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.
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.