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3 Practical Tips for Changing the Way You Think About Money

3 Practical Tips for Changing the Way You Think About Money

It’s no secret that the super-wealthy think about money in a much different way than the rest of us.

Money is something they have plenty of, have seemingly little problems acquiring, and aren’t afraid to spend.

From the outside looking in, it’s real easy for us to say that their mindset of wealth is a by-product of the amount of money they have. But, what about before they became filthy rich?

While some of the super-rich were born into fortunes, many had to acquire their wealth on their own and battled countless setbacks. There’s a countless number of self-made millionaires in the world today. Many of whom started their stories in households whose average income was at, or below, the poverty level. One such person that immediately springs to my mind is Robert Herjavec.

Robert Herjavec immigrated from Yugoslavia with his family at the age of 8. Arriving in Halifax, Canada, it’s said that they arrived with $20, a suitcase, and no understanding of the English language. Robert’s ambition and determination lead him to becoming an extremely wealthy businessman who’s boasted business sales that reach as high as 9 figures. This determination and business savvy has allowed him to acquire a massive, personal fortune.

I’ve always had a keen interest in studying the mindset of the wealthy and, in this post, I’d like to share with you 3 tips that I’ve learned that will help you change the way you think about money, so you can get more of it.

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1. Think of Money as a Tool, Not a Result

    For many of us, money is viewed as a result. Something we gain for going to work. Something we lose when it’s spent.

    We use it to pay our bills and maintain our lifestyles, but rarely do we actually think of money as a tool. It’s simply something we have to acquire in exchange for our time and energy. To the average person, the acquisition of money is a zero-sum game.

    One of the most prominent differences between the mindset of the wealthy and the rest of us, is that they simply do not view money in this way.

    Pretty much every successful person that I’ve ever studied has had a mindset that views money as nothing more than a tool. A tool to be used to acquire and do more of what they really want. The best venture capitalists in the world understand this concept better than most. Their success is dependent on their ability to view and use money as a tool for investments.

    Here’s a quick example to better illustrate this idea:

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    Let’s say you have an extra million dollars lying around and you decide you want to finance a new car. The car payments average out to be about $800 per month.

    Most people would simply buy the car outright or just start making the payments out of the extra million they have lying around.

    But, those with a mindset for wealth, who view money as a tool, might do something as simple as this: Place the million dollars in a savings account that yields a 1% return and then use the $833 per month accumulated interest to pay for the car.

    Instead of spending money on the car and taking away from that extra million, the wealthy get to keep their million dollars and get the car too.

    While a very crude example, it effectively illustrates the difference in how money is viewed and used by those with a focus on wealth. When we start to view money as a tool, that allows us to grow our wealth and do more of what we want in life, we’ve come one step closer to having a mindset of prosperity.

    2. Focus on Prosperity – Not Debt

    This goes back to a basic principle of personal development. Focus on the solution, not the problem.

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    Many people get stuck focusing on paying off their bills and debt. It’s such a powerful theme in their lives that all their attention, in regards to money accumulation, is centered around paying bills and reducing their debt.

    While it’s great to pay your bills on time and reduce your debt, you can’t let it distract you from creating wealth. This is why you hear so many financial advisers tell people to set up an automatic debt payment plan and to just start focusing on savings, prosperity and growth.

    I think Bob Proctor, from The Secret, said it best:

    “Most people have a goal of getting out of debt. That will keep you in debt forever. Whatever you’re thinking about, you will attract. You say, “But it’s get out of debt.” I don’t care if it’s get out or get in, if you’re thinking debt, you’re attracting debt. Set up an automatic debt repayment program and then start to focus on prosperity.”

    Law of Attraction aside, that is great advice. Simply for the fact that it emphasizes taking your focus away from the problem and on to the solution. Your bills still get paid, but your mind is now free to focus on prosperity and growth.

    3. Don’t Put Money on an Emotional Pedestal

    If any of you are like me, and have grown up without a lot of money, you may have developed some pretty strong negative emotional stances concerning money.

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    Money was always viewed as a source of stress. Something that directly dictated whether or not I was going to have a good day. I used to feel strongly (and still do, at times – it’s a work in progress) that my personal self-worth was directly related to what kind of clothes I was wearing, what kind of car I was driving, and how nice my apartment was. All of this pointed right back to how much money I had in my bank account.

    Money should not be such a major thing in our life that it is able to dictate our emotional state or determine our own self-worth.

    This closely relates to the first tip that I listed. If we’re able to view money as nothing more than a tool for us to wield, we become the ones in charge of our lives – not the money.

    If we’re emotional about money and allow it to dictate our mood, how can we ever begin to use it effectively as a tool? I mean, you don’t get emotional over a vacuum cleaner, do you? Emotions will cloud our judgement and cause us to make poor choices with our money.

    The wealthiest people in the world will tell you, “Don’t get emotional about money.” While this is sometimes easier said than done, it’s very solid advice. Learning to take money down from that emotional pedestal and put it in our hands, where a good tool should be, is a key step for moving our mindset towards that of wealth creation. And that puts us in the driver’s seat.

    Featured photo credit: Growth of Money on Napkin via Shutterstock and inline photo by Philip Taylor PT via Flickr (CC BY 2.0)

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    Last Updated on September 2, 2020

    How to Set Financial Goals and Actually Meet Them

    How to Set Financial Goals and Actually Meet Them

    Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

    In this article, we will explore ways to set financial goals and actually meet them with ease.

    4 Steps to Setting Financial Goals

    Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

    1. Be Clear About the Objectives

    Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

    It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

    Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

    2. Keep Goals Realistic

    It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

    It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

    3. Account for Inflation

    Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

    Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

    For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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    4. Short Term Vs Long Term

    Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

    As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

    By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

    How to Achieve Your Financial Goals

    Whenever we talk about chasing any financial goal, it is usually a two-step process:

    • Ensuring healthy savings
    • Making smart investments

    You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

    Ensuring Healthy Savings

    Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

    This is the focal point from where you start your journey of achieving financial goals.

    1. Track Expenses

    The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

    Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

    If you’re not sure where to start when tracking expenses, this article may be able to help.

    2. Pay Yourself First

    Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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    Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

    The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

    Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

    3. Make a Plan and Vow to Stick With It

    Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

    Nowadays, several money management apps can help you do this automatically.

    At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

    Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

    You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

    4. Make Savings a Habit and Not a Goal

    In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

    Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

    • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
    • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
    • If you go shopping, always look out for coupons and see where can you get the best deal.

    The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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    5. Talk About It

    Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

    Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

    6. Maintain a Journal

    For some people, writing helps a great deal in making sure that they achieve what they plan.

    If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

    When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

    Making Smart Investments

    Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

    1. Consult a Financial Advisor

    Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

    Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

    2. Choose Your Investment Instrument Wisely

    Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

    Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

    As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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    3. Compounding Is the Eighth Wonder

    Einstein once remarked about compounding:

    “Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

    Use compound interest when setting financial goals

      Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

      Start saving early so that time is on your side to help you bear the fruits of compounding.

      4. Measure, Measure, Measure

      All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

      If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

      Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

      The Bottom Line

      Managing your extra money to achieve your short and long-term financial goals

      and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

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      Featured photo credit: Micheile Henderson via unsplash.com

      Reference

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