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How does your mindset influence your financial success? How can you shed your self-sabotaging beliefs about money and adopt a rich mindset?
The beliefs you hold about money greatly affect your financial outcomes. If you have a poverty mindset, you’ll end up poor even if a large sum of money lands in your lap (e.g. through inheritance or winning a lottery).
Here’s how you can transcend the beliefs and ideas about money that keep you stuck in poverty.
Your Mindset About Money Is the Result of Childhood Conditioning
According to self-made millionaire T. Harv Eker, the author of The Secrets of the Millionaire Mind, your mindset about money is the single most important factor that determines the state of your finances. If you’re not happy with the state of your finances, it’s because you have a poverty mindset—unproductive thoughts and beliefs about money that hold you back financially.
Eker claims that your current money mindset is a result of childhood conditioning. As a child, you unconsciously absorbed thoughts, emotions, and beliefs about money from your role models and your environment. Everything you heard, saw, and experienced about money influenced your beliefs about how to manage your finances, and conditioned you to behave in specific ways. These thoughts and opinions now make up your mindset and determine what you believe about money. These beliefs then unconsciously dictate how you think, feel, and behave when you manage your finances.
For example, if your role models worked hard but never had enough money to enjoy themselves, you may have the belief: “There is never enough money, no matter how hard I work.” This belief creates an uncomfortable feeling every time you think about going to work or managing your finances, and it leads you to act in unproductive ways such as frivolously spending your money instead of saving it. Your discomfort may also cause you to resent people who do have enough money. In contrast, if you grew up in an environment where money was not a cause for concern because there was always enough, you’re less likely to feel discomfort or resentment around the subject of work and money.
While your money mindset is a result of childhood conditioning, it doesn’t always mean that you’ll replicate your role models when it comes to managing your money. You may end up producing entirely different results depending on how you originally chose to interpret what was going on and whether you chose to conform or rebel against your upbringing. In either case, your interpretation of your upbringing defined the beliefs in your money mindset.
For example, if your parents spent a lot of money on friends and family, you may have positively interpreted money as a way to be generous to others (leading to conformity with your upbringing), or you may have negatively interpreted it as a way for others to take advantage of your parents (leading to rebellion against your upbringing.)
TITLE: Secrets of the Millionaire Mind
AUTHOR: T. Harv Eker
Reprogramming Your Mindset About Money
While your childhood has a powerful influence on the way you view and handle money, your money mindset is not set in stone for life. It’s possible to reprogram a poverty mindset by changing your attitude and beliefs about money.
Let Go of the Belief That You Have to Trade Your Time for Money
Most people work 40+ hours a week to earn salaries. Many then take their earnings to 1) buy stuff they think will make them happy (but this is short-lived), 2) save the remainder in a conservative way. If this sounds like you, then you have a poverty mindset. You’ll never get rich if you keep thinking this way. At most, you’ll earn yourself some degree of stability and a comfortable retirement (although that is not guaranteed because there is always a risk that pensions won’t be funded decades from now, when you need it).
According to Robert Kiyosaki, the author of Rich Dad, Poor Dad, you must let go of the idea that you have to trade your time for a salary. The rich don’t get rich merely by being paid increasingly higher salaries (though this is a great help). They get rich by owning things. No one on the Forbes billionaire list got there purely with a salary.
As tech investor Sam Altman says, “You get truly rich by owning things that increase rapidly in value. This can be a piece of a business, real estate, natural resource, intellectual property, or other similar things. But somehow or other, you need to own equity in something, instead of just selling your time. Time only scales linearly.”
When you work for an employer, you get paid only a fraction of the value that you generate for the employer (otherwise, if the business would go bankrupt). Say your salary is $50k a year. Your work may allow your employer to earn $100k in sales that year, yielding a clean profit after deducting your salary. Even further, if your work isn’t just a pure service but also builds value in the company—say in R&D or product improvement—the value may be many multiples of your salary.
Therefore, you have to stop relying on salary to make money. While you may have to work for a salary initially, in the long run, you must aim to reach a point where you don’t have to trade your time for money anymore.
TITLE: Rich Dad Poor Dad
AUTHOR: Robert T. Kiyosaki
Let Go of the Need for Social Approval
Many people desire the respect and admiration that rich people enjoy. So they try to emulate these feelings by creating the illusion of wealth by spending money on luxury items and experiences instead of saving. If this sounds like you, you have a poverty mindset.
Rich people don’t care about social approval, or rather, they care more about their long-term financial security. Professor Tom Stanley studied the lifestyles of millionaires in the 1990s. He writes in The Millionaire Next Door that, contrary to what most people think, the typical millionaire lives modestly in a middle-class home, drives a used car paid for with cash, and buys clothing from discount stores.
If you’re doing anything with money in order to project wealth in order to win respect or admiration, you have to give up the drive for approval and undergo a change of heart about how you view spending. For example, it might require that you stand up to your family and reject the tradition of going into debt to buy a Christmas gift for each extended family member.
Instead, put your leftover money into a savings account and create a plan on how to invest it to improve your long-term financial prospects (perhaps start your own business or invest it into an appreciating asset).
TITLE: The Millionaire Next Door
AUTHOR: Thomas J. Stanley and William D. Danko
Stop Blaming the System
There’s no denying that we’re living in a deeply unequal economic climate in which people who are born into privilege have an unfair advantage over everyone else. While those issues are real and important, they’re outside of anyone’s individual control. As such, blaming the system is a sign you have a poverty mindset. It’s nothing but an excuse.
It’s much more productive to focus on what you can control than to fall back on blaming the system. In I Will Teach You to Be Rich, Ramit Sethi lists common excuses people with a poverty mindset use for giving up on trying to improve their financial lives:
- “My situation means I can’t save.” Your situation may be difficult, and you may not be able to save as much money as other people in the same amount of time, but you can still save some. The important thing is not to use your situation as a reason not to try at all.
- “This financial system won’t work because the society is unfair.” Sometimes, that’s true—the American socioeconomic system is deeply unfair. However, if your goal is to increase your wealth, it doesn’t help to focus on those larger issues that you can’t control. Instead, focus on what you can control; no matter how insignificant it might feel, you’ll always be better off than if you didn’t try.
- “If they’d taught this in school, I’d be better off by now.” If you went to college, they probably did teach personal finance classes, even if you didn’t take them.
- “Financial institutions prey on their customers.” That’s true, and it’s what they’re designed to do. But like any other situation we can’t control, it’s best to move on and focus on the things we can control instead of getting bogged down in anger or helplessness.
To escape the poverty mindset and adopt the rich mindset, you have to move past these excuses and focus on taking small steps toward financial success. Here are some lessons to take on board:
- “Good enough” is better than perfect. If you can get started with managing your money and get it right most of the time, you’ll still be richer than if you don’t start at all.
- Get comfortable with making mistakes so that you can learn from them.
- Understand your priorities so you can spend money on the things you love—guilt free—by economizing on things that don’t matter to you. The goal of this book is to help you live your version of a rich life, including spending money on whatever means most to you.
- Embrace “boring” when it comes to your financial life. You won’t become a venture capitalist just by following Sethi’s advice, but you’ll consistently grow your money with far less risk.
- The goal of accumulating wealth is to free you up to focus on things other than money. The more hands-off your financial system, the more you can focus on more important things in life than spreadsheets.
- Be proactive with your finances. Instead of passively accepting things like bank fees, make the effort to deal with them now and save yourself thousands in the future.
TITLE: I Will Teach You to Be Rich
AUTHOR: Ramit Sethi
Most of us assume financial success depends on education and intelligence. But there are many people who escaped poverty without even having finished school. This is because those factors—while important—are not the key to financial success. Your money mindset is.
If you enjoyed our article about the poverty mindset, check out the following suggestions for further reading:
In Your Money or Your Life, speaker Vicki Robin and financial analyst Joe Dominguez guide you through 9 steps to reach financial independence—not having to work for money. Unlike other personal finance books, this book is about more than budgeting. Rather, it’s about changing your entire relationship with money and, consequently, living a more meaningful life. You’ll learn to think of money as “life energy”—the time and energy you dedicate to paid work—and use this new mindset to align your spending habits with your values, purpose, and dreams.
In Money: Master the Game, motivational speaker and life coach Tony Robbins argues that anyone can master money, achieve financial well-being, and create their dream lifestyle. In Robbins’ view, to master money means building an investing strategy that yields passive income for life and gives you the choice of when, where, and whether to continue working. Conversely, neglecting to master money means that you’ll always need to trade your time for money.
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