The Connection Between Your Money Habits and Financial Stress

This likely comes as no surprise, but Americans are stressed about money as a whole. According to a recent report by TIAA, 42% of adults in the U.S. reveal that money negatively impacts their mental health. Besides taking a mental toll, financial stress can also lead to a 34% increase in tardiness and absenteeism. Further, employees are five times more likely to be distracted by finances at the workplace.

Is money stress keeping you up at night? And are there some money habits you've developed that you'd like to change? If so, rest assured that the reason why we develop certain financial behaviors may not have as much to do with you as an individual. Rather, it could be linked to your money stressors.

With May being Mental Health Awareness Month, we'll unearth why we might develop our money habits, the connection between the two, and what you can do to improve your situation.

The link between money habits and stress

Money habits we're proud of are one thing – think saving for an emergency fund, examining our debt situation and staying on top of our repayment plan, planning for short and long-term goals, and making trade-offs in the present to reach those goals.

But money habits we're, well, less-than-proud of, such as overspending, gambling, avoiding looking at our bank statement balance, or not thinking about our financial situation altogether, might cause us to feel deep shame or feelings of "less-than."

Flipping the script

Here's the thing: You might think you're just "not great with money," or thoughts like "When am I going to learn how to be good with my finances?" might cross your mind. That said, what if you flipped the script. Instead, see it as a sign of stress.

When you're overwhelmed, stressed, or anxious about your finances – plus you're busy working, taking care of your family, and being in "survival mode," two things might come into play.

The first might be that you're operating in scarcity mode. And when you're in a scarcity mindset, you might be focused on the things you don't have. In turn, you'll have less bandwidth for other tasks. It can hinder your ability to pay attention – or think long-term.

A classic example? You must pack for a trip, but have a much smaller suitcase than you need. In turn, you spend a lot of time figuring out what you need to take with you on the trip. You get mental fatigue when having to make those trade-offs and tough decisions. If you had a larger suitcase, you wouldn't need to mull over every item you want to pack. In turn, you wouldn't deal with nearly as much brain drain.

Here's the second thing to consider: going on, say, mini-splurges when you know full well it's best to save that money or avoiding your finances altogether might be chalked up to self-soothing. In other words, acting in the moment to feel better in the short term. While it provides temporary relief, it can lead to long-term negative consequences.

For example: Let's say you've been pretty stressed and exhausted. You go on a mini shopping spree for clothes or gadgets. You know you shouldn't, but it feels good, almost like a release in the here and now. The price you pay? It drives up your credit card debt.

How to develop positive money habits

As you can see, there's no need to feel ashamed or that you're plain "bad" with money. It's important to recognize that sometimes, we aren't ideal with how we handle our finances due to external circumstances. We also want to take a step back and see how financial stress can impact our overall mental health, which can also lead to negative money habits.

While our money habits can be due partly to forces out of our control, there are steps we can take to change our outlook and improve our situation:

Journal. To understand where those feelings of shame, avoidance, or anxiety stem from, consider keeping a "money diary" and journaling about your general thoughts, concerns, and fears about money.

Spend time getting to the bottom of your money story, which is the beliefs, ideas, and emotions about your finances based on both your own experiences and observations. It might feel uncomfortable, but try to go back and go deep. Take time to fully explore your money story. You might discover connections between your financial past and how you were raised.

Schedule weekly money dates. When you're in survival mode, one of the most challenging things to do is make time—and set aside energy—to focus on your finances. It doesn't have to be extensive. Start with even 15 or 30 minutes. If you have a partner you share financial responsibilities with, see about working together on this. The important thing is to stay consistent.

Not sure where to begin? Check out the eight areas of financial health. Do any of them seem particularly pressing? If so, begin with that one.

For example, if your budget needs a makeover, consider reviewing your bank and credit card statements to see where your money is going. If you already have a budget, go over each expense, line by line, to see what needs to be updated.

Partner with an accountability buddy. An accountability buddy can help you stay on track with your goals and provide the encouragement and motivation you need when you've hit a wall or are feeling discouraged.

If you have specific check-ins with a partner, the odds of reaching your goals spike to 95%. These don't have to be long or extensive check-ins. You can schedule a short weekly check-in or text them daily with your progress.

If you'd like to track your progress on saving for an emergency fund or paying down debt on your own, you can look at habit-tracking apps like Habitica, Streaks or StickK. You can use those insights to update your progress and share your wins and failures with accountability partners.

Look for low-cost or free financial coaching. Money coaching and counseling may seem like they are only available when one has money to spare, but that isn't always the case.

You might find that your employer offers free financial coaching through its benefits program. Suppose you're looking for pro bono financial planning. In that case, you can search on websites like the Foundation for Financial Planning, which has a directory of nonprofits that offer pro bono financial planning. Women's Money Matters offers free mentoring programs and financial workshops for women.

Building forward, step by step

While it's important to recognize that your money habits can be due to stress, you'll want to do all you can to improve your finances. By recognizing your situation, you can take baby steps to take control and feel empowered.

About the author

A personal finance writer for over 8 years, Jackie Lam covers money management, lending, insurance, investing, and banking, and personal stories. An AFC® accredited financial coach, she is passionate about helping freelance creatives design money systems on irregular income, gain greater awareness of their money narratives, and overcome mental and emotional blocks.

Her work has appeared in publications such as Bankrate, Time's NextAdvisor, CNET, Forbes, Salon.com, and BuzzFeed. She is the 2022 recipient of Money Management International's Financial Literacy and Education in Communities (FLEC) Award, and a two-time Plutus Awards nominee for Best Freelancer in Personal Finance Media. She lives in Los Angeles where she spends her free time swimming, drumming, and daydreaming about stickers.

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