Money Psychology: The Inner Game of Mastering Money
Money – one of the most difficult subjects to talk about and to master.
Some might even say it’s the root of all evil and the cause of most of our problems.
But what is really behind our money problems?
Is it just an economic problem and our inability to spend less than we earn or could there be something more psychological going on?
MONEY PROBLEMS ARE NOT ECONOMIC PROBLEMS
The key thought behind the concept of money psychology relies on the controversial notion that money problems people have are not economic problems.
What this means is that the solution to solving money problems is not achieved by having more money – in short, you can’t think you can fix money issues with money because the problem is not economic in the first place.
Having more money does not solve the problem.
Sure, the above can be a bit difficult to believe at first. But think about the examples of lottery winners.
There have been countless examples around the world of people winning more money than they could possible need, only to find themselves in money trouble later on.
It’s a drastic example but it goes to the heart of this idea of money being more about your mind than the number on your bank account.
Even when the lottery winners had a lot of money to solve their problems, they couldn’t do it – in some cases they even found themselves feeling more depressed and in deeper money problems.
A person who never had debt could well find him or herself in a position of bank loans after a lottery win and a few sour investment deals.
With the above comes the idea that people like Tony Robbins and Leo Gura have been talking about: money problems are psychological.
Since your behavior with money is not linked to the amount of money you have, but rather the psychological approach you have, the solutions cannot be economical.
You will solve your issues with money and learn to master money when you identify and solve your emotional approach to money.
Now, before I continue to outline the psychological problems we tend to have with money and the solutions to mastering money, it’s important to note what the above is not saying.
Even though money issues are not economical, it doesn’t mean they are not real – the debt you have or the problem you have with spending money are real problems requiring fixing.
It’s just that the fix isn’t about throwing more money on your way, but rather changing your attitude to Money.
LEARN ABOUT YOUR STORY OF MONEY
The key to unlocking your money problems starts with understanding your relationship with money.
You essentially have a relationship with money or a story you’ve created around money.
The statements and stories we can find ourselves telling about money can be something like:
- Money is always short.
- More money will solve my problems.
- I’m so bad at understanding what things are worth.
- I will be happy once the mortgage is paid.
- Only the super lucky people will become rich in life.
And so on. The stories are the dialogues you’ve created and the set beliefs you have about money, which then directly influence the way you deal with money.
You might, for example, tell yourself money is not something you can obtain in abundance because only a few have it. This internal belief will then guide your decision-making.
The interesting thing about the money story is how it often comes directly from our childhood.
Studies have shown our attitudes to money are often directly related to the experiences we had as children – more specifically in terms of how we experienced our parents’ money attitudes.
Our parents’ behavior and attitude to money can influence us in two distinct ways. You can:
- Follow your parents’ attitude directly – Your dad was a big spender and so you turn out to be one as an adult.
- Follow the opposite path to your parents – Instead of splashing out money like your dad, you take the opposite approach and hold on to your money as tightly as you can.
These stories and behaviors are the problems for our money problems. We either copy the bad habits of our parents or we try to compensate by going to the other extreme with our behavior.
The key to understanding is how your money problems and attitudes to money are not often your own development but a cause of your surroundings and the internal story you’ve been writing about money.
When it comes to understanding what your story about money is –what it means to you and where the problems come from – you need to answer a few important and often difficult questions.
Here’s a list of the question you need to understand in order to understand your money psychology:
- What does money mean to me?
- What was my family’s attitude to money?
- What are my most evident money struggles?
- What are the things I fear about money?
- What are my ideological beliefs about money?
- When do I play the victim in terms of money?
- Why do I think I haven’t mastered money yet?
Answering these questions will start revealing to you the inner discussion you have about money.
Perhaps you feel you’ll never be able to have enough money or you think money is abundant and you shouldn’t worry about it.
Identifying your relationship with money and noticing how much of it might be a result of what your parents did can help you create your own story instead.
You can realize those money problems aren’t economic, but more a result of the stories you’ve been telling yourself.
You might realize that your desire to keep saving more and more is a result of your mother spending money and leaving the whole family to suffer as a consequence.
THE PSYCHOLOGICAL PROBLEMS STOPPING YOUR FROM MASTERING MONEY
The narratives you’ve built often lead to a cycle of behaviors and attitudes that keep reinforcing the story and worsening your money problems.
The reason you don’t master money is a combination of the following psychological problems: fear, limiting beliefs, a sense of victimhood, and either procrastination or sense of urgency about money.
Fear is perhaps the most common emotion we have when it comes to money. Think, for example, a moment when your dishwasher/car/fridge/TV broke and you suddenly realized you had to pay for this extra expense?
You probably felt a surge of panic wash over you.
Not knowing if you have enough money to pay the bills creates the same kind of ‘fight of flight’ reaction as we used to experience roaming around on the plains and hearing the bushes move. Money problems can seem life ending and impossible to solve.
However, the problem with fear is that it affects your performance.
If you make money decisions based on fear, you’re not rationalizing the situation.
You’re not making an informed decision on the topic because you’re just afraid the worst might happen.
You allow money to essentially have a much bigger hold on what you do than you should.
Two main psychological money problems stem from fear. These are:
- Emotional spending – Your fear of things causes you to spend more money, as you use it to feel safer. You might be afraid that people will leave you or stop loving you if you don’t shower them with material gifts and so you spend a lot.
You might feel scared about your loss of a job that you try to throw money at the problem – you apply to courses, you buy new outfits for interviews and so on. You’re afraid and your reaction is to solve the problem with money.
- Emotional hoarding – The opposite reaction caused by fear can be about hoarding money. You are so afraid of not having any money that you keep saving it and avoiding any kind of spending, even when it might have the potential to make you more money. This will lead you to lose out on opportunities and ultimately lead you to have a less fulfilling life – you don’t do anything that would cost money because you are afraid of the ‘what if’.
These fears then result in limiting beliefs – stories we keep telling ourselves that lead us to make bad money decisions.
You might also have limiting beliefs in your head about money, which keep you from mastering money.
These are deep-rooted in those narratives you’ve created around money based on your childhood experiences – your adult experiences can then reinforce these beliefs further.
There are a number of different falsehoods we tell ourselves about money, but the most obvious things include things like:
- The economy is not good enough for me to make money.
- The corporations have all the power – a single individual can’t do anything.
- My career path doesn’t offer me enough options to make money, I’m in disadvantage when it comes to other people and their careers.
- Not everyone in the world can be rich, that’s not how money works.
- I don’t make more because my boss and the people around me just don’t appreciate me enough or they are greedy.
As I’ve said, these attitudes often stem from childhood and they are reinforced by things we see around us, and which we interpret according to our narrative.
For example, if you thought money is evil and that only greedy and bad people make it, the 2008 crash might have reinforced your idea of evil bankers using the ‘common people’.
Whatever the causes are, you still somehow associate money at the centre of your belief and give it the same evil narrative.
Instead of thinking it’s just some bad apples in a basket behaving atrociously, you think money itself is bad.
Why do we hold on to these beliefs?
Well, it’s hard to get rid of a storyline that’s deep-rooted in your mind.
But the beliefs are also reinforced by misunderstandings – for instance, you might not know enough about the company’s finances to be certain your boss isn’t giving you a raise and feel it’s just because he hates you – and our fears.
The idea of staying poor might seem scary and so we feel we need to blame the industry, the company or the economy for this sick feeling we have in our stomach.
Which leads to the third psychological problem: playing the victim.
Playing the victim
It is quite easy to blame the victim, isn’t it?
It’s such an automated response, again caused by the fight or flight reaction we get when we perceive to be under threat. When a boss complains to you about missing the deadline, you probably come up with an excuse and blame it on something else – or, at least, think to yourself that it wasn’t really your fault.
When it comes to money, we love to play the victim.
We have tons of excuses for why money is a struggle for us – the economy is not good now or the company we work for is just bad at appreciating real talent.
It’s so much easier to feed the narrative money is somehow against you, instead of owning up to your own situation.
You are stuck in your job because the economy is bad and there’s nothing else out there, not because you don’t educate yourself further or actively look for roles outside of your comfort zone.
Playing the victim is an emotional excuse for being scared and stepping up. It is scary to think you just need to stop working and go back to school to take more control of your money situation.
Of course, it seems spooky to start a business and not know what is going to happen. It feels more comfortable to just sulk and say the economy is stopping you from achieving your true potential.
Leo Gura has made a great video about victimhood and how you can get past it. The video is over an hour long, but definitely worth watching at some point:
Playing the victim tends to lead to two further psychological problems we have with money: excessive procrastination or a sense of immediacy.
Procrastination is a big problem for many of us. In terms of money, it can result in behaviors and attitudes like:
- I’ll pay the bills a bit later.
- I’ll do this business plan later.
- I might go back to school one day.
- I’ll write that book once I have time.
There are countless examples like that. We think of money and the actions we think might lead to money as “someday in the future”.
We identify the problems and perhaps think we have the solutions, but the actions are not immediate but rather something we hope to do “one day”.
The procrastinating way of thinking often also comes to play in terms of materialism. When we think money can solve things and better and newer things are the solution, we push the problems away and into the future.
Things like “I’ll be happy once I get a bigger house in the future” are commonplace.
However, we don’t stop to think that there is no reason for:
- Us to not be happy at this point in time, or
- Us to not buy that bigger house right now.
If you thought the second point is obviously because we are at the start of our careers, we haven’t saved enough and so on, you are essentially falling to that victimhood trap – you think you can’t have it for external reasons, not your own lack of commitment to having the money right now.
Of course, for some people procrastination manifest as total ignorance about money. You might feel it’s not your concern and you shouldn’t have to think about money.
This can, of course, lead to huge money problems – you don’t prepare for your retirement, you can’t buy sudden expenses and so on.
Sense of immediacy
Not everyone goes on the route of procrastination.
Some use the fear and limiting beliefs to create a sense of immediacy around money.
You feel you must make a lot of money right now, perhaps you feel like the economy won’t be good forever so you need to reap everything you can right now.
Your sense of victimhood might also make you feel entitled to more money – I work so hard so I must make more. The problem with this is that it can easily result in bad judgment.
There are tons of improper ways of earning money, such as stealing it from others or signing up with a dodgy pyramid scheme. These are designed to quench our thirst for immediate gains but naturally, won’t work as a long-term solution.
If you prioritize money over other things in your life, you also risk feeling unhappy.
When you feel you just need to make as much money as possible right now, you might not have time to enjoy your friends, start a family or live your dreams – one day you’ll realize you spent all your life sitting in the office and the huge bank balance might suddenly not feel worth it.
CHANGING YOUR INNER MONEY PSYCHOLOGY
So, if those are the problems how can you go about changing them?
The simple answer is that you need to shift your attitudes. If you can’t change your thinking, then you can’t solve your money problems. Only by getting rid of the harmful and toxic stories, can you replace them with better ones and start being the master of money instead of having it control you.
There are two important things to understand about money psychology at this point.
First, you have money triggers which can occur even when you aren’t directly involved with money. These are the stories you’ve been telling yourself and the emotional reactions you might have.
For example, an emotional trigger such as a loss of friendship can make you reach out to your credit card. Identifying these will be an essential part of becoming a master in money.
The second point is about the money traps around you. There are schemes and situations out there in which you won’t make money no matter how good you are – things like Ponzi schemes are out there and will be hurtful for your bank account.
These are real problems and you need to be aware of them in order to avoid them.
Realizations you must make
The realizations you need to make are not rocket science.
However, if you’ve ever tried to stick to a diet or exercise routine, you know that change is not always easy.
You need to make sure you identify your story and that you fully understand the psychological barriers you have created. After this, you can start using the below realizations to create a healthier story about money.
Here are the key realizations you should come to about money:
The trap of materialism exists and I must be aware of it.
Money can buy things, but you can easily be sucked into the rabbit hole of materialism. There will always be a newer smartphone to buy or a bigger house you can get. You need to realize the trap and understand that money cannot fulfill your other needs.
Money won’t solve other problems in my life.
As eluded above, you must also realize that money is not powerful enough to solve your other problems. You can’t buy relationships with money or repair a broken heart. You can try, but you won’t succeed.
Money is not evil or inherently good.
While it’s super easy to blame money for the problems, money isn’t inherently evil or good – money just is. It can be a force for good (feed hungry children) but it can also do evil things (corruption, prostitution, etc.)
Money is not a win-lose situation.
Similar to the above notion, you also need to realize that money is not either win or lose. In fact, a great example of this would be the whole practice of investing. Sometimes you win and sometimes you lose.
I am 100% responsible for my money situation.
The bottom line and the most important realization you can make is the above one. Your current money situation is not the fault of the economy or your spouse or your cat – you are responsible for your money situation. You have the power to change it because you have the power to change your approach and attitude to money.
It can be helpful to make these into your own ‘money mantras’ – when you notice yourself falling for money traps or triggers, you can take a moment and remind yourself of the above.
HOW TO START MASTERING MONEY
The realizations alone are not enough and you can take other steps in order to strengthen your money game.
But before I outline the strategies that help you master money, there is something important you must realize.
There is no blueprint for solving money problems or for making money – in fact, the above should have taught you to stop thinking more money is the only way to go.
You’ll master money by realizing your own unique stories and identifying the internal psychological barriers you’ve created.
You need to take them down by changing your thinking and dialogue about money.
This can be difficult and the methods vary.
However, when you are able to internalize those important realizations, then you can move on to mastering money and improving your money situation with the following steps.
Learn about money
The more you know about money, the better able you are to master it.
If you don’t know how mortgages work at all, then you are more prone to making mistakes or falling for a bad deal.
It really is rather straightforward – by increasing your knowledge about money, you improve your ability to control and manage it.
Therefore, if you want to master money, your first step is to learn everything you can about money. What is money? How does it work?
There are great resources to do this and you don’t need to get an Economics degree to know more about money. Some great resources in terms of learning about money include:
Furthermore, for most people, things like how to save and invest are important. These should be among the basics you want to learn about and you can then expand your understanding as you deepen your relationship with money.
For example, if you want to launch a business, don’t do it without learning about the financial side of running a business.
The benefit of knowledge is the increased awareness. You learn to recognize the pitfalls and the money traps around you.
You realize getting a seventh credit card is not financially rational at this point because you know it can damage your credit score and you are actually better of increasing the credit limit in one of your other cards.
Creating a long-term strategy
When it comes to solving money, you can have two major problems in terms of strategic thinking. You can either:
- Focus too much on short-term gains, or
- Focus too much on long-term gains
Either approach is going to hurt you because you don’t have a balanced view.
You might overlook the need to have money in the future, finding yourself thirty years down the line without any pension plan.
Alternatively, you might focus on saving for the future, without being able to enjoy the moment or dealing with an immediate money crisis.
Therefore, you need a long-term strategy that ensures your finances are in order now and in the future. How to do it? You need to start with two simple steps:
- Listing out and understanding all of your current sources of income. Including regular income such as salary, as well as irregular income such as occasional rental income from a holiday home.
- Listing out and understanding all of your current sources of spending. Including regular spending such as gas and electricity bills, together with more irregular spending such as entertainment or clothes spending
This gives you and understanding of what your current situation is and makes it easier to focus on the two cornerstones of a strategic money plan:
Your focus has to be in having a strategy to invest and save both in short- and long-term. You need an investment strategy that could quickly yield income for you, as well as a long-term strategy for ensuring you continuously expand your savings.
In addition, it’s crucial to identify how you can start generating income without much effort. Passive income is a key part of a good money game. For more information on the topic, check out the inspiring TED talk:
Adopting proper money habits and discipline
Now that you’re aware of money and you have crafted a strategic vision for obtaining it, you can move on to building better money habits and discipline around money.
The easiest way to do this is by creating a proper budget aligning with the above goals. Your budget has to focus on the following information:
- Knowing your weekly, monthly, and annual income
- Calculate the expenses and the income
- Create a detailed list of the sources
- Monitoring the progress of your spending on a weekly, monthly and annual basis
- Allows you to recognize the trends in your spending habits or income sources
You also need to become face-to-face with your money triggers and any emotional problems you might have that result in bad money habits.
For example, your food bill might be unreasonable high because your relationship with food is not balanced – perhaps you feed your loneliness with over-eating.
The problem is not fixed by simply watching your spending like a hawk, but through fixing the emotional issue triggering you to spend.
If you find yourself suffering from emotional problems that manifest in money problems, you should take personal development courses or talk to councilors.
Don’t worry about the money at this point, but focus on removing the emotional blockage first.
Ensuring money is a by-product of your passion
Above all, mastering money means understanding it is something that just happens as a by-product of your passion.
If you listen to any business leader, they will tell you need to be passionate about your business for it to succeed. The same echoes directly to making money in general – if you do something you are passionate about the money will follow.
The idea doesn’t mean you couldn’t make tons of money.
Rather, the aim is to ensure what you are doing is not because of money – that money is just a positive coincidence.
For example, you might make a lot of money investing in property. The reason you are successful is not because you wanted to find a field where you can make a lot of money (indeed, plenty of people lose on the property market), but because you are doing something you are passionate about.
You love investing in properties and your passion drives you to learn more and be better at it – because you gain more knowledge, you also gain more money.
It works the same with things like arts. If writing is your passion, then you need to find a way to put your heart and soul into it. To find the ways you can make money with your passion – writing books or becoming a copywriter.
What’s important is that money isn’t the driving force for the things you do. You don’t write, or draw, or invest, or play video games in order to make money, but you do something you are passionate about and get money as a by-product.
THE BOTTOM LINE ABOUT MASTERING MONEY
Your problems with money are not solved by economics.
Whether you can’t save enough or you don’t know how to solve your debts, the answer to your problems doesn’t come from finding a way to have more money, but solving your inner story.
What do you tell yourself about money and your ability to have it and manage it?
You can only get on top of your money issues and master money if you identify and change your attitude. You need to detach the emotion from money – it isn’t evil and it isn’t good.
It’s a neutral vehicle and it definitely isn’t the solution to your problems.
Once you realize you can take the steps to mastering it- you can learn more about it, create proper strategies and behaviors and ensure your life doesn’t revolve around it.
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