The 4 Types of Financial Mindsets: Which One Are You?
Ever find yourself scrolling through social media late at night, clicking on listicles like How to Tell You’re a ’90s Kid or Cute Cats You Must See Before You Die? They’re good for a quick nostalgia hit or a few LOLs, but what if there was a topic that could actually impact your life? Say, the Best Personal Finance Strategies for Millennials. That could be worth the missed sleep!
While it might not be as instantly entertaining, understanding your financial mindset can exponentially impact your finances. A great place to start is your local credit union, which offers competitive interest rates for both saving and spending and expert advice. But first, check out the four most common types of financial mindsets to see where you fit in and how your money-mindedness (it’s a word!) impacts your finances.
What is a Financial Mindset?
Your financial mindset defines how you think about money. It’s your core belief system about finance and your attitude toward it.
Financial mindset is different from financial literacy. Although the two concepts are intertwined, your financial mindset influences your approach to financial literacy, which is rooted in understanding basic concepts and principles, such as budgeting, saving, investing, and managing debt.
Your attitudes and beliefs about money are wrapped up in your personal values, emotions, and social norms and influence your daily financial decisions. They are crucial to determining what’s possible financially, whether splurging on a purchase or saving for retirement.
4 Common Types of Financial Mindsets
Understanding your financial mindset is the first step toward shaping your approach to money management. These four types of financial mindsets set a framework for how we interact with money and our financial responsibilities.
1. The scarcity mindset
The scarcity mindset is based on negativity, rooted in the belief you lack the resources to satisfy your basic needs. This destructive mindset can lead you to make decisions out of desperation and could cause you to take out loans without regard for the interest rate or skimp on savings. You may live week-to-week and spend most of your money on necessities as soon as your paycheck arrives.
If you have a scarcity mindset, there are ways to shift this negative mindset to a healthier attitude:
- Accept a new starting point. Move forward and accept that while you can’t change your past bad decisions, you can control your present and future.
- Educate yourself. Learn how to budget, manage your money, and plan for the future. Your local credit union will have resources to put you on the right track.
- Avoid competing with others. Money is personal. Set financial goals that work for you, and avoid comparing yourself to others.
2. The abundance mindset
An abundance mindset is a positive outlook on your financial picture, focusing on what you have rather than what you lack. This mindset will lead you to seek new opportunities to build wealth for yourself and your family.
With a mindset of abundance, you are in the driver’s seat. You feel empowered, engaged, and positive, inspiring those feelings in others. Here are some simple, positive steps toward cultivating your abundance mindset:
- Take responsibility for your problems.
- Reflect on what you are grateful for every day.
- Remind yourself you have more than enough.
- Spend time with positive people.
- Practice generosity.
3. The consumer mindset
If you have a consumer mindset, “shop ’til you drop” is a phrase you might use. Whether you’re searching for the latest electronic devices or scanning your favorite shopping sites, a consumer mindset means buying and spending during shopping sprees, engaging in promotions like tax-free holidays and Black Friday sales. You also may feel compelled to present a higher socio-economic image to your friends and colleagues.
This approach to consumerism may cause you to seek ways to justify your spending even when you are financially strapped and risk getting deeper into debt. Soon, it becomes impossible to avoid delinquent bill payments, and your financial health suffers.
However, you can transition to a healthier spending mindset with discipline and taking one step at a time. Here are some ways to make the shift:
- Create a budget.
- Set short-term goals.
- Leave credit cards at home.
- Automate bill-paying.
- Consult with your local credit union on ways to help you control your spending.
4. The investor mindset
Investors are keenly aware of money. If you have an investor mindset, you have a clear financial vision and are dedicated to putting your money to work. Investing wisely can increase your net worth, provide a comfortable retirement, pay college tuition for your children, or finance your dream house.
Your age, income, and risk tolerance all play a role in determining the best way to invest your money. If you are still early in your career, visit your local credit union, where advisers can design a plan based on personal finance strategies for millennials.
Effective investors embody a variety of personality traits that lead to success:
- Determination
- Patience
- Self-confidence
- Ability to focus on goals
- Thirst for knowledge
- Flexibility
- Humility
- Ability to keep calm in challenging times
Goal setting is paramount to adopting an investor mindset, providing focus and direction. Developing a savings and investment habit is a vital lifelong skill that requires focus and determination. Evaluating your current spending and saving habits can lead to positive change, resulting in financial security, freedom, and peace of mind. Taking it step-by-step helps make it more manageable:
- Start small.
- Take advantage of employee benefits.
- Create a sound financial foundation.
- Consult advisers at your local credit union.
Identifying and Managing Your Financial Mindset
Adopting healthier money habits is harder without understanding your financial mindset. The Consumer Financial Protection Bureau offers a self-assessment tool to help you analyze your economic history and behaviors.
When you’re facing money problems, you may be tempted to bottle everything up and try to go it alone, fearing judgment over your financial mistakes, feeling awkward about disclosing your salary or being embarrassed about not being able to provide for your family.
Seek feedback from trusted individuals. Keeping money worries to yourself amplifies them until they seem insurmountable. Talking face-to-face with a trusted friend or a loved one will relieve stress and help you put things in perspective.
Shifting Your Financial Mindset
Financial goals are essential to developing a healthy financial mindset. Even small goals will help you obtain what you want out of life and live the lifestyle you desire, both during your working years and retirement.
Here are a few steps to create a mindset that leads you to achieving your goals:
- Identify and challenge your current beliefs about money.
- Create a positive money mantra.
- Make a budget and spend less than you earn.
- Automate your savings and plan for your future.
- Prioritize paying off debt.
- Surround yourself with positive influences.
- Celebrate your wins!
Maintaining a Healthy Financial Mindset
Once you’ve shifted your focus to a more positive money mindset, the next step is to maintain it, and this will help you overcome the challenges you face down the road. Here are some ways to keep a healthy financial mindset:
- Look for opportunities instead of seeing roadblocks.
- Recognize that every financial situation is fixable.
- See the value of asking for help instead of struggling silently.
- Accept that even small steps add up to progress.
Setbacks and challenges are inevitable. Everyone faces them from time to time, and it is how you handle them that counts. Job loss, major illness, or excessive credit card debt can strike at any time, even if you’ve been financially stable for years.
No matter when or why setbacks happen, the important thing to remember is they can teach valuable lessons such as helping you set goals and priorities, making do with your current financial situation, focusing on saving money, being willing to ask for help, and understanding your financial mindset.
Seeking Professional Help
There may come a time when you need deeper counseling or therapy to help you shift to a more positive frame of mind. Credit counselors are trained to help clients deeply in debt and struggling for solutions.
If you have deep-seated mental or emotional trauma impacting your ability to manage your money, a licensed mental health therapist could help.
Benefits of working with a financial adviser
Your local credit union may offer credit counseling and access to financial advisers. There are advisers trained to provide the best personal advice for millennials and offer a myriad of services like:
- Advising you on managing your money and debts.
- Helping you develop a budget.
- Helping you get a copy of your credit report and scores.
- Offering free educational materials and workshops.
- Organizing a debt management plan to pay down your debts.
And don’t forget to celebrate your victories! Reaching a financial goal is a reason to celebrate. You might be tempted to take a vacation or buy a new outfit. But be careful not to undo the progress you’ve made. Instead of splurging on an expensive dinner out, find more productive ways to celebrate, like planning your next financial goal, tucking a little extra money into your savings account, or just taking a moment to breathe and enjoy your success.
Further Resources on Best Personal Finance Strategies for Millennials
- Learn your money personality type. Understanding your money personality is your first step in shaping your approach to saving, spending, and investing.
- Improve your money mindset. Simple steps to help you improve your money mindset on your journey to building real wealth.
- Understand financial well-being. Learn how it feels to have a sense of financial well-being.
Develop a Healthy Financial Mindset with Your Local Credit Union
A financially secure future is within reach. It starts with understanding your financial mindset and sticking to healthy practices that will help you reach your goals.
Learning the best personal strategies for millennials is just a phone call away. Your local credit union is there to help!
