Money & Mental Health: Overcoming Financial Stress & Anxiety
Keeping your finances healthy may lead to better mental health.
A 2022 survey from the American Psychological Association (APA) found that 81% of Millennials reported that money was a significant source of stress.1 In an era where there are many things to stress about, your finances don’t have to be one of them.
As part of Mental Health Awareness Month, we want to share a few tips to help you feel less stressed and more confident about your money and spending choices.
Your money and mental health can be entwined, meaning stress could lead to impulsive money decisions and vice versa.
There are things you can do to help reduce your anxiety and feel more secure about money, such as having an emergency fund or creating a debt plan.
Being smart with your finances and living a rich life is about making financial decisions that make YOU happy, rather than trying to match others.
4 Tips to Reduce Financial Stress
Finances are a common source of stress for everyone, but the 2022 APA study found that money was a less common source of stress among older generations.2
These results aren’t surprising given that younger generations, particularly Millennials, entered adulthood during a major economic downturn and can struggle with pressure from social media.
Rather than accepting financial stress as a negative force in your life, there are things you can do to help improve your relationship with money. Let’s take a look at four tips to help you feel in command of your finances.
Tip #1: Don’t Avoid Financial Decisions
Sometimes it can feel like the easiest way to handle stress is to ignore the cause. Unfortunately, this may lead to additional stress when you are finally forced to face the situation, especially if the situation has gotten worse. (Don’t worry, we’ve all been there)
Instead of avoiding your money, try taking control of it. Start by tracking what you spend each month. From there, you can see if any patterns emerge. Is work stress inflating your takeout budget? Are you buying things you may not need because it gives you a sense of control?
Once you identify patterns, you can begin to tackle them by creating or adjusting your budget. For example, if you notice that you tend to eat out more when you have that one report due, consider increasing your takeout budget for that week each month so you have a plan in place.
Tip #2: Reduce Financial Worry with an Emergency Fund
Maybe it’s a little fender bender, an unexpected medical bill, or major home repair. These sudden expenses can knock your budget off track. To offset the financial stress these moments tend to cause, set up an emergency fund that you can dip into to handle these bills.
When setting up an emergency fund, experts recommend having three to six months’ worth of household expenses on hand.3 Having these savings on hand allows you to cover unexpected bills or handle your expenses if your income is disrupted, such as by losing a job or sustaining a major injury.
Keep these emergency funds in a safe place (and no, your mattress doesn’t count). A savings account is generally considered a good option for these funds since these bank accounts may be protected by FDIC insurance but keep your money accessible.4
A savings account offers interest on deposits, which helps you grow a financial nest egg and protect your money’s value from inflation.
Tip #3: Plan Your Escape with Debt Payback Strategies
Debt is one of three main factors driving financial anxiety and stress according to a 2021 study by the Global Financial Literacy Excellence Center and FINRA Investor Education Foundation.5
Debt comes in many forms, from installment loans, like mortgages, student loans, and car loans, to revolving lines of credit, like credit cards. It’s likely that you’ll take on debt at some point in your life because some purchases are nearly impossible to make with cash on hand (like buying a house).
But carrying excess debt can feel burdensome, especially when you don’t see a way out of it. Wondering how much debt is too much? Experts recommend keeping your debt-to-income ratio under 35%. If you find your ratio is above this recommendation, a debt repayment plan may be helpful.
Having a plan to handle your debt may both improve your financial situation and reduce your overall stress level. There are several ways to handle debt, including:
Snowball Method: Start by paying off the smallest debt first, then the next smallest and so on. (Don’t forget to keep making the minimum payments on ALL your other debts though!)
Debt Avalanche: Start by paying off the largest or highest interest rate debt, then the next largest and so on. (Again, keep making the minimum payments on your other debts!)
Debt consolidation: Combine your debts into one account and pay that account off over time. This is often done through a debt consolidation loan.
A debt plan gives you an idea of when you’ll be out of debt and also allows you to track progress toward your goal. (Bonus tip: Remember to reward yourself when you hit a milestone. It’ll motivate you to keep going!)
Tip #4: Spend Money Intentionally
It’s natural to compare yourself to your friends, family, even celebrities when you scroll through social media. A study from Allianz found that about 90% of millennial respondents said social media creates a tendency to compare their own wealth or lifestyle to their peers.6
Unfortunately, this kind of spending, known as FOMO (fear of missing out) spending, can add up over time and negatively impact your overall financial well-being. Rather than trying to keep up with the Joneses, make your own list of financial goals that are important to you.
When making purchases, try to practice intentional spending. Take a few seconds to think about the item and decide what role it’s filling.
Is it going to bring you joy equal to the cost or help you toward your long-term goals? If the answer is yes, then buy it. If the answer is no or you’re not sure, consider putting it back on the shelf.
Intentional spending will look different from day to day. Maybe you had a rough day at work, or your kiddo is sick and the idea of cooking something sounds like running a marathon. The cost of takeout compared to the relief you’ll feel is probably negligible. But if you find yourself eating out every week because you got a coupon in your email, you might want to hit the unsubscribe button.
Money and mental health can go hand in hand, and taking control of your finances may go a long way towards reducing stress and improving your financial health.
When it comes to managing your money, it’s important to consider what will make you happy in the long run and try to take a holistic approach. This may help ensure you’re making smart choices that benefit your financial and mental health.