The Psychology of Money: Understanding Your Money Mindset
Money plays a central role in our lives, affecting not only our financial wellbeing but also our emotional and mental health.
Constantly worrying about our financial circumstances – whether it’s about bills and debt or future financial security – can have affect us long-term. And it’s a vicious cycle: 72% of respondents to Money and Mental Health’s survey said that their mental health problems had made their financial situation worse.
However, getting to know how we think and feel about money, often referred to as our ‘money mindset’, can significantly influence our financial decisions, behaviors, and overall financial success.
In this article, we'll delve into the psychology of money and explore various money mindsets to help you gain insight into your own relationship with money.
The foundation of money mindset
Our money mindset is shaped by a complex interplay of factors, including upbringing, cultural influences, past experiences, and personal beliefs. These factors combine to create a set of attitudes and beliefs about money that guide our financial decisions. Your money mindset is usually established early in life. If you were surrounded by adults who found money stressful, for example, it’s likely that you’ll have the same worries whenever you start thinking about finances.
The scarcity mindset
One common money mindset is the scarcity mindset. People with this mindset often feel that there is never enough money to go around. They worry about running out of money, even if they have a comfortable income. This mindset can lead to excessive frugality, hoarding, and a reluctance to invest or take calculated financial risks. Some people may never get to enjoy the money they have with this mindset!
The abundance mindset
On the opposite end of the spectrum is the abundance mindset. Those with an abundance mindset believe there’s an abundance of opportunities and resources available to them. They are more likely to take risks, invest, and seek opportunities for financial growth. This mindset can be empowering and open doors to financial success but can also lead to negative consequences if not kept in check.
The money as a measure of self-worth mindset
For some, their self-worth is closely tied to their financial success. They believe that their value as a person is determined by their bank account balance. This mindset can result in constant striving for more wealth, even at the expense of other important aspects of life, such as relationships and health.
The balanced money mindset
A balanced money mindset involves a healthy relationship with money. People with this mindset view money as a tool for achieving their goals and priorities, but they don't let it define their self-worth or control their lives. They understand the importance of both saving and spending wisely.
The fear of money mindset
Some people have a fear of money, often stemming from deep-rooted beliefs that money is the ‘root of all evil’ or that having wealth will change them negatively. This mindset can lead to self-sabotage, missed financial opportunities, and difficulties in building wealth. Money shouldn’t be frightening – but there are ways to change your money mindset.
So how do you identify and alter your money mindset?
Understanding your money mindset is the first step towards making positive changes in your financial life. Start by reflecting on your attitudes and beliefs about money. Ask yourself questions such as:
- How do I feel about money?
- What are my core beliefs about wealth and financial success?
- How do I react to financial challenges or windfalls?
Once you identify your money mindset, consider whether it serves your financial goals and well-being. If not, work on shifting your mindset through self-awareness, education, and, if necessary, seeking support from a financial therapist or counsellor.
Your money mindset has a profound impact on your financial decisions and, ultimately, your financial success and happiness. By understanding your money mindset and working to reshape it in a healthy and constructive way, you can take control of your finances and build a more secure and fulfilling financial future.
Remember that your relationship with money is not set in stone; it can evolve and improve over time with conscious effort and self-reflection.
We’d be delighted to chat about this with you – please get in touch any time.