When you really think about it, a healthy relationship with money is all about our behavior. Your financial goals and how you spend your money is determined by your habits, thoughts, and feelings about money.
Of course you already know that you should spend less than you earn. That’s the first rule when it comes to personal finance. But sometimes our mind can play tricks on us and shape the way we think about money.
If you’ve tried to achieve a tough goal before and failed, you know that it requires A LOT more than just following a step-by-step guide. It really comes down to your mindset.
Today I’m sharing five tips to help improve your money mindset so you can start taking an active role in growing your personal wealth. These tips will help you build a healthy relationship with money if you want to be rich!
- 7 ways to stop impulse spending (so you can reach your financial goals)
- 12 legit ways to make $500 this month from home
- 70+ ways to make extra money fast
1. Money is a tool
Back when I was in college, I used to say things like “I wish I had more money” or “I really need to save money”.
To be honest, I didn’t have a healthy relationship with money and kept treating it as a goal. I used to think that having more money would solve all of my problems. But in reality, money is just a tool.
Once I made this mindset shift, I was able to focus on the outcome of my actions, instead of my positive or negative emotions towards money. Money itself is not the goal – it’s a tool I can use to help me achieve my goal (pay for college, travel more, and so on). This new way of thinking also helped me to resist impulse spending.
Just because I had this mindset shift, it didn’t mean that my money-problems disappeared overnight. Going forward, it allowed me to take control of my finances and be more intentional about the way I spend and use my money. It helped me to build a healthier relationship with money.
Ask yourself what really matters to you (what do you need the money for) and create your spending priorities accordingly. For example, I like going out to eat, but I love traveling. Understanding that money is a tool allows me to spend my money efficiently (spend less at restaurants) so I can do more of what I love (traveling).
2. Don’t sweat the small stuff
Back when I started learning how to save money, I used to pinch pennies and worry about small expenses such as having to pay more money for brand name products when the generic brand was out of stock.
Since I created spending priorities, it’s helped me to not sweat the small stuff when it comes to money. Now I focus on the big wins, as taught in the book, I Will Teach You To Be Rich.
“There is a limit to how much you can cut but there is no limit to how much you can earn.” – Ramit Sethi
For example, when I was working at my first real job after college, I was making $38,000 per year and focused all of my energy on cutting out daily lattes, tracking my spending, and doing all the typical personal finance advice.
While these frugal habit stuck with me over the years, it took me a long time to save enough money to afford to attend graduate school. Plus, I used to feel anxious whenever I spent money (even on things I needed), because I was so focused on the small stuff.
My income remained stable at my job, so I spent the majority of my energy on saving money. The scarcity mindset was very real for me. I was afraid of never having enough and finding ways to make extra money wasn’t on my radar at that time.
Fast forward a few years later, I started focusing on the big wins. Even though I used my savings to pay for graduate school, I started a side hustle that nearly tripled my income. This allowed me to rebuild my savings in less than a year and continue to create spending priorities which aligned with my goals. Instead of worrying about spending $3 on a latte once in awhile, I focused on finding ways to increase my income and do more things that made me happy.
Now I spend 70% of my energy on income-generating and wellness activities; and I spend 30% of my energy on saving money. This helped me to build a healthy relationship with my finances.
Create a schedule that priorities activities that generate income and bring you joy. Focus on the big wins, because at the end of the day you can only save so much money, but there is no limit to how much you can earn.
3. Wealth is a mindset
If you want to be rich, you need to develop the right mindset. That’s what this whole blog post is about!
Rarely will any millionaire tell you that their wealth came from a single job or investment. Instead, what most wealthy people will tell you is that the key to their success is having a “millionaire mindset”.
According the popular book, The Millionaire Next Door, only 20% of millionaires inherited their wealth. The other 80% earned their money on their own.
So many people believe that they’ll never get out of debt or break the cycle of living paycheck to paycheck because they think that’s just a way of life today. This isn’t true.
Most of these millionaires created their wealth themselves. They didn’t have a helping hand and wait around for prince charming to come and save them – they went out and created their own opportunities. They took responsibility of their money.
The first step in developing the right money mindset to grow your personal wealth is to get clear on what you need the money for, which we discussed in point #1.
The second step is to get rid of your limiting beliefs about money, which are currently holding you back from getting what you want (your end goal). This will allow you to build a healthy relationship with money so you can use it as a tool to achieve your end goal.
4. Live like you’re broke
Living like you’re broke simply means living a frugal lifestyle (no matter what your income level is) so you can save for the things that are really important, such as investing your money.
When it comes to personal finance though, the way we choose to manage our money IS personal.
For example, I can be quite frugal for some things. I make my own cleaning products, I cook the majority of my food from scratch, I pay under $10 per month for my cell phone plan, I don’t buy new clothing unless I need something, and I don’t have cable TV.
On the other hand, I like to save a portion of my income so I can go to concerts, travel, and invest my money. When I was growing up, I don’t remember any of the material stuff my parents bought me. But I have fond memories of our annual family vacations together. These are the experiences that I cherish most and that’s why I save money so I can afford to create new memories.
As my income increased, my spending habits remained the same. I still live frugally so I can save money for the things that are important to me.
Save your money to invest!
While saving money to afford travel is fun, you also want to make sure that you’re saving your money to invest. Investing your money is really the key to growing your personal wealth. There are several ways you can invest your money, including:
- Use peer-to-peer lending —> I recommend using Lending Club
- Start your own business —> My favorite idea is starting a profitable blog
- Invest in stocks
- Pay off debt —> Paying off consumer debt is important for building wealth
- Invest in real estate
5. Control your emotions
How do you feel about money? Do you feel shame, fear, or anger?
If you answered “yes” to any of these feelings, you’re not alone. According to one of my favorite personal finance authors, Suze Orman, these are the most common feelings surrounding money.
If we have negative feelings about money, chances are we’ll always experience money problems. On the other hand, if we have positive feelings about money, we’ll more likely to believe that money is within our control. These positive feelings will also encourage us to educate ourselves about money so we can increase our income and be smart with how we manage our money.
Removing these negative feelings about money can help us overcome our money blocks so we can change our financial situation and develop a healthier relationship with money.
“Every financial worry you want to banish and financial dream you want to achieve comes from taking tiny steps today that put you on a path toward your goals.” – Suze Orman
Back when I was working at my first real job after college, I used to let my emotions control me. If I had a bad day, I would seek retail therapy to make me feel (temporarily) better. If I accomplished something (such as getting a pay raise), I would treat myself to something nice. Eventually, I was ALWAYS finding a new excuse to buy material stuff. It was getting ridiculous!
My emotions were driving my financial decisions. This is because I didn’t have any financial goals in place. There was no structure, which meant I would let my emotions have free reign of my money.
Once I decided to go back to school, I set clear financial goals for myself. I got a better understanding of my spending triggers and learned how to get a handle on controlling my emotions. This was a game changer for me! It allowed me to save enough money to quit my job, graduate school with no debt, travel more, and eventually start my own business.
Avoid reacting immediately to your emotional triggers. Take a step back and forgive your emotional triggers. Accepting that we have emotional triggers and forgiving them can help us detach ourselves from the negative feeling.
Understand your triggers. Being aware of our triggers can help us understand which situation(s) cause us to spend impulsively or make poor financial decisions.
Take responsibility. It’s so easy to blame others (or the economy) for our money problems. While we can’t always control our financial setbacks, we can still determine how we’ll meet them. You have the choice to take control of your money. It’s time to own your saving and spending decisions.
Building a healthy relationship with money is critical if you want to grow your personal wealth (and be rich). Even if you just want to stop living paycheck to paycheck and afford to take an annual vacation, developing a healthy relationship with money is essential to achieve that.
Making the choice to change your mindset if the first step in improving your relationship with money. The sooner you realize that money is not the goal, the sooner you’ll find peace and be able to focus on what truly makes you happy.