The Psychology of Money: Lessons on Mindset

If you’ve grown up with a poverty mindset – then you know just the act of talking or reading about money brings up painful feelings. Feelings like shame, anxiety, frustration, and self-doubt.

For most of my adult life, I’ve made excuses for why I would continue to put off learning about money – aka developing a ‘Financial IQ’. Mostly the reason was because I wasn’t earning enough yet.

But now I’ve realized that developing financial intelligence can’t wait. You have to start now and you have to start with where you are, whatever income level that may be. Here is the Psychology of Money lessons I’ve realized from reading Morgan Housel’s best-selling book.

It’s not about how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.

Robert Kiyosaki

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Stop Making Excuses

I used to believe that if you didn’t earn a moderately decent income then money savy-ness just would not make a difference. That if you’re living paycheck to paycheck and unable to save – learning about budgeting, investing, credit, etc. just does not matter.

I know it sounds counterintuitive. But we often don’t question the mentalities we’ve grown up with our entire lives. I knew I should be better with money- but I always felt so unmotivated.

The solution was always off in the distance- just make more money. And once I had money – then I would be motivated to learn how to manage it effectively, or so I thought.

I mean, why learn about investing when you don’t believe you have any money to invest?

But this mindset only gives you an excuse for not taking accountability for how you’re managing your finances right now.

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Stop Waiting for Your One Day

Don’t wait until one day when you have lots of money, to learn how to manage it effectively. This doesn’t mean you shouldn’t try to increase your income.

But waiting stops you from:

• Creating good money habits now
• Taking necessary actions that will set you up for your future
• Leveraging time to compound on your investments

Good habits, including financial habits, take time, willpower, and discipline to develop.

If you’ve had dysfunctional money habits your whole life –when you do earn more, those habits aren’t going to just go away over night just because you want them to.

Changes that seem small and unimportant at first will compound and turn into remarkable results if you’re willing to stick with them for years.

James Clear (Atomic Habits)

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More Money is Not Always the Answer

We’ve been sold on the idea that winning the game of money is all about just earning more. We assume that once we start earning a high enough income – all our money troubles will be over.

But thinking this way only keeps us chasing the proverbial carrot on a stick.

The hardest financial skill is getting the goalpost to stop moving.

Moran Housel, The Psychology of Money

Of course, earning a higher income will make life a lot easier. But often when we get to our goal, we realize that the income didn’t go as far as we thought it would.

And by then, our lifestyle expenses have increased and our desires have grown. Add on inflation and constant comparison with our peers, and we’re left always looking to the future for solutions.

Lifestyle creep is a real thing. And if you’re unaware, then your goalpost will always keep moving.

If earning more money is the offense, you also need a killer defense.

The foundation stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning.

Thomas J. Stanley, The Millionaire Next Door: The Surprising Secrets of America’s Wealthy

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Procrastination is a Bad Financial Habit, too

There’s many reasons why we procrastinate: laziness, perfectionism, emotional suppression, self-doubt. But another core reason is indecision.

There’s so much financial advice and information out there, it’s overwhelming. Some experts tell us to keep renting, other says home ownership is key. Invest in what you know, debt is good, debt is bad.. and so on.

Overwhelm leads to confusion which leads to self-doubt and then paralyzing indecision. So you do nothing, and you wait…

These feelings are multiplied if you’ve made poor financial decisions in the past. You start to lose trust in your decision making. You’re afraid to act because you don’t want to get it wrong again.

But when it comes to finances, taking no action can be just as lethal as taking the wrong actions.

Read More:

Time is Everything

For each day that you don’t take to better your financial situation – learn financial intelligence, adopt good spending habits, decide and act on an investment strategy – you’re missing out on valuable time.

I don’t know a lot about finances, but a crucial Psychology of Money lessons is that time is everything.

If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon. Time is the most powerful force in investing. It makes little things grow big and big mistakes fade away.

Morgan Housel, The Psychology of Money

So for each day that you’re not putting your money to work for you, that’s interest you’re missing out on. Valuable time that you will never be able to get back.

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It’s Not as Complicated as it Seems

Another reason why we postpone getting smart with money is that it just seems a whole lot more complicated than it actually is.

In the beginning of Morgan Housel’s The Psychology of Money lessons, his introduction includes the inspirational true story of Ronald Read.

Ronald Read was born to a poor family and lived off a modest income as a janitor and gas station mechanic. But when he passed away at age 92 , his net worth from investments totaled over $8 million dollars.

He left $2 million to his step children and donated over $6 million to his local hospital and library.

The point Housel was making is this:

…doing well with money has little to do with how smart you are and a lot to do with how you behave. And behavior is hard to teach, even to really smart people.

Morgan Housel, The Psychology of Money

Often, we build up false ideas in our heads about how hard things really are. Especially if you’ve grown up in a poor household, this mindset of feeling less than or somehow less competent than your wealthier peers is ingrained deep into your unconscious.

But there is a solution –it’s just to start. Start now, and start where you are. Knowledge is power. As you learn more and more, the fog of the unknown will slowly fade away.

An investment in knowledge pays the best interest.

Benjamin Franklin

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Focus on What You Can Control

There are many things when it comes to money that are outside our control. But the trick is to focus on what you can control.

Learning to be happy with less money creates a gap between what you have and what you want – similar to the gap you get from growing your paycheck, but easier and more in your control.

Morgan Housel, The Psychology of Money

You might not be able to earn more money right now, but you can change the way you think about and manage your money.

This doesn’t mean you should stop trying to increase your income. But if you’re like me, then you need to stop diddle-daddling and get your sh** together financially.

Stop putting the responsibility on others and start now. Develop financial intelligence and become intentional with your money and your life.

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Thank you for reading this post! I hope you enjoyed the Psychology of Money lessons I’ve learned. Continue to join me as I share my journey of improving my life from the inside out.

I’d love to hear from you – what was your favorite lesson from this book, or another financial book??