Mindset is everything and it has a huge impact on your success. In this article, I’ll review the power of your mindset and how it can impact your finances. Additionally, I’ll share my personal story about how I got myself out of debt and was able to increase my saving rate thanks to a positive mindset. When you remain positive and live a life of abundance, there is no limit to your success!
Read on to learn about the power of your mindset and your finances.
Demystifying Money Mindset
What is a Mindset?
First of all, what is a mindset? A mindset is a set of beliefs and attitudes about the world around you. One’s mindset can originate or is heavily shaped by their upbringing and culture they live in. Mindset shapes one’s actions and motivations for doing something. Related to finances, a money mindset is how someone relates to their finances and money in general.
Your beliefs surrounding money have a major impact on your finances. They impact everything from:
- How much debt you take on
- Your saving habits
- How much money you spend
- Your motivation to increase your skillset and income
The Different Types of Money Mindsets
There are four main money mindsets that human beings have that are shaped by both personality and environment. Remember: some people may have one or more of the personalities below. For example, sometimes spenders also have borrowing characteristics if they enjoy spending money and don’t mind relying on debt. Let’s get into the four types below.
Savers
Savers want to spend money and plan their future. They are planners and tend to be careful about spending money and may even struggle with being a little bit cheap and having a scarcity mindset.
I’m a saver myself and put a lot of emphasis on taking care of future me. However, in the past, I’ve focused too much on investing for the future and not spending enough time and money enjoying today. These days, I spend a little bit more on quality products, vacations and experiences while ensuring I am still on track to reach my retirement goals. I’ve realized that there are many experiences and travel I’ll enjoy more when I’m in my thirties and forties than when I’m in my seventies or eighties. Finding a balance between spending and planning for the future is crucial!
Spenders
Spenders like to, well spend! They’re happy to fork over cash for experiences and products. Spenders tend to struggle with saving enough money and keeping on track with short-term and long-term goals. They may tend to spend impulsively and become excited after a shopping trip. Spenders are most likely to carry unnecessary and sometimes even unmanageable debt.
Borrowers
Borrowers are comfortable with taking on debt and relying on others to fund their lifestyle. They often struggle with understanding the difference between needs and wants.
Indifferent Ones
Indifferent people tend not to care about money. They may even avoid talking about it because they find it unnecessary or boring. Indifferent people may feel comfortable paycheck to paycheck and don’t see any harm and unsustainability in this practice.
The Formation Process: How Your Money Mindset Is Shaped
Your money mindset is shaped by your personality, upbringing and the culture you live in. Many people who grew up in low-income households tend to adopt a scarcity mindset. On the other hand, some people who grew up in this environment tend to be over-spenders. Growing up in a poor household, they never had the chance to treat themselves to a nice vacation, new clothing or appliances. Now that they have the funds, they are making up for lost time.
On the other hand, those who grew up in wealthy households often continue being overspenders into adulthood. However, some of those people who grew up in wealthy households are financial hoarders. They grew up with the mindset of accumulating as much wealth as possible.
The landscape of money mindset and psychology is complicated. For more information, refer to this article by Integrative Psych. Additionally, take this quiz by NerdWallet to find out your money personality – it’s a fun way to learn more about yourself!
Characteristics of Positive and Negative Money Mindsets
Now that I’ve covered the four main types of attitudes towards money. Now, how do you distinguish between the two opposing financial mindsets: positive ones and negative ones?que
A person with a positive money mindset focuses on:
- Finding a balance between spending and saving
- Understand that debt is a tool but should not be used unnecessarily. For example, student loan debt is fine to take on if you have a plan to pay it back and understand how it will help you develop skills and secure employment in the future.
On the other hand, negative money mindsets are those that:
- Avoid talking about, thinking about or caring about finances
- Place an emphasis on spending over saving
- Get comfortable with relying on debt as a means to fund daily expenses and larger purchases
Therefore, generally, a saving mindset is the best type of mindset out there, so long as you are focusing on a balance between saving, spending and investing. Sit down with a financial advisor and come up with a plan that works for your financial situation.
Effects of Economic Challenges on Your Money Mindset
Economic situations can have a huge impact on your money mindset. During the COVID-19 pandemic, I took on even more of the ‘saver’ characteristics. I know many people who lost their jobs and went from spending and borrowing personalities to saving personalities out of necessity. Understanding events and situations that may impact your finances is key to developing a plan and working on any negative traits you may have such as relying on debt, spending too much, saving too much or avoiding conversations surrounding money.
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A Story on the Power of My Mindset and My Finances
The power of your mindset will shape your finances. I’d like to share my own story surrounding my mindset. Growing up, I tended to have a saving tendency and became very frugal. While these frugal tendencies helped me save 30-50% of my income, they also caused me to suffer.
I was afraid to spend money on anything worthwhile including buying quality clothes. I would go to the thrift store and look for clothing I needed.
While there’s nothing wrong with finding quality used goods at a thrift store (in fact, this is a great frugal habit to integrate into your life!), if I couldn’t find what I needed at the thrift store, I would go to the mall and buy the cheapest version of the blazer, skirt or pair of shoes I needed. My cheap habits cost me in the long run. After an average of 6 months, each clothing item wore out and I had to replace it. Over time, I ended up spending more money and time on clothing. For example, a pair of cheap shoes cost me $40 and lasted a year. If I had just invested in the $100 pair of shoes that last over 5 years, I would have saved $100 – just on one item of clothing!
Strategies for Leveraging the Power of Your Mindset in Your Financial Life
Shifting Your Money Mindset: Practical Steps
Rewriting Limiting Beliefs: Crafting Positive Money Affirmations
Your mindset is key. How well you believe you can save, how much money you think you can make and how happily you believe you can live on a budget all have a major impact on the actual results. Each week, I take some time (thirty minutes or so) to write down 3-5 positive quotes – affirmations – about my financial situation. I highly recommend this practice.
While it’s crucial you take practical steps to save money, come up with a sound investment strategy and increase your income, putting pen to paper holds you accountable. When you see your actual goals written down, you’ll feel a bigger drive to accomplish them. Research shows that you’re a lot more likely to remember information if you write it down using a pen and paper. Refer to this article by Productive and Free for more reasons why you should write things down!
Focusing on Priorities
Another key part of success is staying focused on your goals. Choose 1-3 areas of your finances where you want to improve. For example, several years ago, I made my 3 goals to:
- Pay off my student loan debt
- Increase my after-tax saving rate to 50%
- Increase my income by 30%
When I stopped worrying about every single aspect of my finances, I became more focused. Within two years, I achieved all three of the above goals! Before you make any changes to your saving and investing plan, be sure to speak with a financial advisor.
Implementing Incremental Changes: Transforming Money Habits
After you’ve decided on 1-3 areas of your finances that you want to transform or improve, it’s important to take practical steps to achieve your goals. Focus on practical ways and steps you can take to achieve your goals. Some examples of practical steps include:
- Negotiating a pay raise
- Comparing prices of the same item at different stores before making a purchase
- Buying items in bulk and doing meal planning
- Taking on a side job or side hustle – whether it be seasonal or year-round, there are many ways to make some extra income on the side
- Choosing low-cost or free activities over more expensive ones – for example, doing a picnic lunch instead of going out for dinner
For more practical ideas on how to live cheap and enjoy life, check out this article on living frugally.
Overcoming Past Mistakes
We all make mistakes. If you’ve struggled with saving or achieving any type of financial goal, give yourself grace. We live in a culture of consumerism where the default option is to spend and focus on today. Simply choosing to live a more conscious financial lifestyle is huge progress in of itself! Be kind to yourself. When you get off track, take some time to understand why it happened. Was it due to stress? Were you simply in a rush? We all make mistakes. Understand where you got off track and take steps so you prevent this from happening again.
Expressing Gratitude: Cultivating Appreciation for What You Have
Aside from writing down positive affirmations and goals, it’s important to express gratitude. What do you have in your life that you can be thankful for? While we live in uncertain economic times, do you have:
- A roof over your head?
- Food in your fridge?
- Family and other loved ones – either nearby or far away?
- Hobbies?
- Enough money to set aside for fun activities and future goals?
If you answered ‘yes,’ to any of the above prompts, you have much to be thankful for! Take some time to be grateful for what you have. From there, focus on how you can make your life even better by sticking with your goals.
Focusing on Financial Growth
Once you’ve written down goals, reframed your mindset and have decided on practical steps to achieve them, it’s time to focus on long-term growth. What are the goals you need to achieve 5, 10 or 20 years down the road? Firstly, it’s important to focus on different ways you can increase your income and decrease expenses. After you’ve mastered this, it’s important to create a plan on how you’re going to use the extra funds you’ve saved. Speak with a financial advisor about different ways you can save and invest your money for goals such as:
- A vacation
- Continuing education
- Your child’s education
- Retirement
Additional Resources About The Power of Your Mindset and Money
- 100 Money Affirmations article by Frugal Fun Finance
- Being Frugal and Thrifty article by Frugal Fun Finance
- Engaging in Life’s Simple Pleasures article by Frugal Fun Finance
- All About Money Mindsets article by Integrative Psych
- How to Change Your Money Mindset article by The Motley Fool
- The Power of Your Money Mindset article by Forbes
- How to Rewire Your Brain for a Positive Money Mindset article by Medium
- 11 Key Ways to Improve Your Money Mindset article by Clever Girl Finance
- Free Budget Planner Worksheet by NerdWallet
- 4 Best Free Budgeting Tools of 2024 by CNBC
A Final Word on The Power of Your Mindset and Finances
Your financial mindset impacts many different areas of your life, especially your finances. Understand the power of your mindset surrounding money, create an action plan to break bad habits and get on track with your spending, saving and investing strategy. Before you know it, you’ll become happier, appreciate what you already have in life and won’t feel behind. Have fun creating better habits!
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Janita is a frugal living expert and owner of Frugal Fun Finance. With over five years of personal experience finding and trying out the best ways to make and save more money, she's eager to share her knowledge. Janita's strategies have helped her save thousands of dollars for funding investments and traveling to over 20 countries.
Janita completed training in personal finance at The University of Western Ontario and McGill University, two prestigious Canadian universities. Her expertise has been shared on GoBankingRates, Yahoo Finance, and NASDAQ.com.
