Your Scarcity Mindset is Ruining Your Finances

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Last year, I read Choose Yourself by James Altucher. It’s a wonderful book. He’s a bit nutty, but most of what he said reinforced my own nutty ideas about self-employment, entrepreneurship, and finances so I’ve been a big fan ever since. In one chapter, he talks about having a scarcity or abundance mindset, and how that affects your finances.

Scarcity and abundance in terms of financial perspectives was not something I’d seriously pondered before, but now it’s something I think about often. I want to encourage you to think about it as well! Your perspective influences the way you think about and manage your money, and can mean the difference between believing you are broke or having everything you need.

What is a scarcity mindset?

A scarcity mindset is the persistent belief that you do not have enough.

When it comes to your finances, a scarcity mindset manifests itself as feeling you cannot afford to live the life that you want. This can be anything from simply not being able to buy the material possessions you desire, to worrying that you will never be able to pay off your debt. No matter what your dreams or goals are — even if it’s as simple as staying afloat — you believe that you will never have the money you need to achieve your goals.

A scarcity complex about money will cause a lot of anxiety about everything from budgeting to saving. It’s also likely to worry you every single day. Not only is this uncomfortable, it actually prevents you from focusing on long-term financial goals. You don’t think beyond meeting your immediate needs, and as a result, long-term plans fall by the wayside.

You only have enough mental bandwidth to worry about so many things.

I’ve talked before about how decision fatigue is keeping you broke. The more energy you spend making small choices, the less you have leftover to tackle big problems. If you use up your mental energy on immediate worries and stresses, you will not be able to plan for the future — and this is especially true of financial decisions. You can’t worry about retirement if your cellphone bill is already 5 days overdue.

The effects of a scarcity mindset are severe. This fascinating read points out that the poor do not make dumb decisions because they are dumb, but because anyone would make dumb decisions under the duress of scarcity. Poverty actually correlates to measure between 13 or 14 IQ points — the same as losing a night’s sleep or the effects of alcoholism.

Maybe you’re not poor. You might be earning enough to pay your rent and buy food, but chances are that if you are worrying about debt and saving on a daily basis, it is negatively affecting your ability to make decisions.

It might be causing you to underperform at work. It could make you snappy with your partner or friends. Scarcity is an ugly and stressful place to be, and more likely than not, the effects thereof are spilling over to other areas of your life. But even more insidious, worrying about not having enough money will distract you from making more money. This is why a scarcity mindset is so dangerous: it becomes a self-fulfilling prophecy.

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So it’s no surprise that for the sake of both your sanity and your bank account, you’re better off ditching your scarcity mindset and adopting one of abundance instead.

Why you should operate from a position of abundance instead

Switching from a scarcity mindset to a perspective of abundance isn’t easy, but it’s a worthwhile undertaking.

If you operate from a position of abundance with your finances, you believe that there will always be enough — or even more than you need.

You won’t worry about day-to-day expenses. Unexpected bills might be annoying, but they won’t cause you anxiety. You’ll feel comfortable taking risks, like changing jobs or becoming self-employed. You will know that even if things sometimes become difficult, you’ll be ok.

Now, this isn’t permission to be reckless. You cannot go buy a designer handbag and take off on an expensive trip because things will just “work themselves out”. We still need to live in the reality of our cashflow. I’m not telling you that if you just dream about a big paycheque, the universe will manifest it to you. But I do want you to believe a little bit more in yourself.

An abundance mindset is really about is trusting that, if you are taking the right steps — working to earn money, sticking to a budget, repaying your debt, and saving for the future — you will be ok.

And you will. I promise.

How to change your perspective from one of scarcity to one of abundance

Practice gratitude for what you have. There’s a 100% chance that if you’re focusing solely on what you don’t have, you’re failing to acknowledge how much you do. Be grateful you’re employed, many are not. Be grateful you have some savings, some people have none. Be grateful your debt is what it is, many people owe much more.

Give your time and money away. Few things will clue you in to how much you really have as giving money away. Donating to a worthy cause will serve you twofold: first, it will introduce you to someone who needs your money much more than you do, and this will reinforce the truth that you really do have a lot. Secondly, you will be able to say to yourself, “I have so much money, I can afford to give it away”, because that will be exactly what you’re doing.

Learn to live happily with less. You don’t own things, your things own you. The more you have, the more likely it is that you have to pay more to keep it. An expensive car requires expensive maintenance and insurance. A bigger house requires bigger mortgage payments, and all but demands more furniture and decor purchases to fill its rooms. The less you buy, the less you have to maintain, upkeep, and replace.

Change your habits. One of the tips I always give young people struggling with large debt loads or struggling to save is to not look at their balances unless they’re actually making a payment. Don’t even pretend you don’t log on to your bank account or student loan account multiple times per day just to stare at the balances, wishing the numbers were different. Maybe you only do this for 5 minutes, maybe you do it for an hour, maybe you do it a dozen times per day. It doesn’t matter. Any amount of time spent agonizing over your finances on a daily basis is too much. You want to set up as much of your day-to-day financial obligations to happen automatically, so you can focus on more important things — like your life.

Earn more money. Ok, I know, this whole post was about the psychology of scarcity and abundance, but there’s a quick and dirty practical solution too, and that is to earn more money. Chances are it would only take a few hundred dollars extra each month to drastically change your circumstances, and therefore how you feel about your situation. If you find the above suggestions aren’t helpful, ask for a raise at work or find a small part-time job to relieve some of your cashflow anxiety until you can get yourself in a better place.

Good luck!


23 Comments

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  1. Love everything about this post Bridget!!

    I have been MIA (busy) for a while but I still read them all 🙂

    -Hannah

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  2. The recent studies and articles that have popped up about gratitude and perspective seem to underscore this. People who live in actual situations of scarcity are still so (if not more) generous and grateful. I’ve never been poor, but I did have my position cut twice (my first two years of teaching with the first happening the day after I was rehired!). It took me a long time to let go of that worry, and I’m such a better teacher and human for it. When you worry less, it’s amazing what there is room for in your life! This is a beautiful reminder. Thank you!

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  3. Totally agree, Bridget! I recently wrote a post about the exact same subject. I’ve spent way too long worried about being laid off, working way too many hours on the side, and failing to properly invest in myself because of it. Now that I’ve recognized it’s a classic case of a scarcity mindset, I’m working to make changes.

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  4. Alyssa

    Thank you! Since this is a psychology-rooted article, I think the gratitude part is key. I think people underestimate how self-limiting ideas about money are holding them back. This includes assuming that there will never be enough because the present is difficult. I started trying to focus on being grateful about 2 years ago and the turnaround in my finances and emotional well-being has been incredible. Also, when you focus on abundance, money finds you (it found me)–you are putting that energy out there and thus it’s easier to see a path to bringing the things you want into your life. This also allows you to feel better about living on less and not being so invested in acquiring external material benchmarks.

    As always, thank you!

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    • Yasss. I think present struggles totally cloud our vision into assuming things will always be this way. I agree with everything you said! Thank you for reading, I’m so glad you enjoyed the post!

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  5. You have summed up the entire reason why I got into [most of my] debt in the first place. I was so afraid of using my savings (and as a result, no longer having “enough”), that I used credit to buy things when I could have used cash. Then I didn’t pay it off in full, because if I did, I wouldn’t have “enough” left over. Even though “enough” never had a tangible meaning. This is something I still struggle with, but you are so right about being grateful and living with less – those are the two biggest difference-makers for me. Thanks for another spot-on post!

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  6. Erin

    Great article, as always! I need to get better at this. I do donate money regularly, but I’m constantly looking at my student loan balances (which are down to $6,500, thankyouverymuch!) willing them to be lower and my bank balances willing them to be higher. I panic over retirement savings, but at this point, I’m maxing out my 401(k) and my IRA, so really, what else could I be doing?

    A lot of it is impatience — my household makes pretty solid money and I need to accept that things take time and be grateful for what I have and what I’ve accomplished financially in the meantime.

    I’ve already logged into all my accounts once today, but I’m going to try to not look at my student loan balance again until it’s time to make a payment, and stop stalking my retirement savings except for EOM net worth updates. Because honestly, why am I obsessing over funds I can’t touch for almost 40 more years?!

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  7. Amanda

    This article is amazing! Thank you so much for reinforcing just how much our own attitudes can influence our wealth, real and perceived. I’ve been debt-free for three years now, but early on when I had reached my maximum debt with student and consumer loans, I had initially resigned myself to believing something along the lines of “I will always be in debt, so what’s the point of paying it off and saving for the future?” Another favourite was “Spend now while I’m young”.
    It took a long time, but gradually my attitude about money and debt changed, and thus my debt repayment and savings habits changed. I also found a charity to whom I have regularly donated money and time, which truly does force me to appreciate what I have.
    I feel much better about my financial present and future, and I believe my change in attitude was one of the biggest contributors to this.

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  8. Jenn

    Bridget great article and perspective! I find it to be true, even though I’ve not considered it from this vantage point before. I’ve been tracking my spending for years, but lately have made it a point to only write them down on Tuesdays instead of daily. Not checking on my bank account daily has been freeing. I still check my 401k or student loan balances on the regular…. For no reason, just to see despite not making a payment. I felt my stress levels rising when they stay stagnant, but really what am I expecting to magically happen? Why keep checking if I’m not making any payments? There is no real point and it just makes me feel bad for not doing enough. My stress levels would likely drop by just not being up in the thick of it all the time. I already make the largest payment feasible in my monthly budget, so checking so much does nothing for me financially. I must internalize that sometimes living in the reality of my cashflow is taking a step back and remembering that I cannot do anything more at the moment. I think this mindset goes against the grain of a lot of financial blogger advice of tracking spending, multiple times a month debt payoffs, paying down credit card balances immediately, etc. Following your advice here would probably improve my daily sanity much more than any of those other suggestions.

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  9. Great article! I had several friends who were laid off in 2008, and after the initial panic they were actually grateful. They ended up in jobs that they liked better and that matched their values more closely. They also cut back on extra spending and found that they enjoyed spending time with family much more than they enjoyed spending a ton of money on random stuff.

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  10. These are really good points on moving from a scarcity mind set to a place of abundance. I read a book called Scarcity by Sendhil Mullainathan, a New York author I had the pleasure of meeting in a conference in Toronto last year. It focuses more on how scarcity affects people in poverty different then those in the middle class, but the message was the same, we all have a limited amount of bandwidth no matter what our income level. The more space we occupy with thoughts of scarcity the less room we are leaving for abundance.

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  11. Great post Bridget. I’ve been struggling with this alot lately. Last year I started the routine of using a calendar to record what I spend money on every day. At first it was a neat exercise to learn where my money was really going, as opposed to where I THOUGHT it was going. Now I find it becoming more of an obsession…along with checking my bank balances!! This is definitely not a value added activity, and yet it’s so hard to break the habit. Thanks for the reminder to try and focus on generating wealth as opposed to restricting ourselves so much that we lose sight of the big picture.

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  12. That’s a really great post, thanks for sharing! I think sometimes I think like I’m in the first category which is silly to be honest. I can be a bit of a worrier, and usually it’s over nothing as well. Definitely getting better at it though!

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  13. TJ

    I’m frequently impressed at the financial risks that people are willing to take. I know a woman who moved cross country to New York City with a month of expected expenses saved up. That was two years ago. I have no idea what her finances look like, but she’s still in New York.

    I know an Australian who followed her wanderlust to the USA with only a few hundred bucks. No green card, so her employment options are rather limited (and I’m pretty sure illegal?). She’s still over here, so somehow it all works out.

    Or we could even take your story – You expected it to take a few years to pay off your investment in your MBA, but you didn’t feel the need to wait for that before venturing into full time freelance work. While I’m sure that was a more calculated decision for you than some of these other people due to your knowledge and background, but it’s still a pretty ballsy thing to turn off that firehose of stable income. I am definitely curious how much volume you do with your products since the price point is definitely on the affordable side and it seems like there would be a lot of time effort involved to produce them. You should totally write a blog (or maybe a book?) about all that someday.

    But on the flip side, there are countless examples of people in the internet financial community with hundreds of thousands or even millions of dollars who are still worried they don’t have enough saved up to pursue whatever it is that they say they would be rather doing with their time.

    I don’t think I could be the guy who flies to another country with a few hundred bucks to his name, and I do think it would be needlessly risky to just assume that everything will work out in the end with no analysis at all, but all the evidence I’ve seen is that those who have had the courage to have faith in themselves and take big chances seem to make it work – and maybe a big factor is accepting a lower standard of living as in your point # 3. I’ve saved 60% of my income for nearly 7 years (Yay privilege and parental funded education) , I’m sure if my life dropped my income down to where the spending was the same and the savings was closer to 10%, that I would probably be just fine a few decades from now?

    I feel like your story is a great inspiration for the feeling of abundance. I still think it doesn’t hurt to be mindful of recurring small expenses though.

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  14. Giovina

    I love the idea of this. It was such a mental drain when I had debt and I was always checking it and watching the interest add up. Now, without debt, I don’t have to worry about being able to afford my life but I still stress out about having to use some of savings for larger costs, whether I should pay insurance all at once or monthly, or how much I can spend on vacation. I know in the grand scheme of things it won’t matter, and as long as my automatic savings happen I’ll be fine, but I’m so used to worrying about money. Gotta start appreciating what I have first! The rest will take care of itself.

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  15. Great post Bridget! We are dealing with some big decisions that impact us financially and we are coming at the situation from an abundance perspective (most of the time). We try to say that while it will be difficult we have the option to do this and not everyone else does. The other day I had the best glass of water and paused to feel grateful. We are so fortunate to be able to turn on the tab and get safe drinking water when people have to walk miles or do have the money to keep the water on. When you think about it that people have to make a choice between feeding their children and paying rent you instantly realize how lucky you are.
    I love the idea about giving away time and money to charity as well. Empty your wallet and money will return.

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  16. Your diagram is EVERYTHING I have living the past couple years, and have tried to articulate in words but you’ve captured it perfectly.

    I love money, I love earning more and how it has impacted my life.

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  17. Tommy

    A feelgood philosophy.

    The most successful people (financially and otherwise) in the world are driven by concerns – not having enough, not being good enough, wanting to prove something, desiring to be better, feel like the underdog.

    Things won’t be ok for everybody that sticks to their budget, and you cannot make promises to that. Life can be a roller coaster. Taking risks are necessary for gain and one should take risks and also understand the potential downside of those risks and realistically brace for them just in case.

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  18. Mike

    Here is another article (perhaps the same one?). The on linked to in the article disappeared.
    https://thecorrespondent.com/4664/why-do-the-poor-make-such-poor-decisions/167353648-cd151488

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