Have money woes and wonder what you’re doing wrong? If you’re like most people, you probably have one or more of the following five money outlooks that sabotages your chances of financial success. When I had money problems, I had these outlooks – to my detriment. I bet you do to. After all, we’re a nation where over 70% of adults don’t have a budget and where most can’t survive a $1000 emergency without taking on debt. The great thing about mindsets though is that they are changeable, which is good for your bottom line. Here are the common 5 ways people think about money that sabotages their personal finances – and how to overcome them.
#1 – “I’ll Do It Once I Make More Money”
Most people think they can’t start investing until they “make more money”. I’ve heard this anywhere from those living under the poverty line to those with household incomes over $100,000 – and everywhere in between. Investing can happen with a dollar or $1000+. There’s no magic income level and you don’t have to “invest in the stock market” to invest. You can open many savings or IRA accounts with $1. Once you start, it’s easy to continue and up the amount over time. The point is to start, even with $1. Forgo buying a coffee or eating out for lunch now and again and invest that money instead.
The “I’ll do it once I make more money” mantra is really one of procrastination. Money isn’t your most valuable resource, time is. You want time working on your money. When invested – even if only in a money market account- your money makes money for you. Then that added money makes money for you and so on. That’s how $1 doesn’t just grow into $2 but into $20. But you have to start putting it away for it to do so. Today. Now. Not “when you have money”.
Something will always come up that requires money. You’ll always find new ways of spending it – no matter how much you make. It’s called lifestyle creep. I have friends with household incomes over $500,000 who are basically broke because they spend everything they make and are in debt up to their eyeballs. Maybe you’re thinking, “if they can’t save, who can?” But wait, they go on lavish vacations, have nice cars, buy clothes when they like and eat out all the time. It’s not that they can’t save, it’s that they keep putting it off. I have family and friends that make $50,000 a year and blow their money the same way. In both cases, these people may live well now but as soon as they lose their jobs, they’ll be in the poor house because they haven’t set anything aside. Retirement will never happen for them.
Meanwhile I used to have over six figure student loan debt, over $18,000 in credit card debt, and no savings. Ten years later I was able to comfortably quit my job and basically retired at 36. All because I started investing with small amounts of money, then slowly built until I was shoveling as much as possible away into various investments – money market accounts, my 401k, my IRA and through investments in stocks. Now at 40 I get to watch others go to work, come home tired and complain about their finances while I relax at home or travel whenever or wherever I want. And it all started with small money deposited regularly into savings and investment accounts.
The takeaway: Change from a “I’ll do it when I get more money” mantra to a “I’ll do it now, even if it’s with just $1.”
#2 – “I’m Not Good at Math”
It doesn’t take a calculus degree to understand basic personal finance. Budgeting requires at best 5th grade math and nothing more than addition, subtraction, multiplication and division. And you can use a calculator! At most you need to understand the basics of interest and percentages but again, these are 7th grade math terms and usually just require some multiplication. Plus, you can again use your calculator or, my favorite, online tools that do the math for you.
Are you smarter than a 5th grader? How about a pimply 7th grader?
Despite what the finance gurus want you to think, you don’t need to know calculus, trigonometry, geometry or have a lightning fast computer on hand – not even a quantum one. You don’t need fancy algorithms or formulas. You just need addition, subtraction, multiplication and division. That’s really it.
The secret behind financial stability isn’t math equations. It’s as simple as putting money away regularly and over time. Regularly and over time are the key points. You can retire just by putting $6000 a year into an IRA that makes 7% interest for 30 years. If you put away more money into things like a 401k with its higher max contribution ceiling, you’ll be richer. Put the money away longer than 30 years and you’ll be richer still. Don’t start and you won’t have money later. It’s pretty simple. Everyone who makes it more complicated than that is usually trying to sell you some financial product you don’t need.
The takeaway: You don’t have to be good at math to succeed with basic finance. You just need to be as good as a 5th grader with a calculator.
#3 – “Money Isn’t Everything”
While money may not buy happiness, it is very important. We would all like more of it. If you think you don’t, then turn down your next pay raise or return that gift card you got for your birthday. Without a certain amount of money, most of us will be unhappy too – even if it’s just stress and worry over bills. You certainly don’t want to live in fear of your house foreclosing or not making rent. Probably you would like to go out more with friends and family and who doesn’t dream of nice vacations or at least a middle class lifestyle?
Money isn’t everything but it counts for a lot in modern society. When we say it “isn’t everything”, usually that means we don’t care to learn about how money actually works – to our detriment. Not having an interest in money leads to apathy about personal finance but also a dangerous lack of knowledge about the resources and stability money can provide – from buying a house, to paying for a child’s college education, to retirement, to living financially independent (aka not having to work for anyone while being self-supporting).
This block prevents actively learning about simple money matters that can put you ahead – whether that’s learning about the ins and outs of your company’s 401k, opening an IRA, finding competitive banking accounts, or knowing good loan terms for a car or home. It can lead to failure to understand basic money smarts – like budgeting or appreciating the true cost of credit cards and student loans. That lack of knowledge can send you to the poor house – or keep you there.
But when you adopt a “money is important” mindset, you start learning about personal finance and how to be financial responsible. You also start realizing that sometimes financial stability requires short-term sacrifices for long-term rewards. You may start accepting the reality that a second job, having roommates longer, forgoing a major purchase or vacation, or even living like a college student for 5 years after graduation is necessary to put your financial house in order or give yourself a good financial foundation. Sacrifices may not be fun but you’ll understand the reason behind them and enjoy the greater benefits later – and for longer.
Better, this mindset will encourage you to learn how to put your money to work so that it starts making you money, even if it’s just interest in a money market account. Put to valuable use, money can make more of itself through simple investments that will allow you to retire comfortably, perhaps even ahead of schedule.
The takeaway: Go from a “money isn’t everything” to a “money is important” mantra.
#4 – “I Don’t Understand the Stock Market”
The stock market can be lucrative but it isn’t everything. It certainly isn’t the be all, end all of “investing.” I’ve met so many people who think “investing” means putting money in the stock market. The result is that they don’t ever invest in anything. That’s not what investing means. Investing is putting money into something that makes you money – whether it’s interest in a savings account, a 401k, an IRA, or stocks, bonds, mutual funds, options, rental property or businesses. Even royalties and passive income can count as investments. And there are dozens more on top of these.
Usually people who think investment means the stock market haven’t done much learning about basic personal finance – to their detriment. A number of investment avenues exist outside the stock market and every adult should know about the various ways money can be invested to earn a return, i.e. make money off that investment, even if it’s just 1.6% interest from sitting in a money market account.
In fact, you should probably exhaust many of those avenues before ever putting a dime in the stock market. Max out your 401k and IRA contributions before going into the stock market. These two retirement vehicles when regularly invested in over time will make you financial free by retirement but only if you take advantage of them.
Don’t wait to learn about various avenues for investing because “you don’t understand the stock market”. That’s just one option among many. Educate yourself on the basics first – the 401k, the IRA, money market accounts, and passive income streams. Once you understand them and have maxed out your retirement options, then think about the stock market. Or never think about it. The others may be enough or other avenues may better suit you.
The takeaway: Investment covers so much more than the stock market and your best, simplest ways to wealth are actually easily accessible (the 401k, the IRA, and passive income streams).
#5 – “Only Crooks Can Get Rich”
I know too many people who think poverty is a virtue and that only the rich, crooked or lucky can get rich. They find money discussions distasteful. While I will agree that an unhealthy obsession with money can lead to greed, avarice and sometimes shady actions, disdaining money will only hurt your wallet. Research on those who have a “poverty is a virtue” or “money is the root of all evil” mentality or who think only the rich or dishonest can make money shows that this mentality leads to financial setbacks. Why? The mindset puts blocks on us that prevent us from wanting to research how money works, leading to a lack of information which then puts us at a financial disadvantage all through our lives. Knowledge is power and without knowledge, we’re fumbling in the financial dark.
Money is useful. It pays for our housing, our food, our clothing, our education and lets us provide for our families and loved ones. It also allows us to retire comfortably. Without it, we forego vacations and can’t build our own businesses or pursue many of our dreams. Knowing about money can also keep us from making costly financial mistakes. You don’t have to be a fat cat robber baron to have financial stability. Many honest and everyday people become millionaires simply by regularly putting away money into savings and investments over time. Most millionaires are made this way – not through inheritance, fame or cheating others (check out the book The Millionaire Next Door for facts on this).
And you want to be a millionaire since the cost of retirement is so expensive and you’re going to need something to live on when you can no longer work. $40,000 in the bank simply won’t cut it.
Learn the basics of money and personal finance. You won’t have to become a Wall Street banker or stock broker to grow your wealth. You can put money to work for you through simple and honest means – your 401k or IRA will do. Take an interest in learning about how these monetary vehicles work and take control of your finances.
The takeaway: Go from a “money is the root of all evil” to a “money is useful” mindset. You won’t have to sell your soul to be financial stable.
How We Think About Money is Important
As a kid, I grew up on welfare and among family members who thought poverty was a virtue, that money was the root of all evil and that the wealthy were all dishonest people or those with lucky breaks. Those limiting beliefs, as well as thinking it took money to make money or that money wasn’t everything, prevented me from learning about basic personal finance well into my 20s. This was all to my financial detriment since I actively shunned learning about money basics and personal finance.
When I accumulated crippling debt getting a “good education” and couldn’t find my way out of the hole, I started learning everything I could about money and investing. Only through that education did I start turning my financial situation around, until 10 years later I was financially free and able to essentially retire at 36.
What I learned then was that how we think about money can really impact our financial health. Now when I meet people and hear their beliefs about money, I can predict how poor they are or how financially strapped they might be – or how financially stable. These 5 sabotaging mindsets about money can really hobble our ability to build our wealth or become financially stable. In fact, they’re the ones I hear most often from people struggling with debt, spending problems, and other money problems – across all income levels.
When people change their mindset, their spending and saving patterns change. Often they develop an empowered sense of what they can do – that their financial situation is in their hands and in their control. That’s liberating and it takes them looking for answers rather than feeling defeated and acting passively toward their circumstances. When I changed my mindset, I went from hopeless depression to determined optimism – and everything changed for me as a result. It can for you as well.
Don’t let your ideas about money hold you back. Educate yourself about basic finance and investing. Build your wealth. Climb out of debt. Retire comfortably. Pursue your dreams. Whatever you do, don’t let these 5 common money mindsets sabotage your financial life.
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