Mastering Your Money Mindset
In the journey of financial planning, one critical and often overlooked component is the concept of money mindset. Your relationship with money is shaped not only by external factors such as income, expenses, investments, and debt - but also by your internal beliefs and attitudes about money.
Understanding your money mindset can lead to greater clarity, better financial decisions, healthier relationships with your finances, and ultimately, a more fulfilling life.
At Thriving Wealth, we have emphasised the importance of money mindset, and we’ve witnessed a positive transformation in our client’s lives as they gain insight into the reasoning behind their decision-making, habits, and beliefs. To enhance your money mindset, the first step is to cultivate awareness and understanding of it.
What is Money Mindset?
Your money mindset influences the way you think, feel, and interact with money. This encompasses how you think and your actions towards earning, spending, saving, investing, and debt. Your money mindset influences your behaviours and decisions regarding your finances on a daily basis - from your spending habits to your approach to wealth accumulation.
A healthy money mindset is characterised by positive beliefs about money, viewing it as a tool for growth, security and opportunity. Conversely, a negative money mindset may display fear, scarcity, or anxiety about finances. Think of it as a scale between scarcity and abundance.
Your money mindset isn’t affected by how much you earn or the numbers in your bank account. You can be wealthy but still live with a scarcity mindset and vice versa.
Whether we realise it or not, everyone has a money mindset. It’s essential to understand what this mindset is, how it may be holding us back, and what steps we can take to leverage it to our advantage.
Where Does Your Money Mindset Come From?
Your money mindset is shaped by a combination of factors, including:
Family Influences:
From a young age, children observe and absorb their parents' attitudes toward money. Whether it’s through direct conversations or indirect cues, your family’s financial behaviours lay the groundwork for your own money mindset.
Example: if a child witnesses their parents frequently stress over bills and debt, they may develop a similar anxious mindset towards money.
Cultural Background:
Cultural attitudes towards wealth can also play a significant role. In some cultures, money is seen as a symbol of success and status, while in others, it may be viewed with suspicion or as a source of stress. These cultural beliefs can influence your own perceptions and behaviours related to money.
Example: In cultures that view wealth as a status symbol, they may feel pressured to spend more on materialistic displays to show their wealth.
Personal Experiences:
Significant life events, such as financial crises, job loss, or windfalls, can shift your perspective on money. Positive experiences can foster a sense of abundance, while negative ones may lead to fear and avoidance of financial matters.
Example: Someone who has experienced job loss may become fearful of financial insecurity which leads to saving more of their money rather than spending due to the fear of financial uncertainty
Education and Knowledge:
The level of financial education you receive can also influence your money mindset. Those who are well-informed about financial concepts and have a higher financial literacy tend to have a more positive relationship with money, while a lack of knowledge can lead to confusion and anxiety.
Example: Those with a low financial literacy may feel overwhelmed and anxious about managing their finances, leading to poor choices and missed opportunities.
The Types of Money Mindsets
Start thinking about how you behave and interact with money. Do you think twice before you buy something or are you quite impulsive with your spending? How does the thought of investing or debt make you feel?
Savers - Future Focused
You prioritise saving over spending
You pay your bills on time or early
You’re frugal with what I spend
You know where your money is being spent
Spenders - Present Focused
If you see money in the account, you spend it
You don’t know where your money is being spent
You often spend all your money before your next payday
Dreamer - Vision Focused
You have big plans for you and your future but you’ve never put in the ‘work’ required to make them happen
You are always talking about your big ‘vision’ for the future, you may even plan for it - but you are missing the ‘action’
Your vision or goals lack detail, they’re very high level e.g. i’m going to be rich
Realist- Action Oriented
You have the plans, drive, and determination to make your future happen
You have detailed and articulated your vision and goals to a granular level
You spend within your means and work hard to achieve your goals
You regularly reflect on your actions and your progress
How Your Money Mindset Impacts Your Relationship with Money
Now that you have a clear understanding of your money mindset, this goes deeper into how you tend to interact with money and some of its limitations.
Savers - Future Focused
Savers are all about financial security. They prioritise putting money away for the future, whether for emergencies, retirement, or big purchases. While this mindset can create a solid financial foundation, it can also lead to missed chances for enjoyment in the present. To find a balance, savers should consider setting aside a portion of their budget for fun activities or experiences. This way, they can enjoy life today while still preparing for tomorrow.
Spenders - Present Focused
Spenders thrive on enjoying life and often focus on immediate pleasures. This mindset is about making the most of today. However, it can sometimes result in financial challenges if they aren’t careful. By becoming more aware of their spending habits, spenders can make intentional choices that support both their current enjoyment and future goals. Creating a budget that allows for both indulgences and savings can help spenders achieve a more balanced financial life.
Dreamers - Vision Focused
Dreamers have big aspirations and a vivid vision of what they want to achieve. However, they may find it hard to take practical steps toward their goals. To move from dreaming to achieving, it’s important for dreamers to break their ambitions down into actionable steps. Setting SMART goals—Specific, Measurable, Achievable, Relevant, and Time-bound—and developing a financial plan can help them turn their dreams into reality. With a clear roadmap, dreamers can stay motivated and focused on their path to success.
Realists - Action Oriented
Realists strike a balance between saving and spending. They are practical and proactive, working hard to make steady progress toward their financial goals. This mindset fosters a sense of control and accomplishment. Realists typically create budgets, track their expenses, and regularly assess their financial health. By combining careful planning with a willingness to take action, realists can navigate their financial journey with confidence and achieve their aspirations.
Shifting your Money Mindset
Recognising and understanding your current money mindset is the first step; however, it's equally important to make small, positive shifts in your financial habits and behaviours. Here are some practical strategies to help you transform your relationship with money:
Know Your Spending and Saving Habits - Get clear on your cashflow. Start by tracking your income and expenses to get a clear picture of what’s coming in and out of your accounts. This awareness enables you to allocate or automate funds to different accounts such as savings, spending and bills, helping you achieve a more balanced approach to spending and saving.
Get Clear on Goal Setting - Having clear financial goals (short, medium and long-term) can significantly reduce feelings of overwhelm associated with money. Take time to reflect on what brings you a sense of purpose and fulfilment. Having these meaningful goals and breaking them down into manageable steps helps you not just dream, but take action to achieve.
Improve Your Financial Literacy - Investing time in enhancing your financial literacy is one of the most effective ways to form better financial habits and money mindset. Understanding how money works equips you with the knowledge to make informed decisions that will benefit your financial future.
Seek Professional Financial Advice - Engaging with a financial professional can be invaluable in reshaping your money mindset. They bring expertise and an objective perspective, allowing you to explore options you may not have considered on your own. Along with providing ongoing support and accountability, ensuring you stay on track with your financial habits and strategies.
Conclusion
Understanding your money mindset is crucial for achieving financial success. By reflecting on the origins of your beliefs, recognising how they affect your behaviours, and actively working to shift negative patterns, you can cultivate a healthier relationship with money.
A positive money mindset empowers you to make informed financial decisions, invest in your future, and ultimately create a life of abundance and fulfilment.
About the Author
John Cachia is a seasoned financial adviser and dedicated parent of three boys. With a passion for financial literacy and wealth management, John has been in the industry since the young age of 14. His early start in finance has provided him with a wealth of experience and insight, which he now uses to guide families towards achieving their financial goals. As Australia's leading wealth adviser for young families, John is committed to helping parents become positive financial role models for their children, ensuring a secure and prosperous future for the next generation.