The connection between money and mental health: Why it matters more than you think

If you’ve ever stressed over a bill or felt guilty after making a purchase, you know firsthand how money impacts your mental health. You’re also not alone: According to a survey by Capital One and The Decision Lab, 77% of Americans feel anxious about their financial situation.

Unfortunately, money and mental health struggles are closely connected — in some cases, forming a cycle that can be hard to break.

With the arrival of May and Mental Health Awareness month, it’s worth taking a closer look at how money and mental health interact — and what steps you can take to improve your relationship with both.

How does money impact your mental health?

Financial problems are a common cause of stress, and the resulting shame and isolation many people feel only makes things worse. And if you have existing mental health struggles, financial challenges can compound them. A poll from the Money and Mental Health Policy Institute found that of those with existing mental health challenges, 39% said their financial situation made their mental health challenges worse.

Depression and anxiety as a result of financial challenges also have ripple effects across other areas of your life. For example:

Worries about meeting your financial obligations might keep you up at night, impacting your sleep.

Conflict involving money can lead to tension in relationships, and shame about your money situation may cause you to withdraw from friends and family.

Financial demands might make it harder to focus at work, potentially leading to burnout or a performance slump.

Read more: Behavioral Finance 101: 7 ways your brain can sabotage your finances

How mental health challenges affect money habits

While financial struggles can lead to mental health challenges, the opposite is also true. If you’re having a hard time with your mental health, your finances are more likely to suffer.

For instance, if you feel stressed or anxious, you might self-soothe with “retail therapy” while racking up high-interest credit card debt. Alternatively, overwhelm might lead to avoiding bills, making impulse purchases, or letting important financial tasks slip through the cracks.

The data support this phenomenon, too. The same poll from the Money and Mental Health Policy Institute found that 42% of people who felt mentally unwell put off paying bills, and 63% struggled to make financial decisions.

This is where that endless cycle comes into play. The more you struggle with your mental health, the more likely you are to face financial hardship or stress, which only exacerbates your mental health challenges.

Read more: Are you suffering from money dysmorphia? Here are the signs.

Positive money habits can improve your mental health

While the connection between money and mental health struggles is clear, it’s worth remembering the other side of the coin: If you can improve your financial situation, your mental health can benefit. For example:

When you have an emergency fund, you have the peace of mind that if something goes wrong, you can handle it.

When you have good credit, you can more easily qualify for a loan — giving you an extra layer of security if you need access to cash.

When you know where your money goes every month, you feel more in control and able to adapt your spending when needed.

But before you can work to improve your finances and mental health, you have to be able to notice when things are going wrong.

Read more: 5 psychological money hacks to cut spending and increase savings

Signs that money may be affecting your mental health negatively

Financial hardship doesn’t just impact your bank account; it can spill over into other areas of your life. But when you’re busy going through the motions of your daily routines, you may not notice right away when your mental health starts to suffer. It may require slowing down and taking a hard look at your behaviors, but becoming aware of these stressors is the first step toward healthier finances and mental well-being.

Here are some signs that money may be taking a toll on your mental health:

You worry about money on a regular basis. Maybe you compulsively check your bank account balance or wake up thinking about money.

You avoid money altogether. You might put off bills, ignore your bank balance, and shy away from any discussion of your financial situation because it feels too overwhelming.

You have a growing pile of impulse purchases. When you feel stressed or anxious, you may cope by spending money without much thought. You may have growing piles of debt as a result.

You struggle with guilt every time you spend. Regardless of your bank balance, financial stress can hijack your emotions. Even if you can afford a purchase, you might struggle to enjoy it.

Steps you can take to reduce money stress

Breaking out of a cycle of money and mental health challenges isn’t easy, but it’s not impossible, either. Here are some healthy ways you can start to cope with money stress:

Take stock of your finances: When you’re feeling anxious, avoidance is natural. But you might also find that after you shine a light on your numbers, things aren’t as scary as you thought. Start by looking at your bank accounts, credit card statements, debt balances, and bills to get some clarity on your situation.

Prioritize your biggest challenges: After looking at your finances, you may feel overwhelmed by the number of things that need your attention. But don’t try to do everything at once. Instead, focus on whatever is causing you the most stress and tackle that before moving on to anything else. For example, you might focus on getting current on your car payment before starting to save for your wedding.

Make a plan: Once you’ve prioritized your financial to-dos, you can start to take action. Got credit card debt? Start directing anything you can squeeze out of your budget toward paying it off. Are bills chronically late? Try putting them on autopay so you don’t have to think about it.

Build a financial cushion: Money may not buy happiness — but a study out of Australia found that a regular savings habit has a positive impact on mental health. If you’re short on savings, focus on building a financial buffer to reduce stress and give you some peace of mind.

Add friction to your spending habits: If you struggle with impulse spending, try adding friction when shopping. For example, if you can’t resist targeted ads on social media, limit your time online. Other ideas include unsubscribing from marketing emails and removing saved credit cards from online shopping sites.

Tend to your mental health: Because mental health struggles can make financial challenges even worse, taking care of yourself is key to reducing money stress. Simple strategies include prioritizing sleep, getting out for a daily walk, and connecting with loved ones.

Get support: If you’re struggling to address your finances, you don’t have to do it alone. There are plenty of financial professionals out there — including coaches, therapists, advisors, and nonprofit counselors — who can help. You may even have a loved one willing to offer some emotional support.

Read more: 4 signs it’s time to see a financial therapist

Remember, you don’t need to solve all of your financial and mental health problems at once. Even taking one small step can help you start building financial confidence and improve your mood. And once you gain a little positive momentum, the connection between finances and mental health will begin to work in your favor.