Mind on My Money, Money on My Mind

How much do I need to save to retire early?

What is my savings rate?

What is my net worth?

Often when we think about personal finance, we think about questions like this. The personal finance community is all about the numbers. The cold, hard facts.

The thing is, though, looking at personal finance from a wholly mathematical standpoint doesn’t reveal the complete picture. The psychology of money is a huge part of that picture.

Personal finance is just as much about mindset as it is about numbers.

Mind over matter

Mindset is probably the most important factor in personal finance, but it’s often overlooked. You can teach people everything they need to know about personal finance but until their minds are in the right place, they won’t make any progress.

We see this play out all the time.

How many books, websites, videos, etc. are there about how to handle money? There are thousands of resources available that outline the steps we need to take to manage our finances.

None of this is new.

Still a recent CareerBuilder survey shows that 78% of Americans live paycheck-to-paycheck; 71% of all U.S. workers report being in debt, and about 56% save $100 or less each month.

If it were only about the numbers, we would all have ample savings and be living the lives that we want to live without huge debt burdens and financial worries.

It’s about changing your mindset. Your mind is your most powerful tool in achieving any financial goal.

It can also be your worst enemy.

Your mind is evil

We’ve talked before about lifestyle inflation and keeping up with the Joneses. Those are two classic examples of your evil mind at work.

It’s why this couple is “scraping by” earning $500,000 a year. It’s often why six-figure earners are in tons of credit card debt.

Left unchecked, your mind will have you thinking that you need to do what everyone else around you is doing, even if it doesn’t work for your financial situation and even if you don’t really want the things everyone else has.

Susie and Johnny bought a new million dollar house, so you need one, too. Mary bought a brand new Benz, so you have to, too.

After all, you have to treat yourself, right?

Before you know it, you’re spending every dollar you make and then some and complaining about how it’s just so hard to get by.

Don’t do it.

Do you really want those things, or are you just following the crowd? Do you have unconscious expectations about what someone making your salary should be buying or doing?

What is your ultimate financial goal for your life? Will your current lifestyle help get you there? Why do you want that goal?

The ultimate motivation

There’s lots of talk about finding your “why” in life. It’s the purpose that drives everything you do.

The same is true for reaching financial goals. I told you here that the first step you should take in paying off debt is to figure out your “why.” Finding the big-picture reason behind any financial goal is critical to success.

Your “why” should be more than just “to be debt free” or “to save a million dollars.” WHY do you want to be debt free or save a million dollars?

For us, it’s having the freedom to work less and spend more time with our family. That desire has pushed us in our debt payoff journey. We paid off nearly $50,000 last year, and $37,000 in the first three months of this year.

(By the way, have I mentioned how much I hate interest? By those numbers, we should be under $600,000 by now, but interest was like, “Nope. You’re good.“)

Your “why” is the thing that will motivate you to keep going, even when obstacles arise or when your resolve is weakening and you want to give up. It’s the thing that will cause you to push yourself more than you thought possible and drive you to succeed.

Find what it is and keep it in mind as you strive for your goals.

The power of positivity

If you ask people if they can live off of 80% of their income, they will often say yes. If you frame it as saving 20% of their income, they say they can’t do it.

People see the second question as a negative thing. They see that situation as being deprived, so they don’t believe they can do it and therefore are less likely to do it.

Seeing things in a positive way helps push us to reach our financial goals.

It’s why the debt snowball method is so popular with people trying to pay off debt. You get these quick wins, and you’re motivated to keep going.

It’s addicting. You want to keep going to see how much more you can pay off the next time.

Sure the debt avalanche method might save you money over time, but as I said before, if it were just about the numbers, most people wouldn’t be in debt in the first place.

Also, higher interest debts tend to have higher balances. Slogging through a $20,000 loan and feeling like you’re never going to see the light at the end of the tunnel might cause you to give up.

Paying off a $1,500 loan in a month or two gives you that bit of confidence that this is going to work. Then, you move to the $2,000 loan, and you knock that one off in two months and so on.

When you’re knocking off loans every month or every other month, you’re building momentum. It’s much harder to stop. You keep seeing progress, and you stick with it.

Ultimately, the best plan is the one that works, right? If you don’t keep up with a plan, you don’t reach the goal. Then, what is all this for?

When we started on our journey, I had 14 student loans. Now I have 3.

Granted those 3 were almost half my student loan balance by themselves. 🙂 But it feels really good to log into my account and see 3 loans, rather than the laundry list I used to see. Seeing the number of loans dwindle is huge motivation.

[UPDATE: As of September 2018, all of my loans are paid off!]

There is something to be said for believing that you can do something. The belief that you can do it gives you the confidence to take action.

Your money mindset

The psychology of money can’t be understated. It’s the biggest factor in your financial success or failure.

I encourage you to think about any negative thoughts you have about money or any subconscious ideas you’re holding onto about money.

Think about your ultimate financial goals and the reasons behind them. Finally, think about how you can create momentum to keep going and reach your goals.

Your money will thank you. 🙂

What do you think about the psychology of money? How has your mindset impacted the way you deal with your finances?