Money, like emotions, is something you must control to keep your life on the right track.” -Natasha Munson.

Answering the Question: What is Money Mindset

Money— a medium of exchange, the object of quantified value and the mirror that reflects our deepest beliefs and fears. But what is money mindset and why should you care? Your money mindset a complex tapestry of your emotions, upbringing, societal influences, and personal aspirations. Money mindset is what drives you to go to work five days a week, or allows you to splurge on a $5 Vanilla Latte each morning. Or maybe you’re money mindset compels you to live on a strict diet of tap water and ramen.

In this deep dive, we’re exploring how your mind shapes your relationship with money. We’ll look at the various lenses through which people view their financial lives. We will uncover the five primary money mindsets that govern financial behavior. FInally we’ll discuss how you can use this knowledge to transform your financial destiny.

What is Money Mindset?

Your money mindset is the voice in your head that directs your financial life. It dictates every aspect of your spending, saving, and investing, or lack thereof. It’s the culmination of your thoughts and feelings about money, formed through your life experiences and the messages you’ve absorbed from society, your parents, and your peers.

At its core, money mindset is a reflection of your overarching belief system when it comes to finances. It’s the lens through which you interpret and react to money-related situations, which can shape your financial health significantly. But what does it mean to have a positive or negative money mindset? How does it affect our daily decisions and long-term financial planning?

The Scarcity Mindset: When Less Feels Like More

Some individuals operate from a ‘scarcity’ mindset—a belief that there will never be enough resources to go around. This roots from the fear of not having money when needed, often stemming from challenging financial backgrounds or traumatic events.

People with a scarcity mindset might hoard money and avoid investments. They neglect potential growth opportunities in favor of the security that minimal spending offers. They may also feel anxious about losing money and are prone to being excessively frugal. The irony is that this could could hinder their financial growth.

In contrast, a person with an ‘abundance’ mentality believes that opportunities are endless, and wealth can be created. Their focus is on potential gains rather than fear of loss. While they still value security, they are more willing to explore investment opportunities.

The Abundance Mindset: A World of Wealth

Those with an abundance mindset are open to taking calculated risks. They might see money as a tool for personal and communal growth. This leads to more significant investments, entrepreneurial endeavors, and sometimes, a cycle of wealth building.

A shift from scarcity to abundance thinking can be liberating and can expand one’s financial horizons. It’s about seeing that the pie isn’t fixed and that, with the right mindset and action, you can grow your slice.

One Princeton University study suggests that an abundance mindset actually has a positive impact on intellectual function. The study states that people with more benign concerns about financial stressors are able to perform more competently than those with all consuming worry.

However, as with all things in life, balance is key. Just as scarcity thinking can limit growth and prosperity, an unbridled abundance mindset can lead to reckless financial decisions. Yes, the world is filled with endless possibilities, but a belief in infinite resources without a grounded understanding of one’s actual financial situation can result in overspending, imprudent investments, and potential financial ruin. It’s crucial to remember that a healthy abundance mindset isn’t about reckless spending, but about making informed, thoughtful decisions that can lead to sustainable wealth.

The Status Mindset: Symbols and Significance

Another lens through which people view money is the ‘status’ mindset. This perspective emphasizes the purchasing of luxurious items and investments as a means to reflect a successful or high-status position in society.

Peers and social circles significantly influence this mindset, sometimes to the detriment of one’s financial well-being. It can lead to the accumulation of debt, as people buy beyond their means to maintain an image. This is not about building financial wealth but about projecting an appearance of wealth.

While there’s nothing wrong with enjoying some of life’s finer things, when ungrounded in true wealth, indulgence can lead to significant financial stress and a hollow view of success. Nicholas Crown addresses this issue in depth on his youtube channel and his podcast.

His videos of humorous banter between the Rich Guy (Status Mindset) and the Really Rich Guy (Abundance Mindset) make the content extremely relatable to, dare I say, everyone. I think we have all had at least one interaction in our life with someone who simply thought way too highly of themselves.

The Security Mindset: Fortifying Financial Foundations

On the flip side, the security-based money mindset prioritizes financial stability and preparedness. Individuals with this mindset focus on building an emergency fund, saving for retirement, and meeting all essential needs before considering entertainment or luxury purchases.

This approach to money is more defensive, aiming to protect against the uncertainties of life. Experts in financial psychology, like Stephen P. Wendel, link the security-based mindset with lower financial stress and a solid foundation for future financial growth.

The Indifferent Mindset: The Invisible Hand of Monetary Apathy

Not everyone is motivated by a desire for wealth or financial stability. There’s a significant portion of the population that operates with an ‘indifferent’ mindset towards money. This can stem from a belief that money doesn’t buy happiness or that it doesn’t hold any real power or significance in life.

While taking a more philosophical stance on the role of money can offer perspective and contentment with one’s current financial situation, it can also lead to missed opportunities and an underutilization of financial resources. That said, if you have this mindset and your life is truly full of happiness and contentment, who am I to argue?

Embracing a Mindful Money Mindset

Mindfulness—the practice of being fully present in the moment—can significantly shape your money mindset. But what does mindful money management entail? It’s about approaching your financial decisions with a clear and calm mind, recognizing the emotions that might be dictating your financial behavior.

By understanding the psychological drivers behind our financial decisions, we can begin to rewire our money mindset for the better. Financial advisors and psychologists alike often recommend practices like gratitude journaling, guided meditation on finances, and visualizing a wealthy future to shift from a scarcity to an abundance mindset.

Moreover, deep-diving into education about personal finance can make a substantial difference. Subscribing to DIYStacks.com would be a robust step in the right direction. Financial literacy combats fear-driven financial behaviors by arming you with knowledge to make informed decisions about your money.

So, What is Your Money Mindset? Would you change it?

How do you see your money today, and how do you want to see it tomorrow? Identifying your current money mindset is the first step towards adopting a healthier and more prosperous financial outlook.

Whether you find yourself operating from a place of scarcity, abundance, or any of the other mindsets, there’s always room for growth. It can be done through small, consistent actions such as automating your savings, setting financial goals, or seeking professional guidance.

Exercises to Help Identify Your Money Mindset

To help you discover your current financial perceptions and attitudes, here are a few exercises you can try:

1. Financial History Reflection: Take some time out and reflect on your earliest memories about money. What impressions, lessons, or beliefs about money did you inherit from your family and how are they affecting your current financial behavior?
2. Reflect on Big Financial Decisions: Have you ever invested in the stock market, or maybe you recently purchased a home. How did that experience feel? Were you excited, or so stressed you could hardly eat or sleep.
3. Spending Audit: Take a look at your bank statement and categorize your purchases. What does your spending say about your values, your fears, and your desires?
4. Gratitude Practice: Each day, write down three things you are grateful for that money brings into your life. This will help you establish a positive relationship with your finances.
5. Future Visualization: Spend some time visualizing your ideal financial future. What does financial success look like to you? This will help you clarify your financial goals and priorities.

Remember, there’s no wrong answer here. The goal is to increase your self-awareness and understanding of your own money mindset. Once you’ve identified your current beliefs and behaviors, you’ll be better equipped to make any necessary changes.

How Can You Change Your Money Mindset?

I wrote an article on how anyone can coach themselves to a new or improved money mindset. To summarize, there are a few simple steps that anyone can take. The more habitual you can make these things in your own life, the more seamless your growth and transition will be.

Define your mindset

But go one step further than just assigning a name “scarcity mindset”. Really dig deep and discover why you have that mindset, what drives your fears or anxieties, and what key behaviors are a result that might be holding you back. Do this with any of the possible mindsets.

Determine what your ideal mindset would be.

For me, I try to nourish an abundance mindset tethered to planet earth by a anchored security mindset. I love investing and I love high risk speculative ventures, it’s what I have built my business on. I have also made some huge, financially devastating mistakes that have taught me the crucial importance of having a safety net. And thanks to my many years of honing my money mindset, my financial losses only represent valuable lessons to be leverage in future ventures.

Get educated. Read everything

Read everything you can find on the topic of money mindset, investing, saving for the future and whatever grabs your attention. Any mistake that you fear you could make in life, someone has already made it and written a really great book about it. The more you think about the topic and talk about the topic, the more natural and comfortable managing your money will be.

Talk, talk, talk about money!

If you grew up like me, your family didn’t discuss money. It was considered rude and this was a common thing. The problem is, as an adult I didn’t know anything about money, how it worked, what its true value was, or even my own true value as a member of the workforce. As a small business owner, this was a death warrant. We all would be better served fostering open dialogues about money, especially with are children. A well informed child is an emotionally prepared child and the same goes for adults.

Automate your financial plan.

If you don’t have a financial plan, now is a good time to make one but that is another article. For now, take the plan you do have and hand it over to the robots. Collect your paycheck through direct deposit, set up automatic transfers into your savings and investment accounts, set up autopay for all of your bills. If you have a budget and have your spending is under control then this system will run itself. If you don’t, well again, now is a good time.

Make investing an everyday thing.

I don’t mean “invest everyday”. What I mean is, investing is a big deal that carries risk, always. Without investing, you better hope hope you win the lottery if you ever want to retire in this lifetime. So by that logic it makes a lot of sense that we should spend a little bit of time every day preparing to make those decisions. If you are a doom scroller over your morning coffee, I recommend Yahoo finance. Don’t read the scary headlines, just stay in the know about the markets. What the fed is up, and any news relevant to your interests. This prepares you for the next and most important step.

Invest regularly!

It doesn’t matter if you have a low risk, high yield savings account that you fund every pay period, or you plan to buy an investment property once a year. You can’t make these decisions over night and you need to be well informed to make a smart one. The important thing is that you have a repeatable and actionable plan in place to get you where you want to be.

Navigating the Fear Factor: The Risks of Unchecked Apprehension in Life and Finance

It’s natural for fear to creep into our perspectives on both life and finance. Fear is an inherent human emotion that acts as a protective measure against potential harm. However, when left unchecked, fear can become a crippling force, hindering our ability to make progress toward our goals.

In the realm of finance, unchecked fear often manifests as an aversion to risk. You may find yourself reluctant to invest in potentially lucrative opportunities because of the fear of losing your hard-earned savings. While caution is prudent in financial matters, excessive fear can lead to missed opportunities, and financial underperformance. If unbroken, this cycle could stay with you all the way to retirement age as it has for so many. At that point, it’s simply too late.

Is Your Savings Enough?

Unfortunately, saving alone is simply not going to cut it. In fact, if the average american household brings in roughly $75k per year. To maintain the income after retirement, you would need roughly $800k in savings earning 4.5%.

The key to managing fear is to recognize it, understand its origins, and take steps to mitigate its impact. You might even seek professional advice. Employing stress management techniques, or simply practicing decision-making under uncertain conditions is also extremely beneficial. Remember, fear is only as powerful as you allow it to be. Let it guide you, but never let it govern your life or your finances.

Here is a Personal Story

The first time I really got involved in the stock market, I made almost $14k in one day options trading. I lost everything including my original investment the next day. Weird flex, I know. The next time I invested, I doubled my money netting $7k because I learned something the first time around.

The next venture that my wife and I jumped into was house flipping. We took what we had learned about ourselves, money and markets and applied it to real estate. We sold our first house for $73,000 profit.

I don’t share this to brag. Many mistakes have been made and still have so much to learn. I share this to illustrate that we’re not confined to just one thing, nor is success linear. There are limitless ways of earning income, limitless ways of thinking or feeling about money or risk, and limitless ways to learn valuable lessons.

The point that I am trying to make here is that, once you open up the topic to yourself, your going to start seeing opportunity in places you never expected. Those opportunities, the more you explore them, will start to seem more attainable and less scary. This is ultimately the power of a strong money mindset. This is the power of talking about and being educated about money and how it works in the world.

Conclusion: Mastering Your Money Mindset Matters

Your money mindset is not set in stone; it is a malleable construct that can be adjusted to bring you closer to your financial goals. By recognizing your current viewpoint on money, understanding its roots, and committing to a change, you hold the power to transform your financial reality.

We’ve explored the various money mindsets and the emotions that underlie them—scarcity, abundance, status, security, and indifference. Each offers its blend of advantages and challenges. By cultivating awareness, education, and a proactive approach to your financial well-being, you can steer your money mindset towards a life of financial freedom and fulfillment.

Now, reflect on your current relationship with money. How has your money mindset influenced your financial decisions up to this point? And more importantly, how will you harness this understanding to create a more prosperous future? The power is in your hands—and in your mind.

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