You’re smart, so you know by now when it comes to personal finances, you just need to spend less than what you earn. Obviously there are other logical actions such as avoid debt and making sure you budget for expenses.
All of this sounds simple, but why do so many of us still find it so challenging?
It’s because when it comes to the challenges around our money, it’s our emotions that get in our way. In order to get a better handle on our finances (i.e. grow rich), having a growth mindset is key.
The term “growth mindset” was made popular in Carol Dweck’s book “Mindset: The New Psychology of Success” which states that having a growth mindset allows your brain to be more open to change and achievement. Instead of associating success to how intelligent we are and existing abilities, people with a growth mindset focus on how much effort is used as a way to mark achievement.
Those with a growth mindset are limited by their current abilities. They see this as a challenge and focus on learning as a new challenge and an opportunity to learn. In other words, people with a growth mindset love constructive criticism because it helps them figure out how to better succeed.
Yes, it’s common sense that the more effort we put into something, the more we’ll achieve, but what Carol Dweck and her research shows is that it’s also what we believe (or what we tell ourselves) that affects whether or not we’ll actually put in the effort in the first place. If you associate success with how intelligent you are rather than your tenacity, then that means you have a fixed mindset.
What Does This Have to Do With Growing Rich?
Actually, a lot!
Let’s say you have a goal to pay off your $120,000 mortgage in the next 20 years while still saving $5,000 to put towards a retirement fund.
If you have a growth mindset, you embrace the whole idea as a challenge. What you’ll probably do is figure out a bare bones budget (one that you can live with) and adjust it as you go, depending on whether or not you overspent that month in certain categories.
You might even learn about a side hustle on the many personal finance blogs and books you read. Instead of saying you don’t have time or energy to pour into a side hustle, you rearrange your schedule to do so. You also figure out how to find people interested in your services, or find things to sell on eBay. When something doesn’t work, you go back to see what you could have improved on.
On the other hand, if you have a fixed mindset, you’re already overwhelmed. You probably have a budget, but get very upset when you go over your budget at the end of the month. Instead of adjusting your spending or trying to see why you overspent, you attribute it to the fact that you’re just not good with finances and give up part or all of your goal.
As you can see from the example above, having a fixed mindset when it comes to your finances won’t get you anywhere closer to financial freedom. Don’t worry though if you find that you do have a fixed mindset. All you have to do to change some of the following to cultivate a growth mindset:
1) Focus on the Actions
The more you focus on what you have or haven’t done, the more you’re going to set yourself up for failure.
Results and achievements do not define, but what you do to get those results and achievements do.
In order to cultivate a growth mindset, focus on the things you need to do to achieve financial freedom. If you’re paying off your mortgage, just focus on what you need to do to pay down the principal every month. Or if you want to earn 10% back from your investments each year, focus on a few strategies that will maximize your earnings, like tax loss harvesting.
2) Stop Money Shaming
Stop telling yourself you suck at personal finance or anything similar to that. Just because you mess up on a financial goal doesn’t mean you’re forever doomed to failure. Sure, you made some mistakes in the past, but the important part is that you recognize those mistakes now and can do something about it.
And let’s face it, we’ve all made mistakes from time to time. And your current financial situation is not a reflection of who you are as a person.
So buck, up, figure out what you can learn from those mistakes and change course. If you need help, enlist a well-educated friend or family member, or even seek the help of a qualified financial planner.
3) Make The Challenges Fun
Go ahead and embrace challenges, because that is what will ultimately get you wealthy. Think of those challenges as opportunity for a better life ahead. Or do what some do and treat those challenges like a game. Some of these can include making it a friendly competition with your spouse to see who can save the most in a month, or who can earn the most from their side hustle. Obviously you’ll all end up winners here.
The goal of getting wealthy with a growth mindset isn’t to strive for perfection. The idea is to be better with your finances. To get wealthy so we can do more and make time for what matters. And that can only happen when we’re willing to face adversity head on and learn what we can do to be better.
What will you do to cultivate a growth mindset with your finances today?
This article is a guest post submitted by Sarah Li Cain, master of her growth mindset!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.