Are you the kind of person who spends hours researching the lowest price for a 500 pack of AA batteries? What about savings? Do you diligently sock away a percentage of your income each month without question?
This outlook might sound like the very definition of financial responsibility, but it won’t bring about financial security. Why? Because the problem isn’t about money. It’s about your mindset.
More Money, More Spending
When I was 26 years old I lived in Sofia, Bulgaria. Purely by chance, I ended up taking a job as a real estate broker just before a massive housing boom swept the country. I was suddenly making more money than I had ever made before.
I didn’t rush out and buy cars, designer clothes, expensive champagne, or anything like that, but I still managed to burn through my salary as soon as it came in.
Most of my spending was on little things. I used taxis like public transport, travelled a lot, picked up the tab at the bar and in restaurants, etc. Food and entertainment weren’t really expensive, but because I spent without thinking, money never sat in my account for very long.
This attitude towards finances is careless and irresponsible. It doesn’t build anything for the future; not investments, not savings, nothing. It’s like turning on the tap and letting the water run straight down the drain.
It didn’t take long for my money tap to run dry, and when it did, I was really, truly broke.
I was also annoyed with myself for having frittered away the considerable sums I’d been earning for close to three years. Like most people who find themselves in this situation, I vowed I would never go broke again.
I went back to London and crashed in my brother’s spare room. The only job I could get was a lower profile job in sales. London was far more expensive than Sofia, so I cut my expenses to the bare minimum. No unnecessary purchases, no travelling, no social outings. Paying for the Underground was painful enough.
This was the beginning of my scarcity mindset towards money. I was so worried about not having any cash I tried to save everything I could. That seemed like a smart plan, but it didn’t really put me in a better financial position in the long term, it just slowed my progress towards going broke.
Natalie Bacon has a wonderful summary of some of the thoughts someone trapped in a scarcity mindset might think. They include:
- I don’t have enough money to do anything I want.
- I have to work more hours to make more money.
- I either have to do what I love or start making money.
Holding a scarcity mindset doesn’t mean you earn more money; it just stops you from losing what you have quite so fast. It’s better than a spend, spend, spend mindset, but not by much.
A few years later, I sold a business I was a shareholder in. The ensuing financial windfall helped shake me out of scarcity mode. It was just enough to let me survive off of part-time contract work for a few months without dipping into savings.
The benefits here were twofold. First, I wasn’t working 10-hour days for the first time in years. This gave me a chance to relax and collect myself. Second, I suddenly found myself with plenty of free time.
And what did I do with these extra hours? I invested in my future.
I spent a little money and a little time on online courses that taught me skills I was interested in learning. I wasn’t hoarding cash out of a fear of going broke, and I wasn’t blindly spending on transient everyday expenses, either. I used my money to invest in something that would pay back even more time and money – myself.
Just like that I had switched to an abundance mindset. I could finally see that money was a tool to help better myself, not something to be held onto out of desperation.
My focus now is on taking responsibility for my own life both personally and professionally. I exchanged the symptoms of a scarcity mindset for the attitudes of an abundance mindset:
- I don’t have to work harder to create more money.
- I can love my work and create a lot of money.
- Giving money feels good (I love paying for a new course I’m excited about).
- Debt means nothing about me.
- Money is fun.
Investing in Yourself
How can you escape the scarcity mindset and move to abundance?
One method I found useful was to try something out, see if I liked it or learned something valuable, then decide if I would continue. That’s it. No pressure to succeed, no guilt for spending money, and no fear of failure. Money spent exploring my own curiosity one book, article, or online course at a time was money well-spent on my future.
Take a lesson from my wasted years and start today. Think of your mind as an asset, one that’s worth building up for long term rewards. Focus on developing your skills and, even more importantly, your mindset. Invest in yourself and don’t get sucked into the cycle of thinking about how much you “need” to earn, save, or invest every day.
You’ll almost certainly earn a lot more in the long term if you can break free from, or never fall into, the scarcity way of thinking and living.
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