When it comes to our personal journey of understanding money a fundamental step seems to be continuously missed – understanding ourselves. We’re not quite as black and white with our finances as we like to think and one would benefit greatly from understanding their money mindset to better shape their financial future.
But what on earth is your money mindset, why does it matter, and more importantly how can it help you reach your financial goals faster?
In simple terms, your money mindset is the way you view money. It’s your overriding attitudes towards your finances and your money goals. It’s entirely unique to you – it’s your set of beliefs that have been forming and reshaping over the years. These beliefs shape the way you make decisions about handling money, spending money and the risks you’re willing to take with your money.
Often your money mindset is shaped by the way you grew up. Think back to the way your parents viewed money – did you see them struggle with money or did your parents show strong levels of financial literacy? Did you see family who had been burned by a bad money decision? The things that form your strong money mindset could be rooted from simply seeing a mean uncle with a lot of money and associating wealth creation with something negative.
It’s important to understand that different people are going to have different money mindsets even within the same family. Even siblings who have seen their parents go through the same struggles will have different perspectives on what their parents went through. One sibling may believe their parents poor money habits mean they’re destined to make the same mistakes, while another may decide that good financial literacy can be taught and therefore not repeat the behaviours they saw in their childhood.
Why is money mindset important?
Money mindset is important due to the emotional inertia that can be exerted on your finances. It sounds a bit woo-woo to begin with, but a positive money mindset is going to relay into positive action. Don’t believe me? Dave Ramsey conducted a study of over ten thousands millionaires and found that over 97% of the millionaires had believed that one day they would achieve millionaire status.
Now, this doesn’t mean merely believing you’ll have big bucks in the bank will result in you winning the lotto this weekend – instead it’s about the momentum you gain by making small everyday movement. Having a good mindset around money affects your ability to make good decisions with that money and gain the financial stability you dream of.
The opposite can happen with poor money mindsets which can manifest into poor financial decisions. People who have cynical views towards money, or a “scarcity mindset”, often believe that money is the root of all evil. They believe there is not enough money to go around and that having money means “hoarding it” from the rest of society.
People with scarcity mindsets also believe that they cannot change how they are with money and that they are forever doomed in a cycle of financial distress. This is often portrayed by certain behaviours such as:
- Avoidance/procrastinating with financial decisions
- Over indulging in spending habits
- Extremely low risk tolerance
- Low self esteem.
How to change your money mindset
The opposite of a scarcity mindset is a growth money mindset – a way of viewing money as a tool or resource to enhance your life. Instead of viewing money as something that always leaves you, you instead believe that money will continuously flow to you. You believe that no matter what happens in life you will always find a way to be financially ok.
Most importantly, you believe that you are teachable and that there is nothing – from your KiwiSaver to your insurance plan – that is outside your scope of understanding. A growth mindset with money means that you acknowledge that you may not have all the tools that you need but that you will gain them over time.
People with growth mindsets often:
- Look for opportunities instead of set backs
- Realise no financial situation is permanent
- See the value in receiving financial help/education
- Are open to challenging their preconceived notions about money.
So how does one change their money mindset? It’s a lot simpler than it looks and it begins by identifying your strongly held beliefs about money and where they came from. Only once this has been done can you then begin to deconstruct them to see what beliefs are still relevant for your growth mindset.
I challenge you to answer these 4 questions, write them down if you have a moment or even answer them out loud if you’re short for time. You may just be surprised by what you hear.
Journal prompts to understand your money mindset;
- What were my first conversations about money as a child
- What’s something my family does with money that I want to continue
- What’s something that my family did with money that I want to let go of
- What is holding me back from believing that I can achieve my financial goals, and what am I going to do to change this?
