When you think about it, money is all about your behavior. Your financial goals and how you go about spending your hard-earned cash is determined by your habits, thoughts, and feelings about money, in short, your relationship with money.
Everybody knows that they should spend less than they earn. Minimize expense, maximize income, and you have a recipe for personal finance success. Unfortunately, everyone also knows that this is easier said than done. There are times when our minds play tricks on us and change the way we view money.
Your Relationship With Money Starts With The Right Mindset
Before you develop this mindset, you will need to know what you want to spend your money on. Then, you need to get rid of your limiting belief about money that is holding you back. When you make that mindset shift, you can start to build a healthy relationship with money and you can use money as a tool to achieve your goals.
If you have ever tried to achieve a valuable goal and have failed, then you know that it takes a lot more than just following a step-by-step checklist. It all comes down to the mindset. I will not give you a step-by-step guide on how you can improve your relationship, but rather some tips you can implement to hopefully help you take an active role in growing your personal growth.
5 Tips To Establish a Healthy Relationship With Money:
Money is a means to an end
When people say that they need an amount of money to retire comfortably, the goal isn’t to make that amount of money. It’s to retire comfortably. Money allows them to do so. When you tell yourself that you need to save money, the goal isn’t to save money, but rather to be able to afford expensive and crucial things in your life.
Having more money isn’t the solution to solving your problems. It is just a tool.
When you make that mindset shift, you can then start to focus on the outcomes of your actions instead of your emotions towards money, positive or negative. Money is not the goal. It is a means to achieve that goal. With this new way of thinking, you might be able to resist impulsive spending easier.
Of course, changing this mindset alone won’t make your money problem vanish immediately. However, it will at least allow you to take control of your finances and be more intentional about how you spend and use your money.
So what does that look like?
Since money is a means to an end, you want to define that end first. So start by asking yourself what really matters to you. In this case, that means knowing what you need the money for.
Don’t sweat the small stuff
Now, I know I’ve said that the key to financial success and freedom is by minimizing expenses and maximizing income. But the thing about saving is that you don’t have to be that frugal.
You can still have your latte every day.
The fact that you hear someone tell you to ditch the coffee to save a few bucks a day is assuming that you are struggling just to make ends meet. As mentioned in a previous article in this series, most financial advice often doesn’t work for everyone.
In this case, the idea isn’t about cutting coffee from your life, but rather to bring your finance under control. You don’t have to pinch pennies and worry about every little expense. Once you create spending priorities in the last tip, you should be able to keep your spending under control.
Keep in mind that there is a limit to how much you can actually save. Sure, you can be as frugal as you like, but it is impossible to keep your spending at $0. Of course, you will need to save but you should put more effort into maximizing your income because there is no limit on how much you could earn.
Besides, there is a limited amount of mental energy you have per day, and you want to spend it wisely. You won’t be making much if you cut out the coffee, so it’s better to put that mental energy into good use by finding ways to earn more. If you focus too much on the small stuff, you might even develop anxiety when you spend money!
Therefore, there needs to be a shift in mindset. Those who are too focused on pinching pennies are operating on the scarcity mindset. On the flip side, those who focus more on making more money operate on an abundance mindset.
Besides, focusing your efforts on making more money makes sense because it takes away the need to be so frugal in the first place. If you make 5 times your income now, then you can afford everything and then some.
So, how do you implement this?
Wealth is a mindset
In order to become wealthy, you need to have the right mindset. This is what this entire article series is about.
Most millionaires or billionaires will tell you that they got to where they are today not because of a single investment or transaction. It’s hundreds if not thousands of them that build them up to this point. What caused those chains of events is called the millionaire mindset. It sounds weird, but it is what it is.
You see, only a small fraction of millionaires you see nowadays are a millionaire because they inherited their family’s wealth. An overwhelming majority of wealthy people got to where they are through hard work. They are self-made millionaires. They make their money themselves. They didn’t need someone else to help them or wait around for a miracle to happen.
Successful people do not lament in their unfortunate situation and instead, work toward accumulating wealth. They make opportunities happen.
Many people believe that they are stuck in their unfortunate situation forever. They think that they will never break out of their debt cycle and live from paycheck to paycheck. This is just not true, and numerous rag to riches stories confirm that.
Live like you’re broke
Now, I know it sounds ironic because I just told you how being frugal isn’t so effective. But hear me out. When you lead a frugal lifestyle, you can save money for things that are important for you. But that does not mean you would be depriving yourself of all the things that you love. It’s a matter of priorities, so a frugal lifestyle is personal. A frugal lifestyle involves cutting out unnecessary spending which does not add value or provide you with much joy.
For instance, you can be frugal for some things but not others. You can cook your own food, choose the simplest and cheapest mobile plan, buying clothes only when you need them, etc. On the other hand, you can still travel, go to concerts, you get the idea. Don’t skimp on everything. Save money but spend them on the things that are important to you.
The best way to spend your saved money is by investing it. It is the key to growing or building your personal wealth. Setting some money aside to invest allows you to grow your wealth considerably, which allows you to spend on the things you enjoy.
There are many ways you can invest such as:
- Peer-to-peer lending
- Start your own business
- Invest in stocks
- Pay off debt (this should be top priority)
- Invest in real estate
Control your emotions
A positive relationship with money is about controlling your emotions. What is your view of money? How do you feel about it whenever it is mentioned? Do you feel ashamed, afraid, or angry? If you feel any one of the three emotions, then there is nothing to be embarrassed about because almost everyone shares your feelings.
When you remove your negative feelings toward money, you are more able to overcome your money blocks, which allows you to change your financial situation and develop a healthier relationship with money.
So what does this look like when implemented? Suppose that you have a bad day at work or in your personal life. If you let your emotions control you, you may spend money buying things you don’t need to make yourself feel better.
Let’s call this retail or shopping therapy – the unnecessary purchase of various items as a form of coping mechanism.
It’s not just for bad days, though. On the flip side, if something good happens to you, let’s say you get a raise, then you may treat yourself to something nice (and expensive). In the latter case, it may be fine if it doesn’t spiral out of control. If it does, then you will find yourself finding every excuse to buy yourself expensive stuff. It’s like using the
“It’s always 5 o’clock somewhere” as an excuse to drink at 7 o’clock in the morning.
You will always find an excuse to spend money because it is addictive and very dangerous.
It all comes down to your emotions. If you can keep them under control, then you will have more control over your spending habits. The best way to do this is to not react to your emotional triggers, at least not immediately. In our previous example, it would be the temptation to spend when something good or bad happens to you.
When building a good relationship with money, acknowledge that the emotion is there but do not act upon it.
When you do not act upon your emotional triggers, you are giving yourself some time to process your emotions and help you detach from those negative emotions.
Next, you want to understand your triggers. Simply put, what caused you to feel the urge to spend in the first place? Knowing the source can help you identify the situation that could cause you to spend impulsively or make poor financial decisions.
Then, take responsibility. It is a lot more convenient to blame everyone else for your money problems, but I urge you to put yourself on the spot and own up to your mistakes and problems. Sure, some financial setbacks are well outside your control, but you still have the power to determine how you’ll meet them.
It’s your money so you have the choice to take control of it. Own up to your saving and spending decisions.
Growing your personal wealth requires you to have a positive relationship with money first. This is the first step to getting you out of a life of living from paycheck to paycheck. Even if you don’t want to become rich, developing a positive relationship with money will go a long way to protect both your money and sanity in the long run.