new it was to late. As I suspected thousands of people got wind of this and began pulling there money out of AIG.
For AIG though they luckily got a bailed out, for now.
This Happened Once Long Ago…
Does this sound familiar to you? Maybe if you lived in another time you may remember this happening once before and if you weren’t around to see it you definitely read about it.
That’s right The Great Depression.
This is the same fear that magnified the great depression. The market had a big lose and people got scared. They pulled there money from banks all across the county. The very blood that was needed for banks to survive was being taken from them at an alarming rate.
So how did the banks respond to this?
That’s right. They forclosed there mortgages. Even if you were current on your mortgage the bank was asking for you to pay up of move out. These were tough times for many people.
Thankfully this wouldn’t be possible today. With lending laws revamped home owners don’t have to fear losing there home like they did in the great depression.
So as you can see fear has a big effect on the economy.
The Effect Fear Has On Your Personal Finances
Let’s break this down a bit further. How does fear effect you with your money?
Here’s a good example. On September 11, 2001 the fuel prices were around a $1.50. That night because of wide spread fear of more terrorist attack people were lined up at gas station everywhere. In fact a few people had called me telling me to fill up. They told me gas prices were going up.
I asked them why they thought it would go up and no one could really give me a specific answer. In the end the gas prices didn’t go up they went down. With all airlines grounded this created an instant supply of fuel and as a result prices dropped.
What Can You Learn From This?
Fear has a weird way of making us do weird things with are money. It’s an emotional control that will make us spend money and do things we necessarily shouldn’t do.
So what should you do to avoid this?
- Stay calm. It has been proven that if you are at a peak state of emotion meaning scared, angry, or upset you logical thinking is as a result a lot lower. For example have you ever been really angry and said something you didn’t mean? This what I am talking about your emotional state is in control and your logical state is nowhere to be seen.
- Focus on the good things. Instead of focusing on all of the bad things going on in the economy focus on the good things. For example currently gas prices are around $1.73 a gallon. This can go a long way in saving you some money.
- Stay away from the media. The media has great way of exploiting things and making them sound worse than they really are. Instead turn off the news and do something that make you happy not upset or angry. I talked about this more in previous post so I won’t go in depth with this one.
How Does Fear Effect You?
Does it make you do things with your money you shouldn’t do? Share your stories about your financial fears here.