The most powerful thing I want you to understand is that your mindset has the greatest impact on your economic life. Two individuals can make identical salaries and live in the same areas and have all the same advantages and disadvantages and you would find they are miles apart financially in a few years. So what is the deciding factor? Mindset. The understanding that our thoughts impact the way we operate in this world. When you have knowledge of this, you understand what you need to do to change your financial decisions. This isn’t an excuse to change their lives, they just don’t know..
A financial mindset is your collection of beliefs, perspectives, and core assumptions about money. Those outcomes are impacted by such others as yourself can impact by way of behavior and approach-and include spending and saving as well as investing and negotiating-all of them, in essence. In one mind set, money is scarce, hard to earn and elusive; in another, money is plentiful and responds to competence and effort; in one paradigm, only certain people money; in another, money is a system most people can learn. Those cash stories, in the event, become self-fulfilling prophecies after a couple of decades, since they affect behavior. The good news: yours are can be, too-if you examine them, to change them through intention, practice.
Perhaps the single most important distinction in financial psychology is between the people who have a fixed mindset and those who have a growth mindset. The fixed mindset person believes they are born with a certain level of financial intelligence and ability and considers themselves either “good” or “bad” at money. Therefore they tend to avoid places where they could practice investing, for fear they will lose money or worse, that they just are not any good at numbers. The growth mindset person believes financial skills are something we develop just like any other skill and when they make the wrong move in the market or a business idea crashes and burns, they analyze the experience and ask what they can learn from it. They simply keep taking more educated action over time, while the fixed mindset individual stagnates in inaction and repetition.
Another fundamental contrast is between a scarcity and an abundance mindset. A scarcity mindset fixed on lack thinks that resources are finite. This results in behaving obsessively overhaving to have more, hoarding whatever can be saved, fearing to take risks in investing for fear of going broke, making shortsighted career moves, undervaluing one’s own value and thus accepting lower pay than deserved for services rendered. Conversely an abundance one views that as one becomes more creative how then becomes more centered around adding value by creating choices, contemplating the options and taking an informed calculated risk leading to increasing wealth without indulgent indiscretion.
Most of your money beliefs were formed long before you received your first paycheck, through family discussions and values, media messages, and early positive and negative experiences. If you were brought up with a belief that “money doesn’t grow on trees,” that “the rich are selfish” or that “it’s okay to be in debt” those beliefs may still have a huge impact on your comfort level with making more money or investing it. You likely harbor stubborn but subconscious beliefs that money is difficult to manage or that the system is rigged or that financial security is something that happens to other people. One of the most potent first steps in crafting a secure financial future is just to bring those inherited beliefs to the surface. Then you can consciously decide what you want to keep and what you want to throw away.
As we have seen, mindsets influence how we make financial decisions on a daily basis. A money mindset focused on scarcity might make you see a pile of credit card debt at 20% interest as an accepted fact of life, not an emergency. It can lead to impulsive spending to soothe immediate discomfort, rather than wise choices about building financially. The person with a wealth-building mindset, on the other hand, views money as a tool for getting to where they want to go. Each purchase they make involves a rapid mental calculation: “Does this help me get where I want to go?” They choose to aggressively pay down debt, save for emergencies and future goals, and invest wisely for the long term. These different ways of doing things result in very different net worth over time.
Creating an abundant money mindset will take some intention, but it’s not that complicated. First, take a honest look at your existing money mindset, nonjudgmentally. Make a list of the thoughts that go through your head when you think about accumulating wealth or taking chances with your money. Next, tackle each thought and replace it with counterevidence, or new evidence. Read personal finance and behavioral psychology books. Follow some inspiring rags-to-riches individuals, and reverse engineer their thought patterns. Find friends or mentors with healthy relationships to money. Crucially, actually take action, even in small ways, that proves your new thoughts and beliefs true. With each small, empowered financial decision that yields positive results, your mindset becomes more robust. After weeks, months, and years, your money mindset becomes so reinforced that you have no doubt.
As powerful as the effects of your mind will have on your financial future are, the positive cascade that your money mindset can trigger are the stuff that dreams are made of. This mindset will fuel your desire for more education, smart financial risk, a healthy amount of resilience when things don’t go according to plan, and the patience to let your compounding finances work their magic. It will cause you to look for and see opportunities where others see problems, and keep you going when you don’t see progress for a while. The external factors such as economics and luck will affect you to some extent, but your mindset determines your response to them. People who excel with money don’t wait for all the conditions to be perfect. They make them perfect by developing better thinking and a better skillset.
Your financial future doesn’t come with a set price dictated by how much you’re earning today, where you came from, or how many errors you’ve made. In fact, every day, your financial future is a result of the thoughts that are going through your head about money and the beliefs you hold about what’s truly possible for your life. In recognizing what kind of thinker about money you are right now, challenging your old limiting ideas about money, and then consciously choosing to think in a way that can foster growth and expansion, you’ve activated the greatest controlling variable in your entire financial life. That process is initiated with one commitment to understand and improve your thinking, and is sustained with deliberate and repeated action. When your thought about money shifts, so will your action about money. And the actions you take over and over again will build your financial life.
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