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6 Small Ways to Make a Big Difference to Your Finances (and Improve Your Mental Health, Too)

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If you have started to notice that money matters are affecting your mental health, you are certainly not alone. According to recent surveys, money-related stress levels have reached a 7-year high in 2022, and over 72% of Americans now report feeling anxious about their finances.

But there are many strategies you can use to prevent money matters from dominating your life. The easy tips below can help you gain control over your situation and get back on track to reach your financial goals.

Take a hard look at your spending habits

The first step to take to improve your financial situation is to be clear on where you stand. 

Today, around 64% of Americans live paycheck-to-paycheck or beyond their means, making it harder to save, pay down debt, or build a retirement fund. What’s more, around 40% of individuals with an annual income above $100,000 are only a paycheck away from poverty, while 12% of them struggle to pay their bills. 

So, while earning more might help you in the short term, the only way to radically transform your financial situation is to address the spending habits (such as buying take-out coffee, eating out often, or buying unnecessary items) that are currently draining your funds. 

Switch to a better credit card (and learn how to use it properly)

Credit cards are a double-edged sword. Using yours wisely might translate into a higher credit score and unparalleled rewards. However, Americans today deal with an average credit card debt of nearly $6,200 and interest rates as high as 15%–19%. 

If your credit card isn’t serving your financial goals, consider seeking a different provider. For example, getting a new credit card approval is a great way to access lower interest rates, sign-up bonuses, better rewards, and cashback offers. What’s more, today’s credit card providers provide users with budgeting tools such as spending trackers, virtual piggy banks, and round-up tools. 

Pro tip: avoid worsening your credit card debt or running into fees by setting up automatic repayments and payments for monthly bills.

Start paying down your debt

A FINRA study shows that high debt, insufficient income, and low financial literacy are among the major stressors for those dealing with financial anxiety. But while a debt-free life isn’t a realistic goal for many Americans, there is a lot that you can do to start paying down debt and feel more in control of your finances. 

Some tips to better manage debt include:

  • Start by repaying high-interest loans.
  • Consider consolidating your credit card debt.
  • Refinance your home to take advantage of lower (or higher) monthly mortgage payments and better interest rates.
  • Pay back more than the minimum each month.

Create a budget and stick to it

Only under a third of Americans prepare a household budget each month. However, a budgeting plan might be your best tool to reduce unnecessary expenses and devolve a portion of your income into savings or investments. 

If you don’t have the time or patience to spend hours crafting a detailed budget, don’t worry! Strategies such as the 50/30/20 rule allow you to effectively manage your money by dividing your after-tax income into three main spending categories: needs, wants, and savings (or investing).

Save for emergencies and retirement 

Among those dealing with financial concerns, 40% are significantly worried about not having enough for retirement. If you are concerned about supporting yourself and your family after retiring, today is the best time to start saving for it.

Consider opening an individual retirement account (IRA) and building your emergency fund to cover at least three months’ worth of expenses. 

Don’t be afraid to ask for help

While finances should be an important aspect of everyone’s life, money matters can affect your mental health in several ways and end up dominating your life. If you have not been able to stop thinking about your financial problems, consider asking for help. 

Partnering with an experienced financial advisor and a therapist might be the best investment you’ll make to gain financial freedom.

Helen Baumeister did her degree in psychology at the University of Hertfordshire. She is interested in mental health, wellness, and lifestyle.

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