How to Prevent Your Money Mindset from Holding You Back
Managing your finances may seem like a simple matter of the numbers in your bank account. But I’ll let you in on a little secret: to successfully manage your money has almost nothing to do with numbers. It has almost everything to do with your money mindset.
When you think about it, managing your money should be as simple as spending less and earning more. Yet so many of us struggle every day to make wise financial choices. Why? Because money mindset issues are holding us back.
Your money mindset is the culmination of all the thoughts, experiences, and beliefs you have around money. Your upbringing, culture, family, and friends have all helped shape your unique money mindset in ways you’ll never fully realize.
While there is no magic remedy to overcome your money mindset issues with a snap of a finger, there are things you can do to maximize on the benefits of your money mindset, which can then help you make better financial decisions.
Before you can get to work on maximizing the bright spots, you'll first need to understand which money mindset you have. Then you can get to work on using it to your advantage. Here are five money mindsets, the issues that can come with them, and how you can work to overcome them.
The Five Money Mindset Issues that Could Hold You Back
1. Feeling Like There’s Never Enough
Do you always feel like you're behind on your finances? Does the thought of spending your hard-earned money make you cringe?
If you said yes to these questions, you may be suffering from a scarcity mindset. In a scarcity mindset, the fear of never having enough can rule your entire life - financial and otherwise. In some ways, this can make you a better saver since you may be more mindful of preparing for emergencies and for the future. However, it doesn't take much for this type of money mindset to morph into an unhealthy relationship with money.
When we think in the scarcity mindset, we want to do all we can to pinch pennies. Unfortunately, this can sometimes cost us more in the long run. (Ever hear the phrase, "penny wise and pound foolish"?) If you have this mindset, it's important to balance out the idea of saving today while still making decisions that will be good for you tomorrow.
A few years ago, I tried to cut corners on costs by choosing to go without health insurance. This decision ended up backfiring when I became ill. I have countless other stories of trying to save a few dollars or pennies that ending up costing me more in the long run.
The problem with the scarcity mindset is that it’s a trap. It makes you feel like there’s never enough money and creates in you a fear of change. For example, you might succumb to growing stagnant in your career because changing jobs or careers seems like too much of a risk. Or you may make lifestyle choices that don't fulfill you, causing resentment and frustration to grow over time. All of these things add up to a much larger cost than what can be counted in dollars and cents. That's why it's so important to take control of a scarcity mindset before it takes control of you.
Tip: Beat the scarcity mindset by focusing on what you have. Every day, write down three things you are grateful for, such as your apartment, a hot cup of coffee, and your health. Acknowledging what you do have instead of focusing on what you don't can help you shift out of the scarcity mindset.
2. Investing is Scary, So Why Bother
Real talk. I’m 31-years-old and just started investing. Part of that is because I focused exclusively on paying off my $81,000 in student loan debt first, but a big reason is that I simply thought investing was too scary.
Much of my fear of investing came from the Great Recession - and I'm not the only one who feels that way. According to a survey done by investing app Stash, 76% of millennial women found investing confusing and unrelatable. Overall, 60% of the survey respondents equated investing with “old, white men.”
Let’s face it, investing doesn't always feel relatable to us, so we don't bother. But investing is the key to beating inflation and building wealth. If investing feels scary to you, start small and get help.
You don't have to put your entire life savings into investments (in fact, you shouldn't). Instead, start with a small amount of money that you can afford to have locked away for awhile. As time goes on, expand on your knowledge and experience and find the right investing practices for you.
Tip: Realize that investing does contain some level of risk, but that doesn’t mean you shouldn’t do it. If you’re unsure of how to get started, consider an online robo-advisor like Betterment, which typically has low fees and can automate your investing. Once you get comfortable with this, you can start expanding your knowledge and looking for the best ways for you to invest.
3. I can’t afford to save
Many people live paycheck to paycheck. But, with no savings cushion, it only takes one unexpected event to end up in debt. Even still, many people don't save anyway because they think they simply can't afford it.
Living without savings is like building a house of cards. It only takes one gust of wind to blow the entire thing down. While it can be difficult to find money leftover to save after paying for rent, food, insurance, and bills, it's imperative that you try. Living in an "I can't afford to save" mindset and lifestyle will keep you on the perpetual brink of debt.
Savings isn't just about preparing for the future, it's about having fun too. We all should have a "fun fund" to dedicate to vacations, goals, and other dreams. Whether you make $30,000 or $300,000 per year, you should save something.
Tip: Start by automatically transferring 10% of each paycheck into a savings account (try a high-yield savings account so you can earn even more off of your savings). If that sounds too daunting, start at 1% just to form the habit. By automatically transferring the money, you’ll hardly miss it. Soon you will see that you can afford to save and you can steadily increase the percentage as your income grows (or if you find ways to cut down on expenses).
4. I’ll never be wealthy
When it comes to accumulating wealth, many of us think it is simply out of reach. We think that only certain types of people can become rich, but never us.
This type of money mindset can seriously set you back. If you don't believe something could happen, you'll certainly never try to achieve it. The first step to overcoming this is to understand that wealth can happen for anyone willing to work hard for it and strategically set plans to make it happen.
Sometimes, instead of strategically focusing on building wealth, we either think it’s not in the cards for us or we look to some pie in the sky opportunity to be rich that will probably never happen. Both of these trains of thought lead nowhere. Instead, understand that a sustainable strategy and consistent growth are the keys to building wealth for anyone, regardless of their income.
Tip: Realize that anyone with the right attitude and work ethic can become wealthy. Once you get in the headspace of believing you can become wealthy, start making money moves to save and invest. Becoming wealthy will not be easy or happen overnight, but everyone has to start somewhere.
5. You Only Live Once
The phrase “YOLO” or “You Only Live Once” has been running rampant for the past few years. Don't know it? YOLO is the belief that you should make life choices focused on getting what you want now because “You only live once". With money, that's a mindset that can lead to reckless spending.
Having a YOLO mindset can lead to something called financial myopia: being nearsighted with your finances, devoid of long-term thinking. But managing your money is all about balance. That's why the best thing to do is enjoy the moment and live for today, but also plan for the future at the same time.
Life doesn’t get cheaper as you get older. If you don't start preparing for that reality now, a lot of those "YOLO" experiences could seem like they weren't worth it in years to come. Be good to your present and future self by striking a balance between what you want now and what you'll need later.
Tip: Accept the fact that money is a tool to help live your best life now as well as later. Understand that you do only live once - so you should put your money to work. That way you can enjoy your whole life...and not be broke when you hit retirement age (or the next decade of your life). For now, create a “fun fund” and budget a small portion of your income just for that so you don’t feel like you're completely missing out.
Overcoming Your Money Mindset Issues
Changing the way we think about money can is hard, no getting around it. But by developing a positive money mindset, you’ll be able to better strategize and build wealth. Learning to view your money in a positive light will improve your happiness and feeling of being free from financial servitude.