Here’s the truth that doesn’t get enough airplay on CNBC or Bloomberg: Your mindset about money will do more for your financial future than any bear or bull market ever will.
Take it from me, a former financial industry cubicle dweller who traded corporate ladders for mountain trails. I’ve seen the market go up, down, and sideways. The real gains are made between the ears!
Let’s talk about money mindset and how to build yours to beat any market.
What’s a “Money Mindset”?
Money mindset is your personal belief system around money – how you think about earning it, spending it, saving it, and investing it. And most of us, absorbed ours like a sponge in childhood, watching our parents argue about bills or seeing neighbor Sally getting the pony we always wanted.
It’s the little voice in your head that whispers things to you. “You’re bad with money”, or “buying stuff is how to show success.”
We can have extreme fear of losing it, compulsively spend it, or even see money as a weapon to weild. Money isn’t different – each person’s mindset towards money is different.
But here’s the good news: You can change your money mindset.
Your beliefs around money aren’t facts. They’re habits of thought. Often emotionally laden ones that we aren’t very concious of, yes. Which makes them tricky.
But, by examining your money mindset, you can bring those beliefs and habits into the light. That moves them from your emotional brain into your rational one, where they can be changed with intention and purpose!
You don’t need therapy (though, maybe if you have some real financial trauma). You just need awareness and a little courage to challenge the narrative.
Why It Matters More Than the Markets
The markets will do what markets do: go up, go down, and sideways. Markets do their thing until they occasionally break. But you don’t have to let them break you.
To illustrate, say three people walk into a recession:
- Investor A panics when the market drops 20%. She pulls everything out, and locks in the losses, waiting for the market to feel safe again. Instead, she misses out on the a good majority of the recovery. Now, she doubts herself, and never gets back in. Or worse, only gets back in at the top again when everything is “feeling” great. Only to experience another downturn.
- Investor B expects downturns. With a rational mind during calm economic times, she learned about and made a plan for how to handle them. Stay the course, maybe rebalance? Sure, in the moment, some fear and emotions popped up for her. But in ten years, she won’t even remember that recession happened while happily spending in retirement.
- Investor C never invested at all. She never really saved much, because of some story she’s told herself about money. “Money is evil, it should be spent, I don’t deserve it, no one traught me how.” Maybe she has a little put away in a savings account making .001% interest. Every year inflation slowly eats away at it, but hey, at least the recession didn’t bother her! She will work until she absolutely can’t anymore – and hope that social security covers the bills.
Same market. Very different outcomes.
You can’t control the market. You can understand its patterns and prepare your reactions. Otherwise, unproduction stories we tell ourselves or unchecked emotions will drive the bus. Often, right off a financial cliff.
That’s the money mindset difference!
How to Build a Market Beating Money Mindset
Changing a winning money mindset is like training a muscle. It’s squishy at first, but gets stronger with reps. Here’s where to start:
1. Notice Your Money Self-talk
What do you say to yourself when you spend? When you save? When someone else has more than you? Write that stuff down. It’s telling.
2. Replace Judgment with Curiosity
Instead of, “I suck at money,” try, “That was an interesting choice. What made me do that?” You’re not on trial. You’re in training.
3. Know your nuerology
Your brain is a 200,000 year old survival machine. Its wired to avoid pain, chase rewards, and freak out when things feel uncertain. We come pre-loaded with cognitive biases like loss-aversion, sunk-cost and group-think. Understanding your nuerology won’t stop it from doing it’s thing. But it does give you the chance to sometimes catch yourself mid-spiral and choose differently.
4. Hang With People Who Get It
Mindsets are contagious. Spend time around people who talk about money in a healthy, empowering way. Avoid the chronic complainers who treat money like a curse or a mystery.
5. Detach Self-Worth from Net Worth
You are not your portfolio or your salary. Your the net worth is a number on paper that is going to change from day to day. Don’t tie too much of your self up in it. Remember, there are other assets like skills, flexibility and community that are valuable, as well. Make money just a part of your tool kit for sucessful living.
Final Thoughts
Take from me. I have and will always struggle to tone my money mindset muscles. The recent stock market downturn gave me a reminder of this fact. Despite my efforts over the last decade, fear and self-doubt around money are quick to find their way into my mind, every chance they get.
But, they didn’t find very fertile ground there. I used the tools I’ve developed over the years to keep them from taking root. Like taking a few deep breaths, reviewing my financial plan, talking to a trusted financial advisor, refreshing myself on financial market history – and I wrote this article to help remind myself of how important mindset is!
The bright light of reason dried up those pesky negative emotions like a puddle after a rainstorm. It wasn’t immediate relief. But they got smaller and more manageable, until they were pretty much gone.
Now, markets do matter. I’m not saying toss an actual investment strategy and replace it with a vision board. And market returns will have real consequences. They will affect when you can call yourself financial independent, and how much you may be able to spend.
But your money mindset matters more. If you don’t have the mindset to ride the waves, no market will save you.
So whether the S&P is soaring, sinking or slumping, remember:
markets are unpredictable. What you can do is educate, prepare and practice. Learn about the markets and yourself. Then make a plan and build your mindset muscles.
What can you do today? Maybe read The Psychology of Money? Write a paragraph about a money belief you have and look for cognitive biases in action? Or, go set up that auto-investment you’ve been putting off?
Do one thing today and tell me about in the comments! I’d love to hear from you.
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