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5 powerful ways to improve your financial and mental health

There is a strong link between your financial and mental health. Learn about five powerful ways you can improve both by changing your relationship with money.

19/09/2023
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The last decade has seen a revolution in mental health awareness. While there is still work to be done, much of the stigma is gone and people are talking about their mental wellbeing more than ever.

This is a positive shift because it means we can all take steps to protect our mental health and improve our quality of life. Identifying the triggers that lead to stress and anxiety is often a vital part of this, and your finances could be one of the main things to focus on.

Indeed, there is strong evidence to suggest that your mental health and your finances are intertwined, and understanding the relationship between them is key to improving your own wellbeing.

Read on to learn how your finances and mental health affect one another and how you can protect them both.

46% of people in debt also have a mental health problem

While there are many reasons that you may get into debt, research suggests that you are more likely to face difficulties if you struggle with your mental health.

A study conducted by the Money and Mental Health Policy Institute [1] found that almost half of people in problem debt also have a mental health problem. Additionally, 86% of people said that their financial problems made their mental health worse.

So, clearly the stress caused by financial difficulties can exacerbate poor mental health. And crucially, this relationship works both ways.

The same study also found that:

  • 72% of people said that their mental health problems had made their financial situation worse
  • 93% spent more than usual when their mental health was bad
  • 92% found it harder to make financial decisions.

This is likely because common symptoms of bad mental health, such as increased impulsivity and memory issues, make it harder to manage your wealth effectively.

Ultimately, this creates a cycle where poor mental health and financial instability feed into each other, as shown by the illustration below:

money and mental health spiral

Source: Money and Mental Health Policy Institute

The good news is, by making some simple changes to your relationship with your wealth, you can break this cycle and improve your mental and financial wellbeing.

5 ways to improve your financial and mental health

1. Create a budget

Budgeting is a core part of good financial management and it may help you reduce stress that you feel about money.

Having a clear budget in place can give you a sense of control, and make it easier to manage your spending, even when your mental health is suffering. In moments when you are more likely to be impulsive, going back to your budget may help you avoid poor spending decisions.

A good budget can also help you regain control of debt and make borrowing work to your advantage. Considering debt is a significant cause of stress, this can have a very positive effect on your mental health.

2. Build an emergency fund

Your emergency fund is another crucial step in securing your financial and mental wellbeing.

Having a safety net in place may alleviate anxiety about money because you are able to absorb financial shocks, such as unexpected bills or losing your job.

Without an emergency fund, you may be more likely to rely on costly short-term borrowing in these situations, which could lead to less financial security and more stress in the future.

3. Explore protection options

The right protection policies can give you another safety net and ensure that you are able to continue meeting your financial goals, no matter what happens.

Income protection, for example, could pay a regular income if injury or illness, including mental health problems, mean you are unable to work. Meanwhile, critical illness cover may pay out a lump sum if you are diagnosed with a serious illness, and life insurance can ensure that your loved ones are secure when you pass away.

These policies can help you meet short-term financial obligations when the unexpected happens, and they also maintain your income so you can continue working towards long-term goals like saving for retirement.

At the very least, knowing that you have access to support during a difficult time can be incredibly reassuring and may help to reduce the mental health impact caused by unexpected financial difficulties.

4. Consider your long-term goals

Determining your long-term goals is often the first step in creating a financial plan. And when you keep those goals at the forefront of your mind, you may find it easier to maintain good financial habits.

It may also help you improve your mental health because it encourages you to shift your mindset. Instead of money being a source of stress, it becomes a means to achieve positive things in life such as traveling, getting married, raising a family, and enjoying a comfortable retirement.

5. Work with a financial planner

If you find that your finances are affecting your mental health, a financial adviser can give you the advice and reassurance you need.

Working with a professional to develop a long-term financial plan, and adapt it when necessary, can give you peace of mind and potentially stop your financial situation from harming your mental health.

A 2023 study from Royal London [2] shows just how powerful the effect of working with a professional can be. Only 32% of those who had taken professional advice said they felt anxious about their finances, compared with 41% of those who hadn’t taken advice.

Additionally, 68% of people said they felt more in control of their finances after seeking professional advice.

This sense of control means you may be less likely to experience stress about your wealth, which could improve your mental wellbeing.

Get in touch

If you want to regain control of your wealth to protect your financial and mental wellbeing, we are here to help.

Please visit our contact page or speak to your adviser.

Please note

Life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

[1] 21.06.2023 Money and mental health: the facts Money and Mental Health Policy Institute

[2] 21.06.2023 Feeling the benefit of financial advice Royal London

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Benchmark Financial Planning is an Appointed Representative of Best Practice IFA Group Limited which is authorised and regulated by the Financial Conduct Authority, the registration number is 223112. Registered office: Broadlands Business Campus, Langhurst Wood Road, Horsham, West Sussex, RH12 4QP. Registered in England and Wales No 07572431.

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The guidance and/or advice contained within this website are subject to the UK regulatory regime and are therefore targeted at consumers based in the UK.