What does the idea of being “rich” mean to you?
Is it having a double mews cottage in Kensington, complete with sunken kitchen, gym and swimming pool in the iceberg extension?
The idea of wealth can create all sorts of thoughts in our minds and in order to achieve them you might feel you need a roll over month on the lottery or the invention of some new app.
In my opinion, being financially healthy and working toward improving your money situation doesn't have to wait until you've amassed piles of gold.
Financial limiting beliefs are often learned as kids, through cultural and social references, our environment and lived experiences, (or whatever it is) it could be stopping you from making changes to your money situation, today.
Here are 5 limiting beliefs surrounding finance and how you can confront them in order to improve your personal relationship with money…
1. You can only change your financial circumstances when you make a lot of money…
Actually, no. You don’t need to knock off your granny for her maisonette or cosh your boss in the toilet in order to improve your money goals.
Income is not tied to your wealth. It’s your net worth, (which is how much money you have in savings, pensions, investments and assets such as your home or car. Remembering my O’ level accounts class, your net worth is what you’ve got left after you submit your liabilities, such as your debt from your assets (which is your savings, the value of your house, etc).
Also, one of the biggest things I experienced as my earnings increased was “lifestyle inflation”. When I relocated to LA and was commuting between the US and London, my living expenses mushroomed to the point where it used up all the “extra” money I would’ve had if I’d kept my living expenses and lifestyle relatively the same.
Or let’s say you don’t have much “leftover” money after your living expenses have been accounted for. Maybe your income has remained the same or even decreased in the last year. If that’s the case, one thing you’ll want to do is try to find ways to lower your living expenses.
It might feel overwhelming or nearly impossible, especially if you’ve already on a tight-budget but often there’s still room to reduce further – even if those sacrifices are only for a short time to meet a financial goal.
How much can you save on. When you have a goal it can become easier, like when I was saving for my last house, I became extremely spartan with my savings plan. It was my fun obsession – seeing how much I can save and where…
· I stopped buying clothes (because I didn’t really need anything “new”)
· I froze my gym membership (and started running/exercising outside instead)
· I changed where I bought my groceries (Waitrose became Aldi)
· I made my own meals from scratch (a frozen chicken goes a long way – I could get several lunches, soups and main meals from one chicken and of course I saved left-overs to use again, nothing went to waste, and I even used up the random tins in my cupboards)
· Went for walks with friends (with my own coffee in a flask)
I basically started with one area then step-by-step got more focussed with my efforts…You could question yourself to, “do I really need this? How much can I save if I don’t buy it?”
It can be fun to see how much you could potentially save. Then, whatever money you’re able to save by your budgeting, immediately put it toward your savings – ideally in an account where you can monitor the growth.
2. You have to go big or go home…
Some people think that you have to start big and do it all when working toward goals, but that can become overwhelming. If you can’t do it all at once, you might as well not bother starting at all…
Saving can be like going on a crash diet – if you go all in from zero it can be challenging to stay consistent with your efforts. Motivation and intention will only take you some of the way – because they ebb and flow and can be temporary. Having a clear goal and creating a flexible working plan which can be built upon and supported by disciplined habits which are developed over the first 90 days could serve you better.
Could you set up an automated transfer between bank accounts, say £30 every month toward the “rainy day” fund or could you increase your credit card payments £10 every month over the minimum payment? I appreciate these are small amounts of money but, £360 at the end of the year could be useful for something and you could feel more financially positive as a result of doing the little thing compounded over time and of course you can always increase the saving as you circumstance change. Once the credit card debt is paid off, that £10 then goes into the “rainy day” fund.
3. I’m just no good with money!
Everyone has the ability to be good with managing money. It’s a skill and a discipline but it can be learned.
If you’ve never been taught how to budget, you can’t really blame yourself for not knowing how to do it. The influences and conditioning we received as kids can have a direct bearing on our relationship with money – and in particular saving it. There’s nothing wrong with you but you can change that dialogue in your head by writing lists of things you have achieved, skills you have learned and positive things you have done to demonstrate your ability to do this. There are plenty of websites and YouTube channels to support you for free, should you choose to look for available solutions.
If you have self-limiting beliefs, it takes concerted effort to change this thinking. Starting by understanding your narrative around finances and where it might come from could help you, but the past is in the past, its where you go from here and how you start changing that story from today and knowing that yes, you can change this for the better.
4. The rich get rich and the poor get poorer…
No. Without getting into a massive debate about unemployment, minimum wage and inflation and the pro’s and cons of the capitalist society, we might want to define what we mean by poverty and by wealth and especially how you think you relate to them. What’s your money story?
I suppose the first question to ask of that belief is, “is this true of everyone?” The answer is “no”, it has to be.
There are always people escaping poverty and equally on the flip side people losing their shirts too – businesses go pop, and jobs are lost. How often have you heard those stories? Also, what about the concept of someone being materially poor off but possessing the most wonderful abundant spirit and mindset. Is that wealth?
The best description I ever heard about financial wealth and how you measure it came from the money expert, Robert Kiyosaki – he talks about wealth being measured in time rather than just currency… he basically says your “wealth number” is worked out by taking your savings, working out your total expenses and dividing them into the savings number.
For example, if your total amount of money you have in the bank is £10,000 and your total monthly expenses are £5,000, then you divide the £10,000 by £5,000 and you get 2. You are two months wealthy!!
The idea that wealth is worked out on how long you could live on the savings (if your main income was to dry up) is crucial and really helps dispel the myth of the rich getting richer. Unless you know their personal circumstances and debt burden – the could look rich but, really are they?
You could be living in a mansion and be 1 x week wealthy or live in a council flat and be years wealthy. It’s subjective.
What it does do is make us re-frame wealth and the need to save and create a plan in order for you to have more life choices.
5. Left brained people make better choices with money
Untrue. Being logical and pragmatic or having the ability to be methodical with your thinking is without doubt a talent but no matter how left or right brained we are, the majority of personal choices around money we make are rooted in emotion. Therefore, our choices aren't always rational. We might know that we should save for our new fridge rather than get our teeth bleached, but all too often we can ignore what's practical and fritter the money away instead. New shoes make give us more immediate satisfaction than saving for the boring fridge – that you can’t wear out!!
Make a note of the slip-ups because having self-awareness can help guide you towards developing better habits and making different choices. This is where the discipline comes in. Get back on the saving wagon. If this is a trend, then make it harder to spend the money – put your savings into an account that needs to be physically accessed or failing that under the mattress in your bedroom at your mum’s house!!
Awareness is the first step of change and becoming aware of limiting beliefs around money will make a difference. You can learn how to manage your money and you can address any issues you may have square on and then start a plan of action to create healthier financial circumstances for yourself. You’ve got this.