How to maintain your “financial mental health” as the cost of living crisis continues

Article written by Kellands Hale, our preferred independent advice firm.

This article is not intended to be financial advice to any individual. The views expressed are those of the author and Moneyfactscompare.co.uk does not endorse the content.

If you’ve turned on the TV news in recent months, it’s likely you will have seen a series of worrying economic headlines.

Whether it’s interest rates rising six times since December 2021, or inflation hitting a 40-year high of 10.1%, you may have become increasingly concerned about the state of your own household finances.

Indeed, a recent survey by Mintago, a fintech company, found that almost two-thirds of workers have seen their financial situation deteriorate since the start of 2022.

More worryingly, almost a third of employees are struggling to complete day-to-day tasks because they are worried about their financial situation.

This data underlines the well-established connection between your financial wellbeing and your mental health. In fact, more than half of UK adults say that their finances are now the greatest cause of stress in their lives, according to the same survey.

Worries about your finances can have an impact on your wider mental health. Plus, deteriorating mental health can lead you to make poor money decisions, potentially creating a circular problem.

According to a recent survey from the Office for National Statistics, more than three-quarters of Brits are worried about the cost of living crisis and how it is affecting their life. Furthermore, half of the adults who are very worried about the rising costs of living felt those worries nearly every day.

It’s important to mention here that it is perfectly normal to worry about money. In fact, a financial wellbeing report by insurer Aegon found that more than half of average earners and more than one in three top earners worry about money.

Additionally, being better off does not necessarily mean you will have fewer financial concerns.

Research published by Hargreaves Lansdown, produced with Oxford Economics, suggests that higher earners may be less resilient to the cost of living crisis than other groups, partly because they are more likely to have borrowed more than those on lower incomes. They are also more likely to have borrowed at a higher percentage of their income.

If you’re a higher earner, you’re also more than twice as likely to have variable-rate debts as those earning less. In an environment of rising rates – the base rate has increased six times since December 2021 – your costs will increase.

Acknowledging that you may still have genuine and real concerns about your finances is a good first step to take.

If you have a large mortgage – especially if it’s on a tracker or variable rate – and you’re paying for things like school or university fees, care costs for a relative, or simply higher prices at the pump or for your weekly shop, your finances are likely to be squeezed.

Throw in the fact that your pensions and investments may be experiencing volatility, and it’s easy to see why you might be worried.

So, here are three ways that you can boost your financial mental health during this uncertain period.

The chances are that, over the course of your life, you’ll face some or all of the following:

• Financial crises – even over the last quarter century we’ve seen uncertainty stemming from the bursting of the dot-com bubble, the global financial crisis, and the Covid-19 pandemic
• Economic crises – there have been four recessions in the UK since 1980
• Personal crises – these can include redundancy, ill health, accidents, and divorce.

The one thing that is certain is that there will be periods of uncertainty. However, they don’t last forever, and the good times often last longer than the bad.

Data from Vanguard, an investment management company, shows that the average bear market – which is a market decline of 20% from a previous peak – tends to last just over one year. Bull markets – where prices are rising – last an average of almost 6 years.

The Aegon research found that around half of people would be unable to support themselves for more than three months using their savings.

While having money doesn’t necessarily improve your wellbeing in itself, building a safety net can give you the peace of mind that you could ride out any tricky periods if they were to happen.

There are two simple ways to create this safety net.

Try to save three- to six-months’ income in an easy access savings account. Doing this can ensure you have money you can access in a real emergency – ill health, job loss and so on – and that you don’t have to rely on expensive debt in a pinch.

Protecting your health, income, and even your life can give you the reassurance that you’d receive financial support if the worst happened.

For example, if you were diagnosed with a serious illness, having the right protection in place might provide a tax-free lump sum you could use to replace income or to repay debts like your mortgage.

Your Kellands financial planner can help you to build a safety net that will give you and your family genuine peace of mind.

Interestingly, Aegon say that having a clearer idea of what you would like to achieve in the future can improve your financial wellbeing.

 “When we have a concrete picture of our future self, it becomes easier to make long-term plans and stick to them,” its research said.

For example, if there’s something you really want to achieve, like retiring early, you’re probably more likely to consider saving than spending.

Focusing on the specifics – the why – can give you more focus and make it more likely you’ll achieve your goals. It can also improve the financial decisions you make both now and in the future.

If you’re worried about the current economic situation, and you’d like to build a robust plan that can boost your financial mental health, please get in touch.

Email us at hale@kelland.co.uk, call 0161 929 8838, or click here.

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only. © Kellands (Hale) Limited is authorised and regulated by the Financial Conduct Authority. FCA Firm Reference No. 193498