We are not born with a pre-determined mindset. Just like, we are not born a dentist or a fireman. A mindset is developed, and within that, we can create a money mindset for financial independence. In this article, we discuss a way to develop such a mindset.
In money terms, your situation today is a result of all the money decisions you have taken to date. And, your situation tomorrow will be a result of the decisions you take today.
Your mindset has a significant influence on your decisions. If you want to make better decisions regarding your personal finances, you need to adjust your mindset.
What is a mindset?
The first known use of the word mindset dates back to 1909. Today, the Cambridge Dictionary describes the term mindset as “a person’s way of thinking and their opinions.”
I want to offer another description by comparing mindset to philosophy. Your money mindset is your philosophy of money. Given that philosophy is the sum of what you know and what you believe, it is understandable how your philosophy determines your decisions.
Sometimes a mindset is established so firmly that it becomes very difficult to break from prior behaviours. Understanding your own mindset is the first step in changing it.
Make your new money mindset personal
To create a money mindset for financial independence, you have to make it part of daily life. It is not a once-off design effort, and it is definitely not something that you can send to the archive once finished.
Do not compare yourself or compete with anybody when formulating your new mindset. Instead, it should be your personal tagline, your “money motto.” It should reflect your unique character as much as it describes your new thinking.
Use it as a mantra, until your new mindset is firmly established.
What should it include?
The first step in answering that question is to understand your current mindset. Think about all your previous money decisions: about off-budget purchases, taking on debt, savings and emotional spending. Try to identify the thinking behind those decisions.
Once you have a clearer understanding of the current, you can start working on the future.
Nobody can focus on 10 different things. In fact, many business management pundits say that goals should be limited to between three and five ideas, no more. Your new money mindset is no different and you should carefully choose no more than five things to focus on.
A blueprint money mindset for financial independence
1. Abundance thinking
Stephen Covey, best-selling author and personal development guru, coined the phrase “abundant thinking” as far back as 1989. It is simply the belief that there is enough for everybody, as opposed to scarcity thinking, which implies that one’s success is at the cost of another.
By adopting abundance thinking, you can plan for financial independence and early retirement without feeling guilty.
Adopting abundance as your overarching frame of mind is vitally important for your new money mindset. Invest your time and read about abundant thinking. By reading, you learn through others’ experience – generally, a better way to go about it – especially when the result of your decisions will affect you directly and profoundly.
Practice gratitude and foster abundance thinking as an anchor attitude.
2. Pay yourself first
One of my favourite (little) books and one I always recommend when people ask me about personal finance is the 1926 classic The Richest Man In Babylon by George S Clason. It is a collection of parables containing profound financial wisdom.
The book starts with the advice that 10% of everything you earn is yours to keep. In other words, pay yourself first.
My take on it is that you should treat yourself as the important person you are, and stop saving your leftovers. Start taking your share upfront.
Debt. It is the single biggest hurdle between you and financial independence. Treat debt with the care it deserves, as it has caused the downfall of governments, international corporates, households and individuals alike. On the other hand, have you ever heard of anybody in distress due to a lack of debt?
Like most things, there are exceptions, and there are rules that go with the exceptions. Those classic if’s and but’s. Debt can be used to your advantage, if (there’s the first if) applied to buy real estate or a big-ticket item such as a car. But (see, there is a classic but) these must be planned and kept under control.
The more debt-averse you are, the better for you and your financial goals.
4. Money needs a plan
Money, in itself and by itself, cannot achieve much. It is when you cleverly start to apply your money that it becomes valuable. For money to be useful, it needs a plan.
Before you balk at the idea of a budget, rather think of a money plan. A very specific plan where you allocate your earnings by way of percentages.
It is a detailed plan where you sort all your expense items, big and small, into eight to 10 categories. Then you decide what percentage of your money goes to each category. I hope that you will have “Saving” right on top, with 10% of your money going that route!
Doing your money plan in categories and percentage allocations have various advantages. Firstly, there are lots of literature on the subject and you can research benchmark percentages. Secondly, it becomes a valuable tool to review progress and adjust your plans.
A third advantage is that your money plan becomes somewhat systemised and it takes the thinking out of some purchase decisions. Furthermore, it can help avoid some purchase impulses altogether!
We all know the saying “seeing is believing.” Well, what if I challenge that with “believing is seeing.”
What we think, we become. What we think about, we will manifest.
Visualisation is a powerful tool that you can use as part of your money mindset for financial independence. You have already adopted abundance thinking. You now have a good plan that you can implement. All that is left is to start visualising the outcome.
Do it with gusto, do it daily.
Turn your new money mindset into your battle cry
Take the keywords from your plan and turn it into your battle cry. Make it personal and commit it to memory.
For example, if somebody would ask you about your philosophy on money, your answer can sound like this:
“I believe in abundance. I pay myself first and don’t do debt. My money follows my plan and I visualise the result of achieving my plans.”
Short. Simple. Powerful.
“A cardinal rule in budgeting and saving is to pay yourself first. Once your paycheck hits your account, wisdom has it that you should move some amount to savings even before you pay the bills” – John Rampton
I would love to have your thoughts on creating a money mindset for financial independence. What worked for you?
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