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Our finances have more control over our mental well-being than we may realize. Through our experience over the last 20 years increasing the financial well-being of Canadians through education and planning, we’ve found that money is often tied to our view of happiness, success, and security.

According to the 2021 Financial Stress Index[1]:

Money is the No. 1 source of stress for Canadians.

Financial stress can significantly affect our health in multiple ways:

  • 51% of Canadians report they’ve lost sleep over financial worries;
  • 31% say financial stress has led to health issues; and
  • 7% link stress about money to substance abuse or mental health challenges.

However, there is hope. One group was less likely to report money as their top stressor, as well as associated negative health effects, AND were more hopeful about their financial future. This group is Canadians who work with a professional financial planner.

Can More Money Make Us Happier?

Money contributes to happiness when it helps us meet basic needs, but above a certain level, more money doesn’t actually yield more happiness according to a classic Princeton University study[2]. The data shows that happiness increases with income up to $75,000 per year. However, beyond this point, the correlation between salary and happiness decreased. Factoring inflation over the past 12 years, that amount in 2022, would be approximately $93,000.

Why is that? Well-being isn’t linked to financial abundance; it’s linked to financial control.

“The power of money to affect wellbeing lies in its capacity to alleviate stress and create an environment for happiness.” [3]

At a certain income level, we develop a sense of financial control, so any additional earnings have no effect.

How Can We Enhance Our Financial Control?

How we think and feel about money can affect our willingness to take control. If you feel negatively towards money, try to change your perspective by thinking of money as a tool. Just like a hammer, it can be used for good—such as building a house, or for bad—as a weapon, but WE get to decide the impact it has.

To take control and enhance your financial wellbeing, work on developing the following habits:

  • 1. Create and update an integrated financial plan every year

    Imagine building a home without the blueprints. Unfortunately, when it comes to finances, the majority of Canadians do not have a financial plan to lay out the blueprints to reach their financial goals.

    Make a commitment to create or update your financial plan to make sure that your financial planner, accountant, lawyer and bankers are all on the same page and have a vision of what you would like your financial house to look like.

  • 2. Use a 50/30/20 spending plan framework

    Creating and sticking to a spending plan empowers you by increasing your awareness of where your money goes each month. Even with a lower income, people can increase well-being as long as they feel in control of how they spend their earnings.[3]

    We recommend dividing your spending plan into 3 parts:

    • Must Have’s: Allocate 50% of your after-tax income towards essentials you cannot live without such as rent or mortgage, food, and basic transportation.
    • Nice To Have’s: Spend 30% on items that increase your happiness such as eating out, travel, leisure, or luxury goods.
    • Financial Goals: Save at least 20% for your emergency fund, investments, contributing to your TFSA and/or RRSP, and paying off debt.

    Make saving and investing automatic by setting up regular monthly contributions. This gives you more control over your finances and will help you reach your goals sooner.

    It’s reasonable to feel stressed when it comes to debt but remember:

    There’s a difference between good and bad debt.

    Good debt leads to possibilities! Borrowing money to advance your career through education or starting a business, or investing in appreciating assets such as a home or stocks can help you create passive income sources in the future.

    Whereas bad debt—borrowing money to buy depreciating items such as cars or clothes—can accumulate interest making it harder to pay back. Speak to a trusted advisor to develop a game plan to pay off your debt.

  • 3. Build in income protection for the unknown unknowns

    Being prepared for unforeseen income loss is essential in enhancing financial wellbeing in light of all that is going on in our world today. When thinking of the future, we may be concerned about being afflicted with a life-threatening illness, outliving our savings, or dying too soon.

    We encourage you to inspect what you expect from your families’ disability insurance, critical illness insurance, and life insurance policies this year. Know what you currently own and address any gaps in coverage. Be sure to review both the policies available through your employer, as well as the ones you own personally. Ask your HR manager and/or financial advisor how the pandemic has changed or impacted your policies.

If you’re feeling like you need to take better control of your finances, let’s talk.

You now know that you can harness the power of money to alleviate stress and give way to happiness. It’s worth taking a few simple steps towards wise money management in order to make a big impact on your mental wellness.

[1] FP Canada. 2021 Financial Stress Index. 

[2] Kahneman, D. & Deaton, A. (2010). Does Money Buy Happiness? A Brief Summary of “High Income Improves Evaluation of Life But Not Emotional Well Being”. Princeton University.

[3] Australian Unity. (2015). What Makes Us Happy? 3rd Edition.

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