Money doesn’t equal happiness, that’s for sure, but the lack of it can have a huge impact on different areas of our life, including mental health.
It’s hard to keep your cool and plan your finances in today’s fragile economy in which different geopolitical factors play an important role. The 2008 financial crisis left millions without their jobs, homes, and even retirement funds.
But sometimes it doesn’t take an economic tsunami to make your life a mess and turn you into a stressed-out wreck who’s fallen two or more months behind your mortgage and whose personal finances are spiraling out of control.
In many cases, it’s the result of poor financial decision-making, and the next thing you know, you’re in a vicious circle of debt, overspending, and stress.
So, How Do Financial Decisions Affect Your Mental Health?
It’s common knowledge that certain mental health problems such as bipolar disorder or depression make it difficult to manage personal finances properly and deal with challenging situations such as losing your job.
But, it’s also not surprising that financial troubles can lead to stress, anxiety, depression, and a variety of other mental health problems.
It’s also worth noting that 75% of the U.S. adults live with so-called stress brain, that is a situation in which they’re stressed out all the time. Needless to say, this condition affects their financial decisions and further complicates things.
Here’s what this financial pandemonium does to you:
- It brings about the feeling of profound insecurity. Having no safety net, that is, either a steady income or savings for a rainy day can be pretty distressing. It’s like you’re left with no options in case that, say, your car breaks down and you can’t afford to fix it. So, without emergency funds, such trivial issues can become almost a matter of life and death. Generally speaking, feeling safe and secure is critical to overall health and wellbeing.
- It creates additional stressors. When you have less money, you can’t, for example, go out on a weekend getaway and relax, or you can’t simply go to a restaurant for lunch, but have to prepare and pack it before you go to work. All this adds up and make you feel even more frustrated and stressed.
- It renders you helpless. When you can’t pay your rent or fix your car, you’ll most certainly feel desperate and completely helpless. But even if you’re not that strapped for cash, the fact that we live in a consumerist culture, which means that we’re constantly bombarded with ads and commercials about different material things, high-tech devices, and clothes. These undoubtedly attractive and alluring items usually come with hefty price tags, and it’s hard not to feel frustrated and inferior if you can’t purchase the latest iPhone that all your friends are flaunting.
The Negative Power of Debt
There’s something worse than being broke, and that’s being in debt.
Regardless whether you’ve borrowed some money from the bank, from your family, or friends, if you don’t have a repayment schedule in place or if you fall behind with it, you’ll soon start feeling the weight of your debt.
Every time your phone rings, you’ll wonder whether they’re calling you from the bank to ask you when you’re going to pay your late installment. All the legal consequences of late payments are like a noose around your neck.
So, if you happen to be in debt, the first thing to do is make repaying it your priority. Even if your friend says that you can take your time, you should stick to the schedule because the sooner you get rid of the debt, the better.
How to Break This Vicious Circle and Make Smart Financial Decisions?
Although it seems like an impossible task, you can actually get out of this financial prison of your own making. The first thing you need is self-discipline and coming to terms with the idea that your spending habits and poor financial decision-making can be controlled and fixed.
Here are a couple of common-sense tips on how to cut the Gordian knot and free yourself from the financial shackles.
- Inch by Inch. You’ve probably read the story about a millennial who spent $20,000 over 12 years on venti iced coffees in Starbucks. So, if you reconsider your coffee, shoes, or candy habits, you might end up with the same figure. In other words, by reducing such small expenses can help you save quite a significant amount of money on a monthly basis. It’s OK to have a drink or eat out every once in a while, but making a habit out of it can be detrimental for your finances. And as you can see, it’s such a small sacrifice and something that won’t be too hard on you, and yet, the results will help you feel much better.
- Set a Budget. No matter how much you resist making a budget, as it will definitely impose certain limitations, you need to know how much money you have available at any moment. Besides, by allocating only a certain amount for every day or month, you can fit into it and prioritize. This way you’ll prevent uncontrolled spending and once you see the results of your endeavor, it will be much easier for you to follow this strict routine and start your own egg nest.
- The 10% Rule. This is simple: make sure to put aside 10% of your gross income and forget about it. Resist your urge to spend it on that awesome pair of shoes that you’ve been eyeing for month, and keep on saving. Don’t reach out for this little fund unless the situation is really critical.
- Don’t Use Credit Cards. Yes, these valuable pieces of plastic are a necessary evil of modern times. But make sure to use them only when you absolutely have to, and not for pampering yourself and purchasing unnecessary gadgets. Also, to keep the fees low, pay your credit card bills on time.
- Start Thinking About Your Retirement in Advance. When you’re in a financial crisis, the last thing on your mind is your retirement fund. But, as soon as you’re out of the red, find the best option for your income. Also, think about the idea of an approved retirement fund (ARF) which would allow you to choose where you want your retirement funds to be invested and have full control over the investments.
- Live Within Your Means. This sounds pretty cruel and harsh, but if you don’t adjust your lifestyle to your means, you’re making a very bad financial decision that you’ll regret in the future. Such a reckless behavior will also affect your mental health because at a certain point you’ll have to stop with the habits you can’t afford and might even face financial ruin. It’s OK to treat yourself to something nice occasionally, but don’t use shopping to relieve everyday stress as it will only snowball into a bigger issue.
- Come to Terms With Uncertainty. No matter how hard you try to make ends meet and keep your finances stable, sometimes you can’t control some external factors such as the economic crisis we mentioned. That’s why it’s essential to embrace the idea that this uncertainty is out there, lurking in the dark, and that it can emerge out of the blue and hit both the poor and the rich. So, don’t waste a lot of money in order to protect yourself from all uncertainties. It’s perfectly logical to ensure your car, health, life, or home, but think twice when it comes to evaluating annuities, for example.
All these changes suggested here are in line with making reasonable and responsible financial decisions, and even a small step such as ditching your expensive caffeine habit and drinking home-made filter coffee could help you build an emergency fund. It will be hard at first, but you need to persist because both your mental health and finances will significantly benefit from such an effort.
Michael Deane is one of the editors of Qeedle, a small business magazine. When not blogging (or working), he can usually be spotted on the track, doing his laps, or with his nose deep in the latest John Grisham.