Money is more than just a physical thing that exists—it’s necessary if we want to live in the world. Beyond what it can buy, the way we think about money impacts how we act and the decisions we make.
The complex relationship between our beliefs and financial behaviors is explored in the psychology of money, which helps to explain why some people are risk-averse when it comes to spending or investing, while others thrive on risky ventures.
Beliefs Play a Huge Role
Our ideas about money come from a mix of our own experiences, our upbringing, cultural factors, and societal norms. There are two main types of these beliefs: the scarcity mindset and the prosperity mindset.
Attitude of Scarcity
People with this attitude think money is limited and hard to get. They worry about not ever having enough, so they tend to be cheap, saving a lot of money and avoiding risks. Thinking this way can cause you to miss out on chances and stop you from growing as a person.
For example, you might drive around to find the best bargains for your household cleaning products instead of ordering them online. You may think you saved money, but all you have done is wasted gas and, more importantly, your time, which you can never get back.
People with a scarcity mindset do not realize that time is far more important than the few dollars they think they are saving. That time can be better spent improving yourself, looking for side hustles or investment opportunities, or even resting so you are in a better place to make decisions.
Attitude of Abundance
People with an abundance mindset, on the other hand, see money as something that can be earned through hard work, imagination, and smart choices. They are more likely to spend, take calculated risks, and use chances to make more money.
These people know that time is money and also trust in their ability to make back whatever they spend.
Effects on Financial Choices and Spending Habits
People who think in terms of shortage may be afraid to give up their money, which can make them act in ways that are seen as cheap or even greedy. People who have an abundance mindset, on the other hand, might feel better about spending money on events or investments that they think will pay off in the long run.
For example, people with an abundance mindset may choose to go away for the weekend or attend concerts, festivals, or events that bring them joy. They may also spend their money in ways that may be considered risky, such as at online casinos. But for these people, they see it as an entertaining way to pass the time and potentially win some money back.
They also know that if they lose, it’s not money they won’t be able to get back. People with a scarcity mindset may be afraid to spend money on what they consider ‘frivolous’ but are, in fact, relaxation activities necessary for peace of mind and good mental health.
Investment Choices
How you feel about money can also affect the choices you make about investments. People who think there aren’t enough resources might choose safe investments like bonds or savings accounts, even if there are better chances with higher returns that would be better for them. People who have an abundance attitude, on the other hand, might choose riskier investments like stocks or starting their own business to make the most money.
Financial Goals
How we think about money can either help us reach our big financial goals or get in the way of our ability to do so. When someone has an abundance attitude, they may have big financial goals, like getting rich and being financially free. People who think in terms of shortage, on the other hand, might not set as many goals because they are afraid of failing or losing.
Financial Events and Emotions
How we understand financial events affects our emotions. Scarcity-minded people may regard economic downturns as apocalyptic threats and stress out. Downturns may be possibilities for progress and economic adjustment for those with an abundance attitude.
Breaking the Cycle: Promoting Money Wisdom
If you fall into the scarcity mindset, don’t worry. You can choose to change it at any time. Here are some tips to help you get started on your journey to financial freedom:
- Awareness: Recognize your money beliefs. Think about your spending, investments, and financial emotions. Patterns help you understand your money attitude.
- Question Limiting Beliefs: Challenge your “money is scarce” assumptions and find evidence to support the opposite belief- that money is just energy that is everywhere and all you need to do is tap into it.
- Get Educated: Knowledge is power. Learn personal finance, investments, and money management to take back control. Learning financial principles can build confidence and improve decision-making.
- Set Realistic Goals: Set financial goals that match your values and goals. Divide big goals into smaller, manageable milestones and celebrate each one.