How to reduce financial stress to improve health and mental well-being

Disclaimer: Upstart is not a financial advisor, the following content is for informational purposes only.

Mental well-being takes into account your thoughts and emotions on a daily basis. Staying mentally fit involves different aspects of your personal life, relationships, work, and oftentimes, money. 

Money can be a big source of stress, especially if you don’t have a plan in place to provide some cushion in case something goes wrong—such as a pandemic. Not only was the pandemic completely unexpected, it was the reason why millions lost their jobs, impacting the economies, while further heightening unwanted stress and anxiety. 

Setting yourself up for success and giving yourself peace of mind means having a safety net for when something unexpected happens. You don’t have to be in a certain income bracket either. 

There’s no catch-all answer for how to deal with financial stress, but assessing your overall finances and coming up with a plan are great places to start. For example, maybe you’re in debt and make a plan to stop making just minimum payments so you can be debt-free in six months. Doing this is not only empowering, it can help put your mind at ease so you can stop worrying. 

Here are tips for how to reduce your financial stress and improve your health and well-being. 

Assess your overall income and spending

If you use an online personal finance tool or an app to keep track of your credit card spending and bank accounts, that’s a great start. Use this to look at the last three months of spending. If you don’t use a personal finance tool, examine the last three months of your bank statements.

Pay attention to the spending categories and see where you can cut back. Here is an example of how to break down your spending:

  • Rent/mortgage
  • Utilities
  • Car payments
  • Student loans
  • Credit card debt
  • Entertainment/streaming subscriptions
  • Restaurants/delivery/takeout
  • Uber/Lyft

Figure out where you can cut back on spending. For example, if you spent too much on bars and ride sharing, see if you can scale back for the next several months. Then, be intentional about increasing your savings, even if it’s only by $10 or $20. 

Create a budget with a goal 

Having a budget simply means you know how much money you have coming in, in relation to going out. 

Establish a budget with a realistic goal in mind. It’s a good idea to have a short-term and a long-term goal. A short-term goal might be to pay off credit card debt while a long-term goal is to save enough for a down payment on a house. 

Here are some specific goals to work towards:

  • Pay off debt (credit cards, loans, car loans)
  • Save 10 percent of your paycheck each month
  • Max out your 401(k) and IRA

Open an online savings account 

It’s likely that your big-name bank gives you a tiny percentage of interest on your savings account. Online banks, on the other hand, are known to give savers a bit more in interest. 

Online savings accounts are typically free and can allow you to create sub-accounts, which means you can create additional accounts with a specific goal in mind. For example, you could create sub-accounts for car repairs and another for a dream vacation. 

Automate your savings each month

Automation makes our lives easier. You don’t have to think about moving money from your checking account into your savings each time you get paid. 

After you open your online savings account, set an automated deposit each month so you can save money each month without having to do any manual work. If your employer allows it, you can also allocate a portion of your paycheck to go directly into your savings account. 

Use automation to other aspects of your finances, such as your:

  • Rent or mortgage
  • Credit cards
  • Car payment
  • Retirement accounts  

This ensures your bills are paid on time, which helps keep your credit score strong. Paying your bills late is probably one of the worst things you can do that will hurt your credit score. 

Max out your retirement accounts

If you don’t have any retirement accounts, sign up for an IRA and make a small deposit to get started. Again, automate this process so you can set it and forget it. 

The same applies to a 401(k) if your employer offers it. Some companies provide a match for employee contribution—this is essentially free money and a big incentive to sign up.

For a 401(k), you can contribute up to $19,500 each year with catch-up contributions of $6,500 if you’re 50 and older. When you sign up for a 401(k) through your employer, the money is automatically taken from your paycheck each pay period. 

Funds for a 401(k) are not taxed when you contribute—only when you withdraw the funds when you retire. For an IRA (Roth or Traditional), you can save up to $6,000 per year and if you’re over the age of 50, you can contribute up to $7,000. 

If you have both a 401(k) and an IRA, you can save up to $25,500 each year, or $33,000 if you’re over the age of 50.

Pay off debt

Make it a goal to get rid of your high-interest credit cards as quickly as you can. This helps free up money that you can add into your savings account. 

If you have a lot of credit cards to pay off, consider consolidating them with a personal loan, which typically comes with lower interest rates than a credit card and can help you save money on interest. Upstart-powered lenders offer personal loans for credit card consolidation—it’s simple and quick to find out what kind of rate you qualify for. 

Reducing your overall debt each month frees up these funds to funnel into your savings or investing. No one wants to be in debt forever. Making continuous minimum payments while using the credit card regularly won’t get you anywhere. Make it a point to stop using your credit cards while you pay them off. 

Stressing less means exercise and taking care of your health

It’s not an ideal situation to constantly be stressed out about money. In addition to creating a plan for your finances, address your physical and mental health. Take frequent breaks, eat whole foods, and get lots of rest. Surround yourself with the people and activities that bring you joy. 

Take action to improve your financial situation by addressing what’s causing your stress. Establish a budget and be mindful of your goals so you can be on your way to a better financial future.

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