Your Mental Health Can Affect How You Save Money

Spencer Tierney
By Spencer Tierney 
Edited by Carolyn Kimball

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Tools like spreadsheets and budgeting apps can help you get better at saving money. But you might need to look beyond hard numbers to get a full financial picture.

Your mental health, especially during a stressful period such as the current pandemic, can play a role in money decisions. Know that if you’re dealing with a recurring mindset or behavior that’s troubling and not fully manageable, it’s OK.

"Just identifying [mental] roadblocks can go a long way to reducing their impact," says Tara Tussing Unverzagt, founder and president of South Bay Financial Partners, a certified financial planner and a certified financial therapist.

Mental health issues vary, but some can lead to serious financial consequences. Here are three scenarios to watch out for and how to keep your mental health on track these days.

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When overspending is addiction

Splurging occasionally can be fun, and sometimes we feel better when we buy things we don’t actually need.

"There is some point where you need to balance your financial goals with some need for immediate gratification,” says Megan McCoy, director of the masters program for personal financial planning at Kansas State University, a licensed marriage and family therapist and a certified financial therapist.

But studies have defined when so-called retail therapy becomes destructive. Compulsive buying disorder involves making excessive purchases, typically with tension before buying and a short-term feeling of release afterward. This can result in digging deeper into credit card debt.

If you find yourself turning to purchases to cope with emotional distress often, here are some things to try:

  • For online shopping, keep items in your cart for at least 24 hours. “Enjoy the pleasure of anticipation” and return later to see if you still want those things, McCoy says.

  • Make it harder to spend money. Some banks let you lock debit and credit cards, which would add a step to your shopping process. Or, at in-person stores, consider using cash.

  • Set up rules for your purchases. Create a dollar threshold, so say you’re “buying a T-shirt for less than $10, [you] don’t think about it,” Unverzagt says. For more expensive items, make a habit of looking at your bank balance beforehand.

The common thread with these suggestions is to slow down a purchase enough to be intentional and self-aware. But if you need more help, consider seeking free, or pro bono, financial planning.

When money anxiety leads to being too frugal

Anxiety and fear can warn us of threats and help us survive, but these two emotions can take a toll when they’re felt too often. They can also play outsize roles in your attitude toward money.

“When you have a lot of wealth, you can have more fear of losing it,” McCoy says. This relates to the behavioral economics idea of loss aversion: Losing will have a greater impact than gaining roughly the same amount. Even if you aren’t rich, you can experience this sort of fear.

If you feel compelled to chase bargains or otherwise cling to a more frugal lifestyle than you’d like, you might be stuck in a cycle of hoarding your savings. Try to address your anxiety around money in these ways:

  • Create a new budget by starting with the last two months of expenses. “You have to understand where you have been in order to know where you are going,” says Robin R. Norris, founder of Windward Optimal Health, a licensed marriage and family therapist and a financial therapist.

  • Explore where your feelings about money come from. Think of your earliest memory involving money and how your family treated money, or the lack of it.

  • Dedicate a savings account to self-care. If you have trouble spending money on yourself, open a new account such as a high-yield option, and set up monthly transfers of a set amount, say $25 or $100, from checking. This can help break up your savings for different purposes.

When dealing with money anxiety, “thank the part of you [that’s] helping you prevent overspending, and relax when you have sufficient income” for paying bills, reducing debts and building savings, Unverzagt says.

When depression leads to less retirement savings

Psychological distress, which can manifest as anxiety and depression, affects whether and how much people save for retirement, according to a 2017 study by Vicki Bogan, associate professor with expertise in behavioral research at Cornell University, and Angela Fertig, economist and research investigator at Medica Research Institute.

The study concluded that mental distress can make a person up to 24% less likely to hold a retirement account and can gradually make them less willing to take risks with investments. These behaviors can result in less saved up. For context, growing retirement savings at a healthy clip relies on a balance between historically high-earning but volatile stocks and the more moderate returns of safer bonds and cash.

If you have trouble finding the motivation to care about long-term savings, consider these tactics:

  • Accept how you feel. This tends to be easier said than done, and it might be hard to lower expectations for yourself or your goals on a given day.

  • Break up a goal into smaller tasks. If you don’t have much saved and want to create a savings plan, a first step might be checking your account balances without letting dread take over.

  • Get help if you need it. A therapist can provide a safe space for you to work through challenges and develop strategies to confront unhealthy thought patterns and other issues. For severe depression, a therapist who’s a psychiatrist can prescribe medication if needed.

How to manage your emotions and money

If you’re feeling thrown off by the pandemic, unemployment or another crisis, navigating through this time can be tough. Some initial ways to work on self-care include meditating, exercising regularly and getting enough sleep. The Centers for Disease Control and Prevention recommends sleeping at least seven hours a day to feel rested, and this can reduce stress.

But if serious issues arise or persist, see a therapist or financial planner. Psychology Today maintains a nationwide database of therapists and teletherapy providers. And the CFP Board has a search tool to find a certified financial planner near you. There’s also a newer and smaller field that combines financial and mental health: financial therapy. (You can find a financial therapist here.)

“A financial therapist is comfortable talking about money, emotions and the intersection of those two,” Unverzagt says. Getting to the emotional root of your money behavior is a goal.

Whatever you decide to do, remember that it’s OK if you’re not always OK.

"Right now is a moment of survival, so we have to focus on our mental health,” McCoy says.

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