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Money & Mental Health: Overcoming Financial Stress & Anxiety
Keeping your finances healthy may lead to better mental health.
Does the thought of managing your finances feel stressful and overwhelming? If it does, you’re not alone. In a recent survey, Bankrate discovered that more than 55% of millennials claim that money and their finances are a major source of stress and anxiety.1
In an ideal world, managing money would be easy, but if you feel like you’re in over your head, finding ways to reduce your financial stress could dramatically improve your mental health.
Let’s take a look at a few strategies you could use to reduce your financial stress and improve your mental health.
Key Takeaways
Your money and your mental health are often entwined, meaning stress could lead to impulsive money decisions and poor finances may lead to stress and anxiety.
There are things you could do to help reduce your anxiety and feel more secure about your money, like having an emergency fund and creating a debt management plan.
Being smart with your finances and achieving financial wellness is about making financial decisions that make you happy rather than trying to please others.
6 Tips to Help Reduce Financial Stress and Anxiety
While financial stress may not seem like a major issue to your parents or grandparents, it may be especially tough for millennials who entered adulthood (and the workforce) during a time of major economic uncertainty.
Rather than accepting financial stress as a negative force in your life, try being proactive. Here are a few tips to help you reduce your stress around money.
1. Don’t Avoid Your Finances
Though it’s tempting to put off making decisions when you’re stressed, doing so could make your anxiety worse. By putting off financial decisions, you may end up making the situation worse and more stressful.
Instead of avoiding those tough decisions, be proactive. Track what you spend each month and see if any patterns emerge. Once you identify those patterns, you could start addressing them by building a budget .
2. Build an Emergency Fund
Surprise expenses could lead to a major strain on your mental health. And nearly 44% of American adults can’t handle a $1,000 emergency without taking on debt.2 And adding more debt to the picture may increase your financial stress and worry.
One simple way to help offset the stress that emergencies bring is to set up an emergency fund. An emergency fund is savings set aside specifically to help you pay for unexpected or emergency expenses like medical bills or car repairs.
While you’re free to set aside however much you’re comfortable with, experts recommend having three to six months’ worth of household expenses set aside in an emergency fund. You may want to keep these emergency funds in a designated high-yield savings account. These accounts earn compound interest on the money you contribute to the account, as well as interest already earned over previous months, helping you build your savings faster.
Just make sure that the account you choose is FDIC insured. This way, your money is safe, up to specified limits, even if the bank goes under.
3. Focus on Paying Down Your Debt
Debt comes in many forms, from installment loans like personal loans, mortgages, student loans, and car loans, to revolving lines of credit, like credit cards. It’s common to take on debt at some point in your life, but carrying excess debt could become a burden, especially if you don’t see a way out of it.
Having a plan to handle your debt may help improve your financial situation and reduce your overall stress level. Here are a few options to consider:
The snowball method: To use the snowball method, you start by paying off your smallest or lowest balance debt first. Then, you pay off the next smallest debt, and so on, until you’ve paid off all of your debt in full. Keep in mind that you still need to make the minimum payments on all of your debts while you’re focusing on paying off one faster.
The debt avalanche method: The debt avalanche method focuses on paying off the largest or highest rate debt first before focusing on the next highest rate debt. Again, you need to make the minimum payments on all of your debts as you go.
Debt consolidation loans: Debt consolidation loans let you combine multiple debts into one loan with a single payment each month. You use the money from the loan to pay off your current debts and make a single payment toward the loan each month until you pay it off in full.
Creating a debt repayment plan may help you stay motivated and get you out of debt faster. Just be sure to celebrate and reward yourself when you pay off a debt. It could help motivate you to keep going.
4. Spend Money Intentionally
When you’re stressed, buying things to make yourself feel better may seem like a good idea. And there’s a science to it—for many people, buying items gives them a feeling of accomplishment or pleasure, much like eating chocolate or indulging in your favorite coffee drink.3 But when you’re buying items for the sake of a dopamine rush or to try and match your lifestyle with your peers’, it could lead to stress.
Instead, try to make intentional purchases. Think about the item and the 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 buying it makes sense. But if the answer is no or you’re not sure, consider putting it back on the shelf.
5. Automate Your Savings
Building your savings is a priority for many people, but actually setting money aside each month may be tough, especially if you have a tendency to spend most or all of what you’re making. Rather than struggling to set money aside, consider automating your savings.
Ask your employer to direct deposit a set percentage or amount of your paycheck into a savings account that you set up. Or schedule regular transfers from your checking account to your savings account each month. This way, you’re building your savings consistently.
6. Reach Out for Help
If you’re truly struggling with your finances and find that it’s taking a major toll on your mental health, know that help is available.
Speak with a close friend or family member and ask them for advice if you’re comfortable doing so. Talk to a financial professional to get advice on how to better manage your money.
And don’t hesitate to reach out to a therapist or mental health professional if you’re struggling to manage feelings of stress, overwhelm, and anxiety.
Final Thoughts
Money and mental health often go hand in hand, and taking control of your finances may go a long way toward reducing stress and improving your financial health. But it’s important to remember to take a holistic approach to your financial wellness journey. Keep tabs on your finances and your mental health at the same time. If anything doesn’t feel right, make changes as you see fit.
Not sure where to start? Check out our guide on how to achieve financial wellness. And remember, financial wellness is a journey. It’s okay to make mistakes… learning from mistakes may help us be wiser with our money.