Ever wondered why you keep buying things you don’t need with money you don’t have? Why you can’t seem to save even though you’re earning a decent wage? Or why you’ve just never got around to investing, despite your rational brain saying it’s the sensible thing to do?
If this is you, or someone you know, it’s likely that your (or their) ‘money mindset’ is at play.
Your money mindset is, quite simply, how you approach and think about money and financial matters. It is a product of the money mindsets you were exposed to early in life and, to a lesser extent, other influences like extended family, friends and perhaps even your first employer.
There are many different ways to approach money mindsets – for example, positive and negative, healthy or unhealthy, or scarcity and abundance.
We asked two experts – financial planner Michelle Stone, who deals every day with people making financial decisions, and behavioural economist and psychologist Phil Slade – for their views on how to foster a healthier approach to your money mindset.
How does a money mindset form?
“It’s very simple how it comes into being,” says Stone, founder of Feel Good Financial Planning.
“Although it’s multi-layered, it’s the family you’re born into [who] give you your ‘normal’ of what money is.”
“And the potential for that is that you either agree and conform with it – or you disagree with it if it’s painful. In that case, you may seek to do the opposite.”
“If your parents were constantly worried about money,” Stone adds, “the chances are they will instil that fear in you. The alternative is you become the exact reverse – that is, a spendthrift, as you rebel against what you found to be a stifling approach.”
Where do you belong?
In Slade’s view, when it comes to money mindsets there are three main world views: groupies, authoritarians and purists.
“From a money perspective, looking at these world views is really interesting,” the founder of decision-making firm Decida says.
As the names suggest, groupies like getting on with the group and believe they are stronger together. Authoritarians like to take the lead and don’t see control as an issue, and purists are about ideals and what they believe is the right thing to do.
Slade explains how that looks in practice. A groupie will want to spend on something that will make them look good to the group, an authoritarian will look at the data and find the best bang for their buck, while a puritan will spend money on, or invest in, something that matches their ideals.
This ‘world view’ approach is more likely to predict how someone will act in the future when it comes to financial decisions, and looks at an individual’s motivations for the particular decisions they make.
Can you change your mindset?
When it comes to changing or moving beyond your current money mindset, Slade and Stone have similar ideas. They both say it can be very difficult to shift a mindset, but it is possible to work with them.
Stone says recognising your particular money mindset “box conditioning” is the first step in moving towards a healthier mindset.
“You change it by bringing awareness to your beliefs,” she says.
“Once you accept what your programming is, you put down what your goal is and then you work with someone who can help you achieve that goal, taking into account your strengths and weaknesses.”
Stone says that people need to understand that the journey is hard, but if they really want to adjust their money mindset, they need to do the work. And that work involves setting goals and mapping out paths to achieve those goals – there is no magic bullet.
Slade points out that the important thing about money mindsets is that they’re all based around emotional activity. So, as Stone suggests, if you can recognise and understand how you emotionally react to financial situations, you can start removing some of your blind spots.
“One of the things to counter this, no matter what your money mindset is, is to try to de-intensify your spending behaviours [and] take the emotion out of it,” Slade says.
“If you can start to look at your emotionally reactive side, you can start understanding where some of the blind spots are, and why, and just slow the process down a little bit.”
For example, people who have recognised they have an unhealthy money mindset that prevents them from saving could set up a regular direct debit into a savings account. By doing so, they have taken the emotion out of individual savings decisions.
A series of seemingly small actions like this can begin to create new neural pathways, putting you on the right track to a much more positive money mindset. As our experts say, it won’t happen overnight, but it will happen.
Your 4 money mindset takeaways:
-
Identify your money mindset patterns
-
Recognise those patterns are learned – and can be changed
-
Set financial goals to create the changes you want
-
Take the small steps to reach those goals
For more tips on budgeting to help you reach your goals, call us on Phone (07) 3343 9228.
Important information and disclaimer
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. The information in this article is current as at June 2021 but may cease to be accurate in the future.
NULIS is part of the group of companies comprising IOOF Holdings Ltd ABN 49 100 103 722 and its related bodies corporate (IOOF Group).
Opinions constitute our judgement at the time of preparation. In some cases information has been provided to us by third parties and while that information is believed to be accurate and reliable, its accuracy is not guaranteed in any way.
To the extent that the information in this article is or contains advice, it does not take into account any particular person’s objectives, financial situation or needs. Before acting on the information, you should consider the relevant Product Disclosure Statement, consider the product’s appropriateness to you having regard to your personal objectives, financial situation and needs, and consider obtaining independent advice. The Product Disclosure Statement for the MLC Super Fund is available at https://www.mlc.com.au/personal/superannuation/products or can be obtained by calling 132 652 (Monday to Friday between 8am and 6pm AEST/AEDT). Returns are not guaranteed and past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the IOOF Group accepts responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.