When it comes to paying down debt and saving money, most advice is the same. In a nutshell, your income needs to be more than your expenses and the difference should be used to pay down debt and save. The focus is on the numbers.
Most people get that you have to earn more than you spend or you’ll always live paycheck to paycheck. While it’s not a complicated formula, getting to that point is much easier said than done.
We see the news stories on “How This 22 Year Old Paid Off $145,000 in Debt and Retired in 2 Years on a Low Hourly Wage”. Okay, probably not that, but you get what I mean.
Don’t get me wrong, success stories are great motivators. I mean, I have my own success story of sorts and really love to read other’s accomplishments.
But we read these stories about how much these people sacrificed to get to that point, how many expenses were cut, the things they gave up and we think “I could never do that…who wants to live like that?”
Most of us cannot sustain a lifestyle where we continuously feel deprived. The likelihood of us even starting to make changes in our spending and savings habits is remote if we think it’s impossible or even torturous.
Yet, if we continue on the same path and do nothing, nothing will ever change.
The psychology of personal finance
Spending and saving money has less to do with numbers than it has to do with psychology. In fact, personal finance is more about what’s going on with a person’s thinking and emotions than it is about the actual money itself. Changing our thinking about our personal circumstances and the world around us is necessary to successfully make changes in our lives.
Sometimes it takes hitting rock bottom before the motivation hits. Sometimes it just takes actually seeing the situation for what it is (look at the actual numbers!). Sometimes having a sense of security is a driving force. No matter what the motivation is, the right mindset is essential to making changes.
The right mindset is essential for getting your financial life in order. In order to succeed, you have to want it and you have to have the belief that it can actually be accomplished. Mindset, defined, is “1. an attitude, disposition, or mood, or 2. an intention or inclination”. More than that, mindset is a set of beliefs about the world and how we think about ourselves in the world.
A person who is unwilling to change their mindset, who is stuck in their set of beliefs and always makes excuses, will never be able to make changes that last. On the other hand, a person who is willing to be open minded and challenge themselves to think about their world differently, to see the possibility of change, and develop the willingness to try and learn can successfully make lasting changes.
My own personal experience in martial arts is a good example. My husband and I began Taekwondo when we were 36. We started because our kids were taking it and it looked like fun. Plus, parents were free, so why not? In the beginning, I would watch the black belts and think, “Wow! I could never do that”. I didn’t aspire to become a black belt because I didn’t think I had the ability. Throughout the first year or more, the goal of black belt didn’t really cross my mind, but I continued to enjoy class. Taekwondo improved my physical abilities and constantly pushed me outside of my comfort zone.
As time went on in my training, I realized the only thing that would stop me from getting to black belt was me. “I can’t” became “I can’t yet”. Three years after beginning, I received my black belt and toward the end of this year, I will test for my second degree. I continue to have struggles and have to work hard to reach the goals that will take me to the next level. Re-framing my thinking, continuing to push through and learn has challenged me to reach my goals. The process has spilled over into other areas and has, honestly, changed my thinking and my life.
Change your mindset to make changes related to money, debt, and savings
Pay attention to that voice in your head
The voice that tells us we “can’t” do something. Or that we will fail if we try. That is the voice of excuses and negativity, the voice that prevents growth and change. Pay attention to that inner dialogue going on; become aware of it.
“If I don’t try to pay down my debt, I will always have it and I will automatically fail. I need to at least look at my options to see what I can do.”
“I’ve heard of people who have paid down their debt on a moderate income. If they did it, there must be a way. I will try to learn the ways they did it.”
“I’m not sure I can do it all right now, but with time and effort, eventually I can get it done”
Determine your goals
Where do you want to be? What is your vision of success? What would you like to see happen?
“I want to pay off my credit card debt in five years.”
“I want to be able to stop living paycheck to paycheck”
“I want to start my own business”
“I want to have money in a savings account for emergencies”
Acknowledge that you have choices
The view you have of the world around you is a choice. Your inner voice is a choice. Your fixed mindset is a choice. Your excuses and negative outlook is a choice.
Your views and inner voice have defined your world and, if you change them, you will change your world.
Change the voice in your head
Constantly pay attention to those inner voices and change them into positive voices. Voices that recognize your ability to grow, learn, and make changes.
Recognize there is always potential for failure, but that failure is certain if you don’t even try.
“If I don’t try to pay down my debt, I will always have it and I will automatically fail. I need to at least look at my options to see what I can do.”
“I’ve heard of people who have paid down their debt on a moderate income. If they did it, there must be a way. I will try to learn the ways they did it.”
“I’m not sure I can do it all right now, but with time and effort, eventually I can get it done”
Learn
Keep those positive voices and goals as a priority. Learn what you need to know to take those steps toward change. Read books, articles, examine how others have successfully accomplished a goal similar to yours, take a class, find a mentor or coach.
Take action
Take action on what you learn. Change rarely happens overnight, but by moving forward, eventually you’ll reach your goals. Look at your goals as challenges and meet the challenges head on (even if it’s just one small step at a time).
Preserve your new mindset
A growth mindset is one of optimism.
What if you have had a setback and find yourself falling back into your previous mindset? Now you recognize those negative inner voices and know you can change them into more productive, positive voices. Try again.
When you take steps to make changes in your current situation, you are bound to get negative comments or criticism from others. Negativity will stop your progress. Ignore bad information and advice, seek out the positive people in your life and keep moving forward.
Here are some tools that I use myself that you may find helpful:
Want to painlessly save more each month (without even lifting a finger!)? Try out Digit. I really thought I was saving all I possibly could. Digit proved me wrong. See my review and updates on how much I’ve saved here.
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I really like this, Amanda – thanks for taking the time to write it!
My financial lifestyle change didn’t happen because one day I just decide to live a more frugal life. The change began because of a single event that changed my way of thinking – it was very much psychological, but I’d never quite looked at it from this perspective.
Thanks, Ty! Setting goals and making big changes sometimes requires a big shift in thinking.
I loved this article. You are so right it is more about your mindset than your money. You can not effectively make changes in your life if you don’t have the right mind set. My secret to change my mindset was I learned to not dwell on my sacrifice but to dwell on my goal. Thank you for this article.
Thanks, Douglas! I am so glad you enjoyed the article! Goals are a huge part of shifting to a positive mindset – I would feel lost if I didn’t have goals to work toward.
“The view you have of the world around you is a choice. Your inner voice is a choice. Your fixed mindset is a choice. Your excuses and negative outlook is a choice.”
Thank you for making this point! There are some things beyond our control, but our response is always a choice. Congrats on your black belt!
Thanks, Julie! I think we sometimes forget we have choices about how we react, particularly to those things we cannot control!
For me, it had to start with the decision that I someday wanted to financially independent. I read about what I had to do. After that I had to follow it up with more saving/investing than spending. As you wrote, it is all in your head. It is not easy and takes many years. It is truly worth it if you want to be financially free.