The way your mind works influences your financial decisions. However, this can be very harmful to your future.
Dealing with finances in a healthy way is not an easy task. And that’s mainly because there are many factors involved in the same equation: your income, your beliefs, and your upbringing. On top of this, there is another aspect that many people tend to overlook, but which is essential when talking about our relationship with money: your financial mindset.
Mindset is a term that has managed to pique the top minds in the financial sphere of things. Until then, it was only related to our general behaviors as a person and as a professional. But, what happens when it’s applied to money?
In finance, mindset is a very important factor and determines your way of relating to the topic. If you want to learn more about it and find out how it may have prevented you from fulfilling your dreams, all you’ve got to do is keep reading!
What is a financial mindset?
Financial mindset concerns your mindset regarding issues involving finance. It’s about the way you deal with money, based on your beliefs, your values, and the principles acquired throughout your life.
Talking about beliefs, values and similar issues is important when talking about mindset, mainly because it has to do with how we’re programmed to behave. That is, the financial mindset applies to how your mind was programmed to deal with financial issues. And that, of course, has a lot to do with the teachings you’ve been exposed to.
A mindset is something genuine, which influences our choices without even realizing it. And it can influence for good, but also for worse. Despite this, the most important thing is to know that it is possible to change your mindset and even make it work in your favor when making financial decisions.
How does the financial mindset influence our choices?
What influences your choices in life? As rational as you are and as certain as your decisions are, it is undeniable that all of them are influenced by the way your mind works. Your financial mindset works using this same principle.
If you are a person concerned about the future, you probably already invest or are looking for ways to start investing. If you are concerned about your retirement and your financial condition when you no longer have a monthly salary, you’re already aware that investing in a private pension plan is a great choice.
However, the exact opposite can also apply. Those who only think about the present and live like there’s no tomorrow, hardly worry about building equity or preparing for financial unforeseen events. These people think that just because they work, they deserve to spend all the money they earn. This sort of mindset can be detrimental if you factor in all the unforeseen circumstances that may arise.
But, do you know the biggest drawback of this type of behavior? It’s just that the time comes when life will take its toll on those who don’t have a pocket-friendly financial mindset.
How is the financial mindset developed?
Knowing that it is possible and learning how to change your financial mindset is important. But before that, you need to take a step back and understand how it’s even developed, to begin with. Naturally, your mindset has a lot to do with the upbringing you had in your childhood, but that’s only a small part of it.
Beliefs are the core values we acquire from early childhood and they can be related to the upbringing we had in relation to money. If you’ve always heard your parents say something like: “only those born with a golden spoon are rich”, you’re probably not too convinced that building wealth on your own is possible.
And another important factor that we need to consider regarding financial beliefs is that they are not just acquired at home. You can develop beliefs from living with the social groups you are a part of. This includes your friends, co-workers, and other people you’re surrounded with.
Stop and think for a moment: how many financial decisions have you made based on the beliefs you’ve acquired throughout your life? With this approach, you’ll realize that this happens much more often than you’d realize.
Personality is another important pillar of our financial mindset. It refers to how you see the world. As much as it is influenced by beliefs, your personality is individual and is the result of characteristics that only concern you.
If you are a distrustful and fearful person, for example, it may be that, when investing, you prefer more conservative investments with less risk. On the other hand though, if you are an extremely optimistic person, you may be willing to risk a little more.
Behavioral biases influence our choices in many areas of life and it is no different when it comes to finances. Bias is a kind of shortcut your mind takes to make a decision. This happens because making a decision involves dozens of factors and taking all of them into consideration would make it impossible to decide. Because of this, the mind takes a shortcut.
The problem is that, on this short path, your mind may not be able to take note of more important aspects that will influence the end result.
Savings is seen as a safe investment by many, and because of it, it’s viewed as a solid option for anyone who doesn’t want to take huge risks. But in that shortcut, your mind may stop considering that there are investments as safe as savings that bring you a more financial return. This way you can completely ignore the fact that better options do exist, and one of them is investing in a private pension plan.
How to change your financial mindset?
Now it’s time to learn how to change your financial mindset. With this, you’ll program your mind to play in favor of your pocket and your financial security. Check out our tips!
The first step is to know what your financial mindset is, and the only way to do that is by learning more about yourself. Try to get to know your beliefs, values , and principles and understand what leads you to make decisions in life. Becoming aware of this is, without a doubt, the first step to doing things differently from here on out.
Know your motivation
What motivates you in life? This is a question you need to answer every so often if you wish to align your decisions with what is really important to you. Your motivation is what will define your financial priorities and will be the fuel that allows you to follow your path. As long as you remain dedicated to your goals and stay on this path, you’ll find success.
Set your goals
The path you’re going to take will only make sense if you know where you’re going. Therefore, setting goals is a fundamental step for anyone who wants to change their financial mindset. Be clear about your goals and set them in a way that you can always know you’re going in the right direction.
No one said changing your financial mindset is easy. The truth is that this change requires a lot of self-exploration and discipline. You need to program your mind to prioritize only what’s really important and to stick to your goals until you’ve reached them. The urge to give up will reappear every so often, but the discipline you’ve gained will help you stay on the path to success.
What are the main challenges to developing a positive financial mindset?
By now, you’ve understood that developing a positive financial mindset is critical to your financial health. Still, don’t think it will be easy. The truth is that this path to program your mind includes a series of challenges, which you’ll need to overcome if you want to reach your goals.
Procrastination is a big enemy of our goals, in any area of life – and it’s no different in relation to finances. When it comes to money and your future, don’t think you can leave it for later, and you best get started right away if you want to succeed.
Another challenge you may face, along the way, is immediacy. In good conscience, we know that the return of what we sow today will not be tomorrow. But still, a lot of people can end up giving up halfway through because they’re not patient enough to see their long-term goals flourish.
Lack of discipline, absence of clear goals, and little vision of the future are obstacles that you will need to overcome if you want to develop a positive financial mindset. The right finance tools can help make this path significantly easier.