It’s my belief that the most important aspect of your financial life, beyond your level of income, financial plan and investment strategy, is your mindset. Without the right mindset around your financial well-being, no amount of planning or execution can improve your current financial situation.
Having a pessimistic mindset around money, money management and financial planning can lead to a poor financial life. Having a more optimistic mindset, though, doesn’t necessarily mean good things will happen overnight; it just means you’ll be more likely to take the necessary action to achieve what you want.
What are you willing to give up right now to get what you want in the future? Are you willing to give up your weekends with friends to work a second job to pay off debt and begin to create a future paycheck? Are you willing to give up your current vehicle for a more affordable one if it puts you in a better financial position for the future? Maintaining an optimistic financial mindset leads to productive behaviors and a positive relationship with your money.
Attaining a healthy financial mindset is like going to the gym. Every January, how many people tell you they’re going to lose weight or get into better shape? How often do they make no improvements? Are you guilty of the same? Imagine when gyms are open again all over the nation. People will descend upon their local gyms like the White Walkers descending upon Winterfell in a quest to return to their pre-quarantine selves. Then they’ll suddenly disappear from the gyms a few weeks into their quest, just like the White Walkers and the plot of the entire eighth season of Game of Thrones.
Why is it that so many people make a goal but never follow through? The answer is simple: their mindset. Most people aren’t specific enough when they formulate a goal, which greatly hinders their probability of success. Goals that are too vague, such as wanting to look good in a bathing suit, lose weight, get out of debt or have more money, lack clarity and cannot be quantified or tracked. Such goals, therefore, have a low probability of success.
If you tell yourself you want to lose weight but don’t specify the number of pounds you would like to lose or even know your starting weight, how can you know what you need to do to lose that weight? Instead, commit to losing a specific amount of weight, perhaps 10 pounds in 10 weeks. Your chances of hitting that goal skyrocket because you’ve clearly defined your goal, so you can track your progress, adjusting along the way to ensure you stay focused on the goal.
The same holds true for your finances. If you want to pay off debt or retire comfortably but don’t sit down and figure out details for each goal, how will you ever achieve them? If your goal is to become debt free, you need to figure out how much debt you currently have, how much of your monthly cash flow is used to pay down your debt and how much additional cash flow you would need to pay off your debt in your desired time frame. If you want to have a comfortable retirement, you need to determine when you plan to retire, decide the income you would like during retirement and then determine the amount of money you will need to invest in order to create a realistic paycheck for yourself in retirement. The reason I compare fitness and finances is because they’re two things in life you cannot cheat.
An important part of a healthy financial mindset involves being honest with who you really are. We’re all impulsive, emotional and messy at times, so developing an overly restrictive budget that won’t allow for the occasional impulse can derail your efforts toward financial improvement. Just like a super restrictive diet can lead to stronger impulses to stray from the meal plan, tight financial restrictions can cause you to quit following your budget or give up altogether. This is because feeling deprived can cause you to dislike your own efforts and act impulsively. Knowing your impulsive vices and creating a plan to reduce them in a healthy way while still rewarding yourself occasionally is a crucial part of a positive financial mindset. There’s nothing wrong with rewarding yourself while you continue focusing on your financial wellness.
While you can’t control certain things like when the market takes a downward turn, you can control your mindset and the strategies you trust to make the best decisions for your future. It’s especially important to stay the course and maintain your focus on the positive outcomes of your goals in the beginning of your financial journey. Figure out what steps you need to take to keep yourself motivated for the next one, five, 10 or even 20 years. Your target will always be moving, but if you keep yourself motivated and keep your ultimate goal in mind, you can stay on the right path toward that target. Some people use vision boards and goal charts to remind themselves of what they’re working toward, but you can do what works best for you and keeps you motivated in a natural and effective way.
Remember that financial freedom is achieved through your own mindset and your commitment to accountability with your progress and goals. Once you have your financial goals in mind, you should consider looking for a financial advisor to help you stay motivated and educated. While at times we are self-motivated, most of us need some sort of external motivation especially in our weakest moments. If nothing else, hiring a financial advisor can keep you committed to the financial habits that are the keys to your long-term success.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.