Don’t Let This Mindset Rob You of Financial Well-Being
For many, what their finances look like “on paper” doesn’t necessarily line up with their financial well-being, or how they feel about their finances. Having financial well-being is often considered to mean feeling secure and in control of one’s financial future, experiencing minimal financial stress and having the flexibility to enjoy life without constantly worrying about money.1
However, even if one can meet all their financial obligations, has adequate emergency savings and has a financial plan aligned with their goals/values, they can still lack financial well-being. How is this possible? Oftentimes, financial anxiety and harmful beliefs about money get in the way.
How a Scarcity Mindset Can Hinder Financial Well-Being
A common mindset that interferes with financial well-being is a scarcity mindset, which is the perception that one doesn’t have enough resources to meet their needs.2 This state of mind can create chronic anxiety, as the body may be acting in survival mode.3 It’s important to note that sometimes our perception of our financial situation may not be the reality. Perceptions are often distorted because this anxious state actually hinders our ability to take in or comprehend information.4
Living in survival mode can lead to poor financial decision-making and harmful behaviors, such as financial hoarding, compulsive spending or even avoiding any financial risks.5 One driving factor of these behaviors is the anxious sensation of the fear of missing out (FOMO). FOMO can cause one to become preoccupied on what they don’t have, such as the next new crypto, a hot tech stock or a Tesla6 — and this competitive drive and chronic comparison to others not only impacts our well-being but can also lead to poor financial decisions.
Potential Causes of a Scarcity Mindset
A few root causes of a scarcity mindset are growing up with little money, social/cultural pressure, personal setbacks or traumas, and cognitive biases.7 As a child, witnessing your parents constantly stressing about money or even hearing a parent worried about the stock market can impact our beliefs about money. Later life events such as a divorce, getting laid off or surviving a natural disaster can also trigger this type of mindset.
How to Counteract a Scarcity Mindset
A good first step in counteracting a scarcity mindset is to reflect on your core beliefs and attitudes around money, which are often developed in early childhood and stem from our parents, environment and socioeconomic status.8 Being able to self-reflect on how you developed your beliefs about money can help create an awareness of why you think or behave a certain way. This awareness can then help you become proactive about changing any behaviors that don’t serve you well.
While creating an awareness is helpful, it often takes daily conscious effort to manage anxious thought patterns. One common negative thought pattern is catastrophizing or always thinking about the worst-case scenario.9 As Mark Twain famously stated, “Worrying is like paying a debt you don’t owe. I’ve had a lot of worries in my life, most of which never happened.” This is a nice reminder that most of our worries don’t actually play out — so we shouldn’t let our thoughts control us.
Practicing mindfulness and challenging or reframing negative thought patterns can also help manage symptoms.7 When a negative thought arises, you can either let it pass by or ask yourself questions to challenge it, such as:
- Am I worrying about something I can’t control?
- Is this event likely to happen?
- Is worrying helping my situation?
- Am I basing my thought off facts or feelings?
While, of course, there are circumstances where additional support may be needed, a great way to ease your financial anxiety and gain confidence in your financial future is by working with an experienced fiduciary financial professional.
