How to Cut Down on Financial Anxiety, No Matter Your Situation

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For millions, these are tough financial times. Here are a few steps that can help calm financial stress.

In January, shortly before we collectively learned of COVID-19, Capital One conducted a survey. The survey found that 77% of Americans are anxious about their finances. Further, 58% feel as though they are controlled by finances. We have yet to measure the financial anxiety born of dealing with a global pandemic or fully understand how our mental health will be impacted by such a turbulent year. Money stress is a reality in the best of times. What we're dealing with now is a deeper distress than what most of us have ever experienced.

Financial anxiety can make you sick and rob your life of joy. We can't control everything in our lives, but we can cut down on financial stress and learn to control our money rather than allow it to control us.

Before we go any further, let's look at what anxiety does to us, physically, emotionally, and mentally. While this list is not exhaustive, it touches on some of the ways financial anxiety impacts us. According to experts, financial anxiety (and related stress) can:

  • Change the brain, causing memory issues
  • Promote inflammation, which adversely impacts heart health
  • Increase heart rate and blood pressure
  • Weaken the immune system
  • Lead to high blood sugar
  • Cause tension and migraine headaches
  • Lead to digestive issues
  • Worsen mental health conditions

This is an abbreviated list of the impact anxiety has on our bodies. Perhaps of more immediate concern is how financial anxiety is affecting your mental health, relationships, and ability to plan for the future. If your money situation is causing you financial stress, here are three actions that can help.

Focus on debt-to-income ratio (DTI)

You've probably heard about the evils of debt a thousand times in your life, and debt truly is awful -- if you're in too deep. What we recommend you focus on is how much debt you're carrying, and here's why: It doesn't matter how much you earn, as long as you live below your means. One of the surest ways to alleviate financial stress is to bring in more money than you spend. You can change your entire financial situation by allowing DTI to guide your financial decisions.

Here's how to figure out your DTI. Add up all your monthly payments, including rent, car, credit card debt, and other loans. Once you come up with a number, divide it by how much money you earn each month. For example:

  • Rent + car + credit card debt + personal loan = $2,750
  • Monthly income = $6,000
  • $2,750 ÷ $6,000 = 0.45, or 45%

If these were your numbers, it would mean that 45% of your gross income (before taxes) is already spent before your paycheck makes it into your bank account. To give you a better sense of what a healthy DTI looks like, most lenders do not want total DTI to exceed 36%. Anything higher makes them worry that you're carrying too much debt, and any additional spending will make it impossible for you to cover all your bills.

More importantly, the higher your DTI, the more financial distress you are likely to experience. Money anxiety begins with worrying about whether you have enough to cover all your obligations. No matter how much you earn, your financial goal should be to keep your DTI as low as possible.

If your DTI is too high for comfort, you can lower it by paying off existing debt, saving money for the things you want in the future, and avoiding debt whenever possible. No, it's not easy, but the number of financial problems a low DTI will help you avoid makes it worth the trouble.

Make financial planning a priority, but not an obsession

If, like many of us, you obsess over your financial situation and spend hours dealing with money worries, you may be making the situation more difficult. Create a budget that helps you see at a glance what's been paid, what needs to be paid, and where you can find extra funds to rid yourself of any debt that's driving your DTI up.

If your financial situation is wearing you down, lean on your financial advisor if you have one. Let them know your concerns and come up with a financial plan that addresses those concerns. If you don't have a financial advisor, consider hiring one, even if it's someone who charges an hourly fee to help with financial planning. If your problem is debt, work with a non-profit debt agency. The National Foundation for Credit Counseling (NFCC) can help you find an agency in your area. Before you begin any debt relief program, make sure you understand how they work, and any impact a program may have on your credit score.

It is important to address financial concerns, but seek help from an unemotional third party if doing it all yourself causes you more anxiety.

Prepare for rough financial waters

None of us can predict the future, but we can be sure things will go wrong. Cars need repair, roofs blow off houses, and pets need emergency surgery. Money anxiety is frequently tied to everyday occurrences. You can soften these blows and cut down on financial stress by building an emergency fund big enough to cover unexpected expenses and carry you through a rainy day. Just knowing you have an emergency fund ready to go can be enough to alleviate money stress and make you feel financially confident.

Take care of yourself

It may sound trite, but you have it within you to counteract financial anxiety. When money stress threatens to take over, exercise, meditate, call a friend, watch a comedy, create art, or do something else that brings you joy. Be kind to yourself in these tough times. Know that anything that's going on today will not last forever. Money issues can be addressed in an organized, systematic way. What's most important is your physical and mental health.

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