The old adage goes: “Money can’t buy happiness.” That may well be true, but statistics show that a lack of money is one of the leading causes of unhappiness. 

According to the Money and Mental Health Policy Institute, a UK charity, credible research shows that those with depression paired with problem debt (meaning debt that they cannot afford) are over 4x more likely to remain depressed after 18 months, compared to those without debt. The institute also says that 46% of those in problem debt have a mental health condition, compared with just 14% in the general population. Systemic reviews of statistics have shown time and again that there is a causal relationship between financial stress and depression and anxiety, and that this influence cuts across income levels, ages, and nationalities. 

It’s not good for our mental health to be in financial trouble. And while wellness and motivational gurus tend to harp on the role of “mindsets” in determining our happiness and our financial futures, the evidence is overwhelming that our finances largely determine our capacity to be happy. This is not to say that money is the only thing that keeps us all from being miserable. Not at all. But it’s contrary to the evidence to argue that money problems don’t have the capacity to seriously undermine our mental health.

And that’s not good news, considering that even in many developed economies like the UK and the US, a shocking percentage of households live paycheck to paycheck, unable to absorb even a minor financial shock. Some sources claim up to a third of households live in exactly those circumstances. With technological and economic redundancies rising, wages failing to keep up with inflation, and housing prices higher than ever before, now is not a good time for our collective mental wellness. For many reasons, the 2020s are an age of anxiety.

In this post, we’re going to talk about how money impacts your mental health, and share a few strategies for dealing with both money problems and money worries.

The Role of Money in Your Mental Health

You’ve probably heard the saying: “poverty is a great motivator.” Although there has been some recent research suggesting that poverty doesn’t always adversely affect our decision making, in our experience, poverty is rarely truly motivating. It’s much more the sort of thing that privileged people are likely to say, as a way of passing judgement on those who have less than they do. 

The Research

Recent research is mixed as to whether financial insecurity is actively harmful to our ability to plan for the future and make sound financial judgements. Some, as in the above study from the American Psychological Association, have found that people under moderate financial strain are as likely to make rational short and medium term decisions as college students who are under little strain. 

Others, like Nest Insight, a public-benefit research group, have found that people in “precarious work” (gig and social economy jobs, childcare, or migrant workers), often have trouble thinking long-term. Nest found that an effect they call “time horizon compression” occurs when people are chronically financially insecure. Planning for the far future or retirement feels completely irrelevant or simply impossible, and so people don’t think about it. 

Poverty is no motivator

Perhaps you’ve met someone who has told you: “I don’t think about retirement, because I probably will never be able to stop working.” You may even have thought this yourself. There’s no shame in that. Even if you are motivated to think long term, regardless of financial worries, there is little to no research suggesting that poverty or insecurity enhances our judgement or reliably motivates us to improve our lives. What may be true for a select few highly motivated people, is obviously not going to be true for most of us. If it were that easy, everyone would do it! 

So with the knowledge that poverty doesn’t necessarily make us smarter or more motivated about the future, but lack of money doesn’t make us incapable of thinking or planning either, let’s talk about what you can do to make sure you are being as motivated as you can be, thinking as long-term as you are able to, and that you are giving yourself the best chance possible at a happy life, regardless of how your financial situation looks today. 

Guilt-Free Spending Fund

Create a small, dedicated budget each month just for guilt-free spending. Think of it as an emotional safety valve. Whether it’s a cup of specialty coffee, a streaming subscription, or a pair of sneakers, this fund lets you indulge without derailing your overall plan. Guilt-free spending is as important to your mental health as your emergency savings or spending on basic necessities. Perhaps even more so, because without a guilt-free fund, you’re less likely to stick to whatever savings goals you set for yourself. 

To set it up:

• Decide on a fixed amount or percentage of your income. 5-10% is a good starting point. Obviously those with higher incomes can go for a smaller fund. 
• Automate a transfer into a separate account, such as a Revolut, Paypal, or N26 account.
• Track your balance like any other category to ensure you stay within limits.

Track Emotional Spending

Emotional spending often happens on autopilot when we feel stressed, bored, or down. Catching it early can save both your mood and your bank balance.  

How to get started:

• Label purchases in Wallet as “stress,” “celebration,” or “boredom.” This can help you see how much money you spend each week or month on an emotional basis.
• Based on these patterns, consider either increasing your “Guilt-Free” budget category, or else address the emotional triggers that are causing you to overspend. Consider what might help you avoid making those purchases.
• If certain types of spending occur because of boredom or routine, consider changing your routines. For example, if you tend to spend money on the way home from work, consider taking a different route, or changing your shopping routine. If you go to the grocery store while stressed or hungry, think about meditation or having a light meal first.
• When you notice a spike in stress-driven buys, pause before your next purchase—try a five-minute breathing exercise. 

Declutter Your Finances

Just as a tidy home eases the mind, streamlined finances reduce anxiety. Cluttered accounts, overlapping subscriptions, and scattered statements make it hard to see the big picture—and easier to miss warning signs.  

Steps to simplify:

• Consolidate checking or savings accounts where possible. Make sure all your financial accounts are connected and synced with Wallet by BudgetBakers. A Lifetime Premium account is the best value.
•  Use a subscription tracking service to cancel unwanted subscriptions. Services like N26 or Revolut allow you to do this without having to log in or call these services in advance.
• Archive or digitize old statements so you only see the active, relevant accounts on your dashboard.

Mental Health Value (MHV)

Assigning a Mental Health Value to each expense can shift your mindset from cost-cutting to value-maximizing. For every purchase, ask: “On a scale of 1 to 10, how much did this improve my well-being?”  

Implementing MHV:

1. Create a custom category in Wallet called MHV.

2. Record your well-being rating immediately after each purchase using the Notes feature. Try to do this before you forget. You can always amend the rating later. Use a scale of 1-5, just like you would for an Airbnb or an Uber. 5 stars is perfect, 1 star is terrible. 

3. At month’s end, total your MHV points alongside your spending. Multiply all your purchases by 5, and then divide this number by the total of MHV points you’ve awarded. Then multiply that number by 100. This should give you the MHV value of all your purchases as a percentage. For example: 

If I make 15 purchases, and I award a total of 63 MHV points, then I do the following: 

[63 / (15×5)] x 100 = 84%

Anything above about 80% is a pretty good MHV. Anything under about 65% is not great. You can also break your purchases down by spending category, to get the MHV of all your purchases as separate categories. Try to figure out why your MHV figures are lower or higher for different categories, and see if you can adjust your spending to enhance your MHV. 

Establish Finance Rituals

Rituals turn one-off tasks into sustainable habits. Carving out dedicated time for financial check-ins and planning boosts your long-term motivation and keeps stress at bay. It also gives you the space to not think about your finances when you’re not supposed to. Setting calendar events to go over your finances regularly can help you destress your other activities. Planning and creating budgets can also reduce the cognitive and emotional load you may experience while making day-to-day spending decisions. 

Try these rituals:

•  A “Money Sunday” fifteen-minute review: pay bills, reconcile balances, adjust budgets.
• A quarterly “Future Self” meeting: project your next six months of goals, savings milestones, and big-ticket purchases.
• A monthly mood meter: rate and journal your financial confidence, then adjust your strategies based on what you learn.

When you blend structure with self-compassion, finances stop feeling like a burden and start feeling like a tool for a happier life. Track your emotions, give yourself permission to enjoy small treats, and build rituals that keep you engaged. Over time, these practices will not only improve your bottom line, but also strengthen your mental resilience—no matter what the world throws at your wallet.