In the journey towards financial freedom, the power of mindset is a foundational element to building wealth. In fact, maybe you can relate.
Back in 2019 when I was trying to get my finances in order, there were several failed attempts before it finally stuck. And the thing that finally made a difference? My mindset.
Our attitudes, beliefs, and perspective shape our actions and choices. This ultimately influences our financial well-being. In this blog post, we will explore the power of mindset in personal finance through growth mindset, resilience mindset, and debt stress. Drawing inspiration from research and practical strategies, we will delve into the importance of mindset in achieving financial goals and creating a life of abundance.
Types of Mindsets
A Growth mindset is when someone believes that their most basic abilities can be developed through hard work and dedication.
For instance, if a person finds they are struggling with public speaking, they might take a course on public speaking and dedicate time and effort to improving this skill.
A growth mindset often sees a “weakness” as an area of opportunity, instead of an inherent trait that cannot be changed.
A fixed mindset is the opposite of a growth mindset. A fixed mindset sees traits as, well, fixed. This can lead to a sense of helplessness.
For example, if someone feels that they wish they were smarter but that intelligence is inherent, they will likely stop pursuing academic endeavors.
This can also create a cycle of self-fulfilling prophecies.
Prosperity or Abundance Mindset
An abundance mindset believes that the world is full of enough resources and opportunities for everybody to succeed.
For instance, if a person has an idea to be a successful author but there are already so many successful authors in the world, they might see this as a sign that there is room for more authors to continue to be published, instead of there being only a limited number of authors who can ever succeed.
A scarcity mindset is the opposite of an abundance mindset. A scarcity mindset sees the world and opportunities as limited– limited resources, limited time, limited opportunities for success or connection.
For instance, when people are excited to start a new creative or business project, often they might be tempted to compare themselves to people who have already accomplished the thing they hope to do. This can go so far as to stop them from pursuing their idea at all because they are too worried “someone else has already done it”.
When I started Clo Bare, overcoming a scarcity mindset was a huge turning point for me! There will always be people out there who are doing what you want to do. If you can let that inspire you, you are one step closer to defeating a scarcity mindset.
A resilience mindset is defined as the ability to bounce back after things don’t go as planned.
For example, if a person invested in cryptocurrency and did not achieve the gains they were hoping for, they would view this as an opportunity to reassess their investing strategy, instead of labeling all investing strategies as bad.
A resilience mindset is vital for anyone interested in personal finance.
The Link Between Mindset and Financial Behavior
Our mindset has a profound influence on our financial behavior. If we believe that we have control over our financial situation and that our actions can make a difference, we are more likely to take proactive steps toward financial success. Conversely, a fixed mindset can hinder our progress by perpetuating self-doubt, fear, and limited thinking.
For instance, if you are stuck in a scarcity mindset, it can lead to thoughts of never making enough money and never having enough money. This can translate into not going for the big job promotion or seeking out ways to increase your income. It’s a self-fulfilling prophecy. No to mention the stress loop it will trap you in.
If you are trying to make progress in your personal finances but find that you are feeling stuck, it is likely because you haven’t tapped into the power of mindset. If you are ignoring how you see, feel and treat money but are expecting to change deeply engrained habits, it’s going to be nearly impossible. Finance is more than just spreadsheets and budgets. If you see money as a symbol for what you value, then every time you spend money (or earn money), you are having a conversation with yourself about your values. The connection between your mindset and how you spend your money is undeniably valuable, and conversely, having good financial habits can build your confidence and reflect back to you elements of who you are.
The power of mindset is that it is something you can start working on today, for free. Not only can you start making steps towards a healthier financial life right now, but it’s also the foundation. It’s a necessary step to set you up for success, to work through the fear of failure, the fear of success, and whatever else may come up on your way to financial freedom.
The Power of a Growth Mindset
By embracing a growth mindset, we can break free from self-limiting beliefs, manage debt stress, and pave the way for a prosperous financial future. Adopting a growth mindset can have a profound impact on our financial well-being, shaping our beliefs, behaviors, and ultimate success in managing money. A growth mindset is characterized by the belief that our abilities and skills can be developed through dedication, hard work, and continuous learning. By embracing this mindset, we can overcome financial challenges, cultivate healthy money habits, and achieve long-term financial security.
One of the key ways in which a growth mindset influences personal finance is by transforming our beliefs about money. Individuals with a growth mindset recognize that financial knowledge and skills are not fixed traits but can be acquired and honed over time. Read that again: no one is born “good at finance”.
This belief opens the door to ongoing learning and improvement in our financial decision-making. We become more willing to seek out financial education, read books, attend seminars, and engage in conversations with money. As a result, our financial literacy expands, empowering us to make informed choices and navigate complex financial landscapes.
Moreover, a growth mindset encourages us to view financial setbacks and failures as opportunities for learning and growth. Rather than being discouraged by mistakes or financial setbacks, we approach them as valuable lessons that can guide us toward better outcomes in the future. We understand that setbacks are not permanent and that we have the capacity to bounce back and make wiser financial choices. This resilience allows us to stay motivated and persist on our financial journey, even in the face of challenges.
A growth mindset also shapes our approach to goal setting and financial planning. Rather than setting rigid, fixed goals, individuals with a growth mindset focus on continuous improvement and progress. They understand that financial goals may evolve over time and adapt their strategies accordingly. This flexible mindset allows us to pivot, reassess our priorities, and make adjustments when necessary. We are not discouraged by temporary setbacks or delays, as we view them as part of the journey toward financial success.
The power of mindset is further reflected in our attitude towards financial risk-taking and investment. With a growth mindset, we are more inclined to embrace calculated risks and explore investment opportunities. We recognize that wealth creation requires stepping out of our comfort zones and being open to new possibilities. Rather than fearing failure, we see it as an opportunity to learn and grow. This mindset enables us to approach investing with a long-term perspective, understanding that the value of investments can fluctuate in the short term but tend to grow over time.
Furthermore, a growth mindset cultivates a positive relationship with money and promotes financial well-being. Instead of succumbing to a scarcity mindset, where we believe that resources are limited, we adopt an abundance mindset. We develop gratitude for what we have and focus on possibilities rather than limitations. This shift in perspective allows us to attract financial opportunities and make decisions from a place of abundance rather than fear and scarcity.
The Power of a Resilience Mindset
Something that no one is talking about is the need for resilience in your financial mindset. The power of mindset is that it can help you build resilience, even when you are in a bear market. Research has shown that individuals with a resilient mindset are more likely to stay invested during bear markets and reap the benefits of long-term investing.
During a bear market, characterized by declining stock prices and widespread pessimism, it is common for investors to experience fear and uncertainty. Many individuals panic and sell their investments, hoping to avoid further losses. However, this reactive behavior often leads to missed opportunities and long-term financial setbacks.
Statistics have demonstrated the significant impact of staying in the stock market during bear markets. According to a study conducted by Fidelity Investments, investors who stayed invested during the 2008 financial crisis and the subsequent bear market experienced significant gains in the years that followed. From the market bottom in March 2009 to the end of 2018, the S&P 500 index delivered an impressive annualized return of approximately 17%. This highlights the potential rewards of maintaining a long-term perspective and resisting the urge to make impulsive decisions based on short-term market fluctuations.
One of the key benefits of adopting a powerful mindset and building resilience in finance and investing is the ability to focus on the long term. Investors who understand the power of compounding and have a long-term investment horizon tend to achieve greater financial success over time. By staying invested and consistently contributing to their investment portfolio, individuals can harness the power of time and market growth to build wealth.
For instance, consider the scenario of two investors: Investor A and Investor B.
Investor A has a short-term mindset and frequently reacts to market volatility, buying and selling investments based on short-term trends. On the other hand, Investor B has worked on their mindset and has developed a resilience mindset. Investor B maintains a long-term perspective and stays invested even during market downturns. Over a period of 20 years, despite experiencing similar market conditions, Investor B’s investment portfolio significantly outperforms that of Investor A.
Furthermore, research has consistently shown that long-term investing has historically outperformed short-term trading strategies. According to a study by Dalbar Inc., which analyzed investor behavior over a 20-year period, the average equity investor earned a significantly lower return compared to the market. This underperformance was primarily attributed to poor market timing decisions, including selling during market downturns and buying during market peaks. Even those whose job it is to watch and predict the stock market struggle to outperform the “buy and leave it” strategy. The study emphasizes the importance of long-term perspective and maintaining a disciplined investment approach to achieve superior results.
Developing a resilience mindset requires self-awareness, emotional intelligence, and a commitment to long-term goals. It involves understanding that market fluctuations are a normal part of investing and that short-term volatility should not derail well-thought-fundamental principles such as diversification, asset allocation, and regular contributions, rather than attempting to time the market and chase short-term gains.
The Power of Mindset in Overcoming Debt Stress
Debt can be a significant source of stress and anxiety. However, by leveraging the power of mindset, we can effectively manage debt stress and work towards financial freedom. One of the main obstacles we have to face when we are getting out of debt is the ability to cope with the stress that it can trigger in us. Every time we open a bill, every time there is an unexpected expense, we are presented with two options:
1- We let fear take over, go down an anxiety spiral, and then wind up making worse money choices by impulse spending, ignoring the debt and due dates, or even missing major opportunities to increase our wealth.
Or 2- Hold space for worry without letting it overwhelm us. I know this can be easier said than done, but working on your mindset toward money can help you stay present, stick to your debt-free plan, and even aid in your enjoyment of the ride. Sometimes it takes years to get out of debt. Do you really want to be stressed out that whole time? Of course not! By improving your money mindset, you are setting yourself up for financial success, and a path that you can enjoy while getting there.
If debt stress is your top stress in life right now, the first three steps I would recommend are:
Download this free guide. The Money Right Guide was created for people just like you (and me). I started my financial journey with over $70k in debt and constantly felt like I was drowning from it. I created this guide with questions specifically designed to help you better your understanding of your current money mindset so that you can work towards a money mindset and financial education that more realistically supports your dreams. It also has a huge free resource library.
Create a realistic budget. On my journey to financial freedom, I tried all different types of budgets, including the oh-so-popular 50-30-20 budget. Ultimately, a values-based budget was what worked for me. But don’t be afraid to research the different options out there and find what works best for you! It might take a few months to get the hang of things, but having a budget is actually extremely empowering.
Choose three stress management techniques that you will use when you start to feel overwhelmed. This could include journaling, meditation, reminding yourself of your financial goals and the plan you made to get there, connecting with a friend, or going for a walk. Find easy tactics to de-stress that work for you! This will help you stay on track with your debt-management plan and increase your capacity to manage your finances, without anxiety holding you back.
How to Develop a Growth Mindset
To unlock the power of mindset in personal finance, we need to retrain our brains and challenge limiting beliefs about money. By examining our deep-rooted money scripts, we can identify and replace negative beliefs with empowering ones. Retraining our thought patterns – of course! – will take time. But if you start today, you will start to see subtle differences soon.
Personally, I started to notice a difference three weeks after I started meditating in the morning. I think a key moment for me was when I realized that I was becoming more aware of my thoughts, and therefore, I had more of a say in them.
You might not be able to stop negative thoughts altogether (in fact, trying to is counterproductive!), but you can respond to them.
For instance, if you hear yourself think “I will never be out of debt”. You can respond to your own thought with the truth. Maybe that sounds like “I have a plan to get out of debt and every month I am getting closer and closer.”
These internal dialogues shape how we view the world, and when we change how we view the world, we change how we interact with it– we change our whole lives.
Some helpful tools for training your brain include positive affirmations, visualization, and journaling. There is a whole list of positive affirmations you can use here. I also have tons of free journal prompts you can use if you download the free money guide here.
If you want a community to grow with, I have thousands of people just like you who join me for my daily money affirmations on my Instagram stories, too.
If you have been “thinking about getting better with money” for a while, maybe you have even attempted to budget or have made small steps towards investing- that is great! You are on the right track! But if you find you have thoughts of improving your finances but you haven’t actually seen a change, it’s likely because you haven’t paid enough attention to the power of mindset.
Some of the mindset shifts that really helped me started with simple thoughts like:
“No one is going to care more about your personal finances than you.”
“I want to feel confident in my ability to provide for myself.”
And even…”Dumber people than you have figured this out.”
It’s easy for topics like personal finance to feel overwhelming like you are entering into a new world with a whole new language and a strange set of rules. But your number one tool is your mindset and if you are able to do the work on your mindset from the get-go, I promise everything else will come with ease.
The power of mindset is its ability to change your relationship with your money. This includes how you use it and how you make it. At its core, money is a tool to be used. That’s it. And when we shape our mindset to be flexible, resilient, and looking for opportunities to grow, we have a dramatic positive impact on our personal finances.