There are two different mindsets when it comes to money: scarcity and abundance. Some people grow up not having much, and it can cause them to have a scarcity mindset. Others grow up with having all their needs met and more, and this can cause them to have an abundance mindset.
Both mindsets can help you build wealth, but they both can also cause you to be fearful or greedy when it comes to money. They can cause us to make emotional decisions with our money instead of rational, helpful decisions. Let’s look at how having a scarcity mindset can affect how you handle your money.
If you have a scarcity mindset, you can be afraid when it comes to money. This fear can cause you to spend everything you make because you think there will never be more. This same fear can cause you to save your money but also to not invest it because a fear of losing it. You don’t take any risks, or at least you don’t do anything that you think is a risk. Some of you think money is finite and you maybe won’t have any tomorrow. You focus on the short-term when you think money is limited.
Scarcity Mindset Issues
Your mindset causes you to make certain decisions when it comes to money. These decisions are not always the best for building wealth because they are made with your emotions.
When it comes to a scarcity mindset and not taking risks, some people save their money in a savings account that makes no interest. They have the perception that their money is safe there because it’s FDIC insured. They don’t want to invest their money in the stock market because of risk, but they don’t understand that inflation is also a risk to their money. When you don’t invest, you lose out on compounding interest, and inflation eats at your money.
Most people cannot save enough for retirement without investing and having that money grow. Being fearful of investing because of your scarcity mindset is going to limit your wealth. Even if you save $30,000 a year, you need to do this for many years in order to have enough to retire. By that time, inflation causes your money to be worth half of what it really is. You can almost never save enough this way. You need to have your money working for you.
With this mindset, you also maybe hold onto your money and not pay off your debt. Besides losing to inflation, you are also losing to interest! Don’t manage your money this way.
All of us were raised in different circumstances and have gone through changes in our lives that also cause us to have a certain mindset. Keep the good but get rid of the things you learned that are preventing you from building wealth. Save, pay off your debt, and then start investing to build wealth.