Why do some people never seem to have any money? A lot of our relationship with money hinges on our psychology, our personality and of course our money mindset. The attitude we have about our finances forms a key part of our daily decision making m- whether we realise it or not.
Julian Tatton is a member of the Australian Psychological Society and director of the Mind Group. Yahoo Finance caught up with him to get his seven key tips to build a positive money mindset.
Also read: 3 expert tips for a great financial new year
1. Ask if your mindset is serving you
“Pretty much all of our behaviour, what we do and the outcomes we achieve, begin with the mindset that we start with. That would be the case for money as is with anything else,” Tatton said.
It's possible to change how we think about money but takes significant psychological effort he said.
“It's called metacognition, which is thinking about thinking and it's not natural to do that. It takes effort to actually stop and look at the way we're thinking and why we think that way.”
2. Define what money means to you
To establish a positive money mindset, you first need to determine how significant money is to your life.
“A good question to ask might be, what is money to you? Is it a means to an end or is it an end in itself? Now, are you frivolous or are you frugal with money? Is that helping or harming? What can you do differently?”
3. Change your internal narrative
Listen to the inner monologue we all have and what it's saying about your finances and how you handle them.
“If you want to change the way you think about money, you could actually pay attention to the things you say to yourself. So if you're saying things like ‘I'm terrible with money’, it kind of becomes a self fulfilling prophecy,” Tatton said.
“That's a good example of a fixed mindset. If you want a growth mindset, and to improve and get better with money, instead of saying, ‘I can't manage my money’, you change it to ‘I can't manage my money yet’, or ‘I'm working on managing my money better’. You can just leave the door open for improvement, rather than shutting it.”
4. Ask what you want money for
Start by having a clear picture of your idea of success or intention for money. Tatton said this creates a frame of reference for more constructive thinking which helps us pay attention to the opportunities around us and seize them.
“Lucky people typically don't have more opportunities that just pay attention to them and act on,” he said.
5. Know how much is enough for you
“I've worked with lots of people who are already multimillionaires and blindly want to make more money because they've got in a habit, rather than because they need or want that money. So how much is enough for you?” Tatton said.
He advises to be clear with yourself on an end goal and ask yourself some tough questions like:
Are your values and is your relationship with money enabling those or is it actually detracting? Are you missing precious time with friends, family and your kids growing up in pursuit of money? It might be time to consider making a shift.
6. Learn about yourself
There are some key questions to ask yourself to help understand and reframe your money mindset. Are you risk adverse or naturally impulsive? Knowing these things about yourself can help extrapolate how you respond with money, Tatton said.
Next take a look at some of your habits - do you always buy something because it adds value or because it’s automatic? What money habits are helpful and which are hurting your money goals?
7. Understand loss aversion (and how it applies to you)
Loss aversion is a term used frequently in investing circles where people focus on avoiding losing money at the expense of making big gains (pun intended). Tatton said our tendency as humans is to work harder to prevent loss, even if by doing so we take away opportunities for ourselves.
“Let's say, for example, you have something which if it goes wrong, you'll lose $100, people will act on it. But if you have an opportunity comes up where you could make $50,000 you say ‘eh I’m too busy’.”
“So often we will be more focused on avoiding losing even small amounts because we hate losing things, and that can often be with your time at the expense of making more money.”