Most of us go about our lives, living in our own heads, and never realize that the way we think about money and finances is not the only way. We may not realize just how much of our financial behavior is affected by our past and our beliefs that could be undermining our success. There are things we can do to improve our money mindset, regardless of where we start out.
What influences our money mindset
It sometimes surprises people to learn that our money mindset isn’t determined by how much money we make, how much wealth we have, or whether we have a comfortable financial situation. Whether making minimum wage or earning seven figures, the key determinant of a person’s money mindset lies within.
There are three crucial factors shape this mindset:
Our upbringing influences our money mindset
Our upbringing significantly influences our money mindset as it encompasses the way our parents discussed or avoided conversations about money, the financial habits they modeled, and the overall role that money played in shaping our childhood perceptions.
The messages conveyed during our formative years about the value of money, budgeting, saving, and spending habits contribute to the development of our financial beliefs and behaviors. Whether our parents openly discussed financial matters, instilled a sense of fiscal responsibility, or shielded us from discussions about money, these early experiences leave an indelible imprint on our attitudes and approach to finances, ultimately forming the foundation of our money mindset in adulthood.
We might not even be aware of how those formative experiences affect our money mindset.
Our beliefs influence our money mindset
Our beliefs, particularly those influenced by religious teachings, wield a profound impact on our mindset about money. For instance, certain Christian tenets caution against the love of money as the root of all evil, instilling a perception that focusing too much on money may lead to moral pitfalls.
In various religious traditions, gender roles can also play a role, with men often designated as decision-makers. This can lead to women growing up with a lack of confidence in their ability to manage money, as societal and religious norms may dictate that financial decisions are primarily the purview of men.
These ingrained beliefs shape our perceptions of money’s role in our lives, influencing our decisions, priorities, and overall approach to financial matters.
Our past experiences influence our money mindset
Our money mindset is profoundly shaped by our past experiences with money, as both positive and negative encounters leave enduring imprints on our financial attitudes and behaviors. A negative experience, such as a loss in the stock market, can instill a heightened sense of caution, leading individuals to adopt a more conservative approach to financial decisions, even when potentially lucrative opportunities arise.
Conversely, successful moments with money may cultivate a perception of financial abundance, prompting individuals to be less cautious and more willing to take risks. These past encounters serve as a psychological reference point, influencing our risk tolerance, decision-making strategies, and overall mindset towards money, thereby guiding our financial behavior in the present and future.
Acknowledging and addressing these internal factors becomes essential for fostering a positive and balanced relationship with money, transcending the external trappings of wealth or financial status.
Why do people struggle with managing money?
Many people find themselves grappling with the challenge of managing money due to a fundamental lack of education on financial matters. Much like attempting to run a marathon without prior experience in running a 5k, navigating the complexities of personal finance can be daunting when one hasn’t been adequately taught the necessary skills.
Many educational systems lack comprehensive financial literacy programs. We might also grow up in households where parents did not talk about money. Without any experience with personal finance, why would we be surprised when we become an adult and struggle with managing money, investing, and balancing financial decisions?
Embarking on the journey of financial management is akin to learning any new skill – it requires a foundational understanding and the cultivation of practical habits. Our money mindset drives those habits which are often only influenced by financial literacy. To address this issue, it becomes crucial for individuals to initiate open and honest conversations about their relationship with money.
Just as a novice runner would seek advice and training before tackling a marathon, individuals must take the initial steps to educate themselves about financial matters, confront their financial fears and uncertainties, and engage in the necessary conversations that will pave the way for a more informed and confident approach to managing money effectively. It is only through these preliminary efforts that one can build the knowledge and skills needed to navigate the financial marathon successfully.
You can be wealthy and debt-free and still have a bad relationship with money
Having substantial wealth and being free from debt don’t necessarily equate to having a healthy relationship with money.
Our connection to finances extend the value in a bank account. We can harbor negative perceptions or attitudes towards money or dysfunctional habits and behaviors. Our money mindset drives our thoughts and behaviors regarding financial matters.
Generational wealth, often viewed as a symbol of financial success, can ironically lead to disruptions within families if not managed wisely. The interplay between family dynamics and financial resources can create tensions, resentments, and disputes if there is a lack of communication, transparency, or a shared understanding of how wealth should be handled. This demonstrates that a healthy money mindset goes beyond the external markers of financial success and involves a deeper understanding of the psychological and emotional aspects of one’s relationship with money.
Why do some struggle to internalize financial literacy?
Internalizing good money habits shares similarities with the process of dieting. Often, our initial focus tends to center on restrictions—what we can’t do, what we can’t eat, and what we can’t buy. This negative framing can make the journey towards financial wellness feel burdensome and unattainable, much like the restrictive nature of dieting. However, a transformative shift occurs when we reframe our mindset to concentrate on cultivating the right financial plan tailored to our specific needs and circumstances.
To develop a healthy money mindset, it isn’t sufficient that we understand financial principles. We must come to learn what motivates us individually, what our goals are, and how to customize our approach to our circumstances.
It’s akin to working with a nutritionist who designs a meal plan based on our individual body type, activity level, and health requirements. In the realm of personal finance, this shift involves identifying a plan that aligns with our goals, income, and spending patterns, allowing us to build a sustainable and realistic approach to managing our finances. By focusing on tailored strategies rather than dwelling on limitations, individuals can create a positive and achievable path towards financial well-being, much like embracing a customized diet plan for overall health.
When you find something that works best for you, that you can actually live sustainably, and obtain the things you want in life, you are going to keep doing it.
Can I be good with money even if I’m not a numbers person?
Most of our financial decisions are not driven by logic, numbers, and math. Most of our financial decisions are rooted in our emotional response to the decision.
Daniel Kahneman, a Nobel Prize-winning psychologist, has extensively studied the impact of emotion on financial decisions. He argues that human decision-making is influenced by two systems: System 1, which is fast, intuitive, and emotional, and System 2, which is slow, deliberate, and logical. According to Kahneman, emotional factors often lead individuals to make irrational financial choices, such as taking excessive risks or succumbing to market euphoria or panic. These emotional biases can lead to suboptimal investment outcomes. Kahneman’s work emphasizes the importance of understanding and managing emotional influences on financial decision-making to improve overall decision quality.
This insight challenges the traditional notion of finance as a purely analytical and numerical discipline. Understanding that emotions play a substantial role in our financial choices prompts a paradigm shift, acknowledging money as more of an emotional discipline than a mathematical one.
Human beings are inherently emotional creatures, and these emotions influence how we approach budgeting, investing, and spending. Recognizing the emotional component of financial decisions allows us to develop a more holistic understanding of our relationship with money.
By acknowledging the emotional aspect of finance, we can cultivate a more empathetic and realistic approach to personal financial management. Rather than solely relying on numerical calculations, individuals can focus on building emotional intelligence in financial matters, leading to better decision-making. This shift invites everyone, regardless of their mathematical prowess, to learn and improve their financial well-being by embracing the emotional dimension of money management. It emphasizes that financial success is not solely about mastering complex equations but involves understanding and navigating the emotional triggers that impact our financial choices.
Stop budgeting! Create a “Yes” Plan
The aversion towards budgeting or dieting often stems from the restrictive and negative connotations associated with these concepts. You may find them as daunting as I do. Budgeting and dieting force us to say “no” to things we enjoy. The constant negativity can easily wear us down.
In the realm of managing finances, a more effective strategy involves creating a lifestyle rather than imposing rigid constraints.
We can build a better financial lifestyle by implementing a “Yes Plan.” A “Yes Plan” consists of four elements.
- Set clear financial goals – Whether it’s purchasing a car within the next year, buying a house in the next five years, or enjoying an annual family vacation, you need to have very clear goals that you are saying “yes” to. These goals serve as positive affirmations of what one is saying “yes” to in life.
- Remind oneself regularly and consistently about these goals – Reinforcing the affirmative aspects of the financial plan will make it a daily reality of what you are working towards.
- Building accountability – Share your goals with loved ones who can provide support and encouragement.
- Visualize success – Visualization plays a pivotal role in the “Yes Plan,” requiring you to mentally picture the success of their goals—whether it’s imagining the new car smell, the sounds of children playing in a backyard, or the joy of a family vacation.
By embracing a positive and proactive approach, the “Yes Plan” transforms financial management into a lifestyle, making it more sustainable and rewarding in the long run.
How to shift your mindset to improve your finances
When our focus revolves around limitations, using words like “can’t,” “never,” or “always,” we create a sense of finality that can be demotivating. These words will poison our money mindset. Such language tends to emphasize what we lack or cannot achieve, hindering our progress.
On the contrary, adopting growth-oriented statements and reframing limitations as opportunities for growth allows us to find a way forward. By shifting our language, we open ourselves to possibilities, promoting a more optimistic and proactive approach. This approach encourages problem-solving, resilience, and a continuous pursuit of improvement, creating a positive cycle that propels us forward rather than keeping us stuck in restriction and impossibility.
Shifting your money mindset requires that you show up
Changing behavior and reshaping our money mindset can be a challenging endeavor. It requires a conscious effort to break away from ingrained habits, confront financial fears, and adopt a more positive approach to money management.
The first step is to “just show up.”
This means acknowledging the need for change and committing to actively engage with the process, even when it feels uncomfortable or overwhelming. Show up on the bad days. Show up on the hard days.
Just showing up involves facing the reality of our financial situation, being open to learning new strategies, and embracing the discomfort that may come with breaking old patterns. It’s about taking that crucial first step towards a healthier relationship with money, understanding that change often begins with a simple, intentional decision to be present and accountable for our financial well-being.
“Just showing up” serves as a foundational principle because it sets the stage for further actions and creates momentum. It signifies a willingness to confront challenges, seek guidance, and invest the effort required for personal and financial growth.
While the journey may be demanding, the act of showing up consistently allows individuals to build resilience, learn from experiences, and gradually shift their money mindset towards one that is more empowering and conducive to long-term financial success.
What’s holding you back?
Financial wellness is not a “one-and-done” effort. We make steady progress and work on it over time.
If we are not ready to make significant changes in our lives, we should ask ourselves, “what’s holding me back?” Literally, make a list of the reasons that we don’t think we are ready to make meaningful change. Then, identify each item on the list as a “true” or “false.”
Too often we fill the stories in our minds with things that are not true. If it’s not true, we should throw it out. If it is true, that is what we can start working on. Making improvements in our money mindset is possible and it can make a meaningful difference in our financial outcomes.