FINANCIAL PLANNING

Money and mental health: a 7-step strategy to relieve financial anxiety

With financial stress on the rise, we look at the relationship between money and mental health and set out a 7-step strategy to help relieve financial anxiety.

Published on 11 May 20227 minute read

Written by Alice Haine

Money and our mental health are far more intertwined than many people realise – with one problem often feeding off the other. Statistics from a 2019 study by the Money and Mental Health Policy Institute highlight how intertwined your money and mental health really are: 

  • People in debt are much more likely to suffer mental health challenges, with half of those with problem debt also experiencing a mental health issue 
  • Meanwhile, people with mental health challenges are three-and-a-half times more likely to be in problem debt than those without mental health issues

As a result, money and health problems feed off each other, creating a cycle that is hard for people to extricate themselves from. 

Money worries are on the increase

UK households are now more worried about their personal finances than they have been in more than a decade, according to an April 2022 survey from YouGov and the Centre for Economics and Business Research, with the situation only set to worsen amid the triple blow of soaring inflation, rising energy prices and higher taxation.

The cost-of-living crisis is biting

Evidence of the worsening cost-of-living crisis came with the 1.4% slump in retail sales in March, according to Office for National Statistics data – much worse than economists expected – as consumers tightened their belts. Meanwhile, a drop in consumer sentiment to -38 in the April consumer confidence index from market research firm GfK is the lowest level since the height of the financial crisis in 2008.  

As households turn to debt such as credit cards, loans and overdrafts to manage the mounting costs, it leaves them vulnerable to financial stress if unexpected bills come in and they don’t have the funds to pay them.  

How financial stress affects your mental and physical health 

Worrying about money can lead to feelings of anxiety and panic, or trouble sleeping. If the situation has got to a point where you can no longer afford the things you want, such as going out to meet friends, spending on clothes, gadgets, luxuries or travel – this may cause feelings of loneliness or isolation as your social life and relationships are affected. 

If your finances are so dire that you cannot even afford the things you need, such as food, electricity, petrol, paying your mortgage or rent, then the stress will heighten even faster. Over time, you might feel afraid to check your bank balance or open bills sent through the post, feel guilty about spending or feel ashamed about needing help. You might even feel irritable or angry, in turn finding it hard to maintain healthy relationships at work or at home. 

If you feel stressed about your finances over a long period of time, this can manifest itself in physical symptoms such as feeling tired, low energy, difficulty with sleep, overeating or undereating or even more worrying symptoms such as breathlessness, palpitations, a rapid heartbeat and chest pain if the stress becomes too much. 

7-step strategy to relieve financial anxiety  

When financial woes start affecting your health, it is time to take control of your money.

Step 1: Admit there is a problem 

The first step is to admit there is a problem and talk to those closest to you. By being open and honest about your financial woes with family or trusted friends, it allows your loved ones to offer emotional support and help you address the issues, such as cutting down expenditure in the household.  

Step 2: Tackle the stress 

From a health point of view, the NHS encourages those suffering financial stress to stay active whether that’s seeing friends and family, taking regular exercise to boost your mood and keeping your CV up to date to help you look for a new job if you have been made redundant, or find a role with a higher income to help you meet your financial obligations. 

You should also strive to pay bills on time if you still can, even if that means dipping into savings. Other NHS tips include not drinking too much alcohol, eating regular, healthy meals and making sure you stick to your daily routine, such as going to bed and getting up at the same time. 

Step 3: Face the debts head on 

Rather than shying away from your money concerns, tackle them head on. Start by identifying the specific issues weighing on your mind whether it is a rising credit card bill, looming bill payments or poorly performing investments. To do this, write down your biggest money challenges – keeping the list short to avoid feeling overwhelmed. 

Step 4: Take control of your finances 

Next, create a monthly budget – a vital way to control and understand the state of your finances. It can be as simple as writing down your outgoings on a piece of paper so that you know exactly how much money you need to pay your vital bills every month. Include the ‘must-have payments’ such as rent or mortgage costs, utility bills, council tax, insurance and food, car payments, commuting to work costs, phone and broadband, saving and investments etc. Then add in the ‘like-to-have payments' such as going out, gadgets, holidays, subscriptions to streaming services, gym memberships and so on. Add it all together and see how much you spend every month. 

Then, deduct that figure from your net income - the amount you take home every month after paying taxes. This quickly tells you whether you are spending within your means. If you are spending more than you earn, your first trick will be to cut expenses from your like-to-have list to help reduce your outgoings.  If the situation requires more aggressive action, scrutinise the must-have list to see if you can trim expenses there. 

The benefit of this exercise is to have a clear idea of the state of your finances and what needs to be done to resolve any shortfall. Plus, writing it all down might make you realise the situation is not as bad as you had feared. 

Step 5: Be honest with your creditors 

If you have missed any bills or fear you might do so soon, contact the providers and ask for their help. Ignoring letters from credit card or utility providers about your debt will only exacerbate the situation. By being open and honest, your creditor will offer options to reduce payments in the short term and develop an affordable repayment plan to help you catch up on missed payments. 

Step 6: Get help 

If you want independent guidance on repaying any debts or managing your money, contact organisations such as Citizens Advice, the Debt Advice Foundation and StepChange Debt Charity for free advice. They can offer confidential support on getting out of debt as well as help with budgets and debt management plans tailored to your situation. 

As well as dealing with the practicalities of paying your bills, it is also important to seek help to manage stress. Organisations such as Mind and the Samaritans both offer confidential support lines to talk through problems. Mind can also offer strategies to stop overspending and how to understand your relationship with money. 

Step 7: Set out a fresh financial strategy 

Once you’ve got to grips with your immediate situation, set out a fresh financial strategy for the future to ensure you don’t fall into the same cycle of financial stress and poor mental health again.  

If overspending is your issue, make it harder to access your cards so that you cannot shop online easily and develop strategies to delay purchasing such as taking a 24-hour break before you buy after spotting something you like. 

On a bigger scale, set up your finances so that you have enough in your current account every month to cover essential bills, as well as access to emergency funds to cover surprise expenses.  

Then set out short, medium-term and long-term goals for your savings, taking advantage of low-cost, tax-free options such as ISAs and SIPPs* available through Bestinvest. We also offer free financial coaching, where qualified financial planners outline what you could do with your money, while fixed-fee financial advice packages are available to helps users to decide what they should do with their money. We also have a comprehensive learning section to help you get to grips with investing.

*SIPPs are not suitable for everyone. If you don't want to invest across different asset classes or don't think you will make use of the investment choices that SIPPs give you, then a SIPP might not be right for you.

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