‘Fear is an opportunity,’ expert says. These steps can help you use what scares you to build wealth

Too often, people are encouraged to be fearless, according to personal finance expert Farnoosh Torabi, but fear is a valuable tool, particularly when it comes to building wealth.

“If you are feeling fear at life’s crossroads, pertaining to your finances, your career choices, your relationships, I think it’s important to listen to that,” said Torabi, host of the “So Money” podcast and author of “A Healthy State of Panic.”

Torabi made her comments during CNBC’s Your Money event.

Amid today’s persistent inflation, high interest rates, bank failures, geopolitical uncertainty and the lingering possibility of a recession, “it’s normal to fear these big ‘what ifs,'” she said. But once you distill that fear, you can use it to better your financial standing.

“Fear, here, is an opportunity,” Torabi said. The following two steps can help you harness fear to build wealth.

“People who go and do that thing that presents as scary … they’ll come out of that on the other side of that road potentially more successful,” Torabi said.

For example, “if you are fearing investing in the stock market, maybe it’s because you are afraid to lose money, which is understandable,” Torabi said.

“But the solution is not to not invest,” she added. “The solution is to get educated and understand that the market is volatile — but when you invest for the long run, when you are in a diversified portfolio, there’s a much higher chance of success.”

While market downturns are inevitable, long-term investors have historically earned a nearly 10% average annual return.

“Sometimes fear is a nudge to get more educated,” Torabi added.

Often, it’s women who feel financially insecure, according to Northwestern Mutual’s 2023 Planning and Progress Study. Women are also more likely to live paycheck to paycheck and consider themselves financially fragile, a separate report by Varo Bank found.

Torabi, who said she’s wrestled with her own relationship with fear as a young adult, advises playing out the worst-case scenario.

“If you are afraid of a recession, better to think about what might happen if you lost your job,” she said.

In fact, nearly six in 10 women said they don’t have a long-term financial plan that factors for up and down economic cycles, Northwestern Mutual’s study also found. That may mean determining how to lower your expenses and build up a cash cushion so you can maintain your current lifestyle in the event of a temporary income disruption.

“Our brain is prompted to find a lasting cure and usually that cure is to make a plan,” Torabi said. “You’ve taken this fear and you’ve used it as a tool to make a road map.”