How to Improve Money Mindset
There are three keys for learning how to improve money mindset:
- Understanding what you need to do
- Getting started
- Keeping going long-term
If you are good at setting and achieving goals, you can use those same skills to handle your personal budgeting. But if you struggle with goals, this can be a great opportunity to learn a new skill, which you can then apply to other facets of your life.
Understanding How to Improve Money Mindset
It's all about taking a grip on your finances. The number one priority is to live within your means so that, on average during a year, you spend less than your income. Then you can pay your surplus into long-term savings and investments. There are only two elements to living within your means: your income and your spending. If you can increase your income, that’s great. However, for most people cutting spending will be the most important change.
If your income is stable at say $4,000 per month, and if you have been spending more than that, you need to find ways to cut back. Some people are in the unfortunate position of living in true poverty. If you are one of these folk, please ignore my advice below. I’m talking to folk who would still have a roof over their head and enough food to eat, after reducing their spending.
Do You Need Frugal Habits to Save Money?
No, not if you take frugal to mean always buying the cheapest and never indulging in treats and holidays. It’s more about setting yourself a budget and then being mindful.
Here’s the key question. Without looking at how you’re going to achieve it, do you believe that it should be possible to spend less than your income each month?
Is it possible – in theory?
For most of us, the answer will be ‘yes’. Sure, we might have to make some changes. Stop expensive impulse purchases. Eat out a bit less. Maybe run a cheaper car. At this stage, the exact detail doesn’t matter. If you want to improve money mindset, you must believe that you have the power to live within your means.
Getting Started with Personal Budgeting
There are two ways to get started. Choose whichever makes most sense to you.
- Analyse your spending for the past month or two. This includes all your bank accounts, your cards, and your cash. List your automated payments and identify what they were for. As far as possible, divide your other spending into categories like groceries, transport, treats, debt repayments, and investments. Use whatever categories make sense to you.
- If you find all that analytical work boring, just take action now. What comes to mind? What savings could you make? Cancel a subscription, eat in rather than eating out, make a shopping list before going to the store and stick to the list. Do something to reduce your spending now, and decide what else you’re going to do tomorrow.
Stop Buying on Credit
If you tend to use credit cards regularly, and you want to know how to improve money mindset, stop using the cards. The reason is that buying on credit makes it too easy to overspend your income.
Some people find that the only way they can curb their spending is to use cash for most of their purchases. This may not be a practical option for you, but just sit back and think about how life would be if used cash for all your spending…
With cash, you can’t overspend. Once your wallet is empty, you’re done. No more cash (and refusing to buy on credit). No more spending. If cash is the only way to reach that mindset, go for it. But, if you can reach that sort of mindset without relying on ‘cash only’, your life will be a lot simpler. For example, you can use techniques like zero based budgeting.
But whatever technique you use to handle your spending, refusing to use credit is a good mindset.
Big-ticket Items – Like Holidays
But if you don’t use a credit card, how will you afford holidays or major house repairs, or buying a new sofa? Particularly if you live within your means, spending less than your income each month?
You save and build up funds ahead of time. Each month, you pay some of your income into a separate bank account (or into more than one account). For example, I like to go on cruise holidays. Each month, I pay a set amount into my cruise savings account. For more on this idea, see my article on sinking funds.
How to Improve Money Mindset - Long-Term Motivation
When you first set out personal budgeting, it can be fun. Like any new interest in life, you feel an initial burst of enthusiasm. There’s a honeymoon period when you make early gains. Life feels good. And then, well, the sparkle can wear off. It can feel like a steady plod. You’re living within your means and you’re building your wealth…but how about some fun?
In ‘Tiny Habits’, a book about improving your life, BJ Fogg explains how to start new productive habits – and keep them going. Having carried out extensive research, he’s found that celebrating each tiny success if vital. It’s not enough to know there’s some reward we’re going to receive in a year or two. What we want is to feel good today.
So, enjoying yourself – whether by spending money on treats or with a simple fist pump – is a vital fuel to keep yourself on track. As I explain in 50-30-20, always allocate part of your income to have some fun now.