Why your money mindset matters, and how to have a better one in 2024
A healthy money mindset looks like this:
You believe you can learn new concepts about money.
When you receive constructive feedback about your finances, you consider it a gift, and you do something with it.
You feel responsible for your financial success (effort = abilities).
You embrace failure as a learning opportunity, and try not to have it repeat.
You try new systems and approaches to financial management because that’s how you’ll grow in your knowledge and in your wealth.
A blocked money mindset looks like this:
You believe you are permanently stuck and not making progress.
You feel like you were born this way and say things like, “I’m just bad with money.”
When you fail, it reinforces your belief that you aren’t good at managing money.
Financial feedback feels like criticism, rather than helpful coaching.
Getting out of your comfort zone to try a new approach to money is intimidating, so you don’t bother to change.
Depending on which psychology magazines or research you read, or mindset podcasts you listen to, the general consensus from the wellness community is that at least 70 per cent of our financial decisions are emotion-based. The trouble here is that if you are not in a healthy and strong state of mind, your emotions can drive poor financial decisions; ones that are impulsive and not rooted in facts.
When financial stress is amplified, as is so for an extremely high number of Canadians at the moment, it’s even harder to shift out of the fight or flight part of our brains (the amygdala) and use our frontal lobes (the part of our brains responsible for rational thinking) to process information about our emotions and make better money decisions. If your stomach is turning while reading this, that’s good. The way you work through this resistance is with persistence in these three mindset areas:
Give yourself a break
‘Tis the season to be nicer to yourself. Your past financial mistakes belong in the past. No one on Earth is born “good” with money. Everyone must learn how to manage it. So, it’s best to treat today as the first day of your financial transformation. Look for any silver linings from your mistakes while reflecting, but forgive yourself. Did your passion or your moral compass get you into this financial pickle to begin with? OK, well, you’ll need to draw on both that passion and dedication to doing the right thing to get out of this financial pickle, too.
With this step you’re also trying to interrupt any unhelpful comparisons you might be making consciously or subconsciously. Maybe give yourself a break from social media, too.
Form stronger money habits, and put your own spin on them
Time to get practical. Money mindsets only improve if you take smart financial actions. That’s right. Despite all the social media posts on manifesting, without better money systems, you’re not going to see results.
The systems I recommend everyone have in place are budgeting, spending tracking and net-worth measuring. Anything less than that won’t be sufficient to manage money well. More than that, and it gets complicated.
Whether it’s a template you download from Google or an app, budgeting is a mindful practice every month of identifying the money you have coming into your accounts, and planning where it needs to go. The goal is to ensure your inflows equal your cash outflows, and nothing more. Otherwise, a trimming exercise has to happen. My pro tip with budgeting is to ensure you have money allocated for joyful activities. Otherwise, you’ll get frustrated and won’t stick to your restrictive budget.
Spending tracking is the act of keeping tabs on all your expenses; automatic payments, cash or debt/credit purchases. Every dollar needs to be accounted for. Some banks offer a notification system to help you monitor, or you can keep a spreadsheet.
Now, compare the budget you set up to the spending that actually happened. Did you stay on track or fall off your plan? Comparing allows you to identify opportunities for improvement and celebrate what you’re really great at. Apps like YNAB or Mint are the digital version of budgeting and tracking, but manual spreadsheets work great, too. The key is to keep it all up to date.
Net-worth tracking is an accounting of all of your assets and liabilities. The individual accounts, loans, investments, mortgage; all the balances need to be noted on a monthly or quarterly basis. When the liabilities are subtracted from assets, that’s your bottom line. When that bottom line is improving — even just a little — each month, it means you’re budgeting and spending tracking systems are working. If it’s going down, the budget and/or spending are broken and require more work. This is the part where I highly recommend seeing a money coach, if you keep trying and can’t figure out what’s going wrong.
Saving is the magic ingredient to a mindset transformation
Saving money for your future and for short-term emergencies is an act of self-love. It’s got the power to help you overcome overspending habits, and get you excited about what’s down the road. I know there are a million priorities for your finances, but even a small amount of money saved into a rainy-day fund, like $5 per week, is better than nothing. The same goes for investing in a TFSA or an RRSP for retirement. The mindset magic happens when you are consistent with your saving. That’s because consistency supports great habits. Once great habits are in place, you’re off to the races.
Money mindset transformation can be speeded up with gratitude. Being thankful for what you have, hopeful for the future, and OK with today being the day you’re going to do your best with your money. Stick with this, and you’ll feel amazing, and have more money.
This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.
