A red flag that indicates you may have money dysmorphia, according to a financial therapist, is No. 1.

While some people may feel anxious about their finances, money dysmorphia is a more extreme condition.

If you're constantly worried about your finances, regardless of your actual bank balance, it may indicate that you're struggling with it, according to Aja Evans, a financial therapist and author of "Feel Good Finance."

She explains to CNBC Make It that money dysmorphia is the sensation of believing your financial situation is different from the objective reality.

If your distorted perception of your finances disrupts your day-to-day life, it's a red flag, says Evans.

According to Evans, spending time with friends or engaging in enjoyable activities is crucial for maintaining good mental health, and prolonged isolation can result in negative and distorted thoughts about one's financial situation.

How to combat money dysmorphia

Identify your internal beliefs about money and their sources, advises Evans.

Here are a few questions to ask yourself:

• Have I gone without in the past?
• Have I overspent and put myself in a precarious financial position before?
• Do I not trust myself with money?

By answering these questions, you can gain insight into the emotions behind your current money habits.

Evans advises grounding oneself in the reality of their financial situation.

"To comprehend your financial situation, examine your income and expenses, and determine what you must do to meet your basic requirements. Afterward, consider how you can achieve some additional funds."

One widely used approach to beginning is the 50/30/20 rule. Following this method, you allocate 50% of your income for essentials like housing, food, and transportation, 30% for discretionary spending like shopping or entertainment, and the remaining 20% towards your emergency fund and retirement savings.

Understanding how your money is being spent can help you have a more accurate perception of your financial situation, according to Evans.

"By anchoring yourself in your financial facts, you can break free from old habits and replace them with more advantageous ones."

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