5 ways financial planning can improve your mental health

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Sunday 10 October 2021 is World Mental Health Day. Recognised by the World Health Organization, it’s an international day focused on raising awareness of mental health issues. It also encourages people to take steps to improve their mental wellbeing.

We looked at the subject of financial wellbeing in a previous article. As financial planners, we are strongly aware that issues around money can be a key contributory factor to your mental health.

For example:

  • If you’re feeling anxious, you may lack the motivation to manage your finances effectively.
  • As a way of avoiding potential bad news, you may avoid facing up to financial problems. This can lead to bills mounting up and problems spiralling.
  • If you’re feeling depressed, “retail therapy” may help improve your mood in the short term but could easily result in you spending money you can’t afford.

Getting your finances under control can be one of the best ways of improving your mental health. Here are five steps you can take.

1. Manage your day-to-day finances

Understanding how much you spend each month is an essential step towards getting your finances under control, and therefore removing a key source of anxiety.

If you’re spending more than you earn, you’re likely to be using unsecured borrowing to cover the shortfall. This can easily snowball, and your debts increase because of the high interest rates charged on credit cards.

Put together a simple spreadsheet that lists your regular monthly outgoings. Then list all your monthly income. This will mainly consist of your salary but could also include pension or investment income.

Once you’ve done that, you’ll have a good idea of your monthly disposable income.

2. Have an emergency fund

Another common cause of stress and anxiety are “what if?” scenarios. These will usually be unexpected events creating a financial problem that result in you having to find money quickly to solve them.

It’s therefore good financial practice to ensure you have an emergency fund in place to deal with such events.

As a rough rule of thumb, your emergency fund should total three months net income. Set aside, it will remove a common cause of worry.

3. Protect your loved ones

You can’t always deal with a “what if?” scenario from an emergency fund. One of the most worrying situations is you being unable to provide for your family.

There are some simple steps you can take to address this concern and put your mind at rest.

Life insurance

The idea of considering your own mortality is always difficult, but it’s important to ensure your family are financially secure in the event of your death.

It will be a stressful time for them, so a simple life insurance will give you the comfort of knowing that you’ve made arrangements to give them one less thing to be concerned about.

Make a will

The next step you should take is to ensure that, when you pass on, your assets are distributed promptly and following your wishes. Both you and your spouse and partner should make a will, and these should be reviewed and updated as your circumstances change.

It’s one of the most straightforward financial processes, yet a survey by Canada Life showed that 59% of people don’t currently have a will in place.

Income protection

The final step to help reduce your anxiety around protecting your loved ones, and your lifestyle, is income protection.

This will ensure that, in the event of you being incapacitated and unable to work for an extended period, you’ll receive a regular income so that much of your day-to-day spending is covered.

4. Put a plan in place to clear unsecured debt

Debt can be a big cause of stress and anxiety. If you’ve got high-interest unsecured debt like credit cards or bank overdrafts, now’s the time to put a serious debt repayment plan in place, and to stick to it.

Start by clearing the debt on which you’re paying the highest interest rate and work through your debts one by one until you clear them.

Just the process of facing up to your situation and putting a plan in place can be a big boost to your financial and mental wellbeing.

5. Make plans for your long-term future

As well as protecting your loved ones and reducing your debt, you can also improve your mental health if you know you’re actively planning for your future.

Having a clear idea of your future plans can help put your mind at rest, and give you the confidence that you’re on the right track.

Possibly the biggest future event you’ll face is your retirement, so it makes sense to plan for this. Stopping work may seem a long way off, but it’s never too soon to start taking steps to ensure you’ll enjoy a comfortable retirement.

One good starting point is to ask yourself three questions:

  • When do I want to retire?
  • What do I plan to do once I’ve stopped working?
  • How much will it cost to maintain the lifestyle I want?

Once your plan is in place, you’ll need to review it as your circumstances change. It’s good financial practice and gives you regular reassurance that you’re in control.

Working with a financial planner can really help here, as they will review your plan regularly and help you keep on track.

Get in touch

A 2020 report by Royal London revealed that people who work with a financial planner felt more confident and more in control of their money. To find out how we can support your mental wellbeing, please get in touch.

Email enquiries@blackswanfp.co.uk or contact your adviser on 020 3828 8100.


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