Your money mindset is the difference between success and failure with your finances and budget. A money mindset is defined as the beliefs, attitudes, and emotions that influence one's financial habits and behaviors. It influences everything we do financially. This means it is absolutely crucial to understand what your money mindset is and how it affects your spending habits in order to be successful with money. Most individuals do not take the time to examine their habits, thus keeping them from making pivotal changes that would ultimately lead them to the financial freedom they desire.
One’s individual mindset around money is in large part formed from personal experiences, familial upbringing, and even one’s cultural background. The habits and behaviors you exhibit were developed likely without you realizing. Maybe your parents taught you how to budget or perhaps finances were never openly discussed in your home growing up. Were you the kid with all the name brand clothing or were you the kid wearing hand-me-downs? How were you treated by your peers as a result? The answers to these questions can provide insight into how your money mindset formed and can be a vital tool in changing negative habits.
No one person's experience is the same but there are some common mindsets that may provide further insight into your own financial behaviors. These 4 money mindsets are not all inclusive or one-size-fits-all. You may even find that you have some overlapping behaviors. Consider these as a starting point to understanding yourself better and a step towards correcting a poor money mindset.
The Big Spender
A big spender loves all things luxury. They spend money on fancy cars and name brand clothing. They want designer bags and the latest and greatest technology. For them it is not enough to own a home, it must be a big and lavish home. To the big spender it's all about making a statement more than anything. They are not typically bargain shoppers. If you have ever met a big spender you have probably wondered “where does all that money come from?” The truth is that even with a high income job, many big spenders rack up lots of consumer debt in order to fund their elegant lifestyle.
The Shopper
Shoppers are sometimes confused with big spenders and occasionally the two mindsets have overlapping qualities. The main difference is that a shopper is not necessarily concerned with making a statement as much as it just makes them feel good emotionally to spend money. A shopper is more likely to be a bargain hunter and find great joy when they find one. They will use this to justify their spending habit. This mindset also comes with a tendency to buy things even if they do not need them. As it turns out even bargain shoppers will take on debt to live this way.
The Indifferent
An indifferent mindset belongs to someone who just is not concerned about money. That does not necessarily mean they have plenty of it either. These individuals simply do not bother to keep track of spending or where their money is going. While some would find this way of living stressful, the indifferent do not mind even if they are living paycheck to paycheck. Perhaps the biggest problem with being indifferent is the lack of preparation for the future. These individuals typically do not keep an emergency fund or set anything aside for retirement.
The Saver
The savers are the penny pinchers. You can spot a saver because they will be the ones making sure to turn the lights off before leaving a room, making sure the refrigerator door does not stay open too long, and obsessing over the thermostat. They spend money out of necessity and it may even cause stress to spend anything above and beyond that. A saver will put away money for a rainy day, but there will never be enough rain to spend it. While savers typically avoid going into debt, they also may not be willing to risk enough investment wise to fund their retirement.
How to Fix Your Money Mindset
Did any of these strike a chord with you? Maybe some more than others. Hopefully they at least sparked your train of thought about what your own money mindset is and how it affects your spending behavior. Of course, understanding your money mindset is not enough if you are not willing to change any negative habits. Here are a few ways to help you do that. Again, these are all the methods, but find something that works for you.
Keep a journal
Ask yourself some tough questions about your history with money all the way back to your childhood and write down your answers. Journal about your experience and emotions after making a significant purchase. Writing experiences down helps us to remember them. It also provides an opportunity to reflect on those experiences and will help you make changes. For many this will be a brand new practice, but it is definitely worth a try.
Dream about your future
This is a favorite strategy of mine. Dreaming about the future may seem easy to do but it's also something that gets overlooked when we get caught up in our day to day lives. What does the ideal future look like for you? How old do you want to be when you retire? What do you want to do after retirement? If you can envision the answers to these questions and think about them often, it will help you make changes in your life that will help you achieve them. Pro tip: combine method 1 and 2 by writing your dreams down in a journal.
Give away some money
If you are living paycheck to paycheck you are probably thinking this is impossible to do, but giving is a great way to shift your money mindset. Instead of constantly focusing inward or making sure your needs and wants are met, giving forces you to look outward with how you can ease the burden of another. Even giving in small amounts can feel so rewarding. Find a charity or an organization you believe in and donate regularly. You can also just give money to someone you know who needs it. If you give money away regularly, you will feel like a new person.
Hire a coach
Part of what I do as a financial coach is help people understand their money mindset and how it is keeping them from achieving their financial goals. Professionals in all fields take advantage of coaches and mentors to help them succeed and get better. Hiring a coach will provide you with regular support and encouragement as you take the necessary steps to gaining financial freedom. Visit my Booking page to schedule a consultation.
Changing your money mindset is possible if you are willing to put in the work to understand what your mindset is and take the steps necessary to change negative behaviors. If you wish to be successful with your finances it's crucial to go through this process. Otherwise, you will find yourself falling back into old habits over and over again. It may not be easy but you can make this a fun experience, learning new things about yourself, and improving your quality of life. The only thing standing between you and the financial freedom of your dreams is you, and that is why changing your money mindset is the first step.
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