Money and Mindset: The Four Traps

Let’s discuss the topic of money and mindset.

I want you to realise that our relationship with money is deeply psychological and subjective. When discussing or thinking about money, we often don’t realise how much our fears, beliefs, hopes, desires, traumas and mindset come into play.

We’ll approach this subject by talking about four sets of opposite attitudes related to money, and show how a rigid attitude either way is unhealthy. In doing so, you’ll see just how much our mindset influences our financial life.

I believe that, like everything else, money is about balance. If we reject money, we fall into dysfunction. If our entire life revolves around acquiring money, we also fall into dysfunction. The middle way is the wise way.

To begin, though, I want to discuss why money is so tricky, and how our mindset influences our relationship with it. You might intuit that money is very psychological, but not quite understand why. Let’s make it clear.

Why Money is Psychologically Tricky

The reason that money and mindset go hand in hand is because money is a tricky psychological beast. Let me summarise why:

• it’s fundamental to our survival, our family, our leisure, our perceived worth to others, our self-image, and many other dimensions of life;
• it relates to our most primitive needs and desires, and dictates whether we can satisfy them;
• it can act as a convenient and sneaky escape from other issues in our lives;
• human see, human do: we inevitably inherit and imitate others’ relationships with money;
• we’re programmed with all kinds of beliefs about money since birth: from family, society, friends, teachers, and more;
• in the modern day, we’re taught to always want more of everything, which requires that we acquire money endlessly;
• we inherit our parents’ money and mindset habits;
• many of our ideas about money are childish fantasies, such as the belief that money will bring us everlasting fulfilment and solve all our problems;
• money is easy to measure and compare.

In short, money is a psychological minefield. As such, it’s very tricky to see the interconnectedness of money and mindset. If the list hasn’t made this fact clear, please take this on as a hypothesis, at least while you’re reading this article. You may be surprised at what you find.

We often see money as a divisive force in society, and for good reason. But in another way, it’s the great unifier: very few of us have a clean, healthy, trauma-free relationship with money. We’re all trailing financial baggage, and we all have our war stories. We can all relate to the four dichotomies I’m about to present.

Let’s look at the four fundamental dichotomies, which I’ve presented as mindset traps because I believe that excess in either direction is unhealthy.

Money and Mindset Trap 1: Scared / Obsessed

The first trap when it comes to money and mindset is either being scared of money, or being obsessed with it.

It’s undeniable that many of us are fundamentally scared of money. This is in some sense understandable, because without some level of money, we really have nothing in life. Therefore, money takes on this aura of power and prominency, and we always feel like we’re catching up.

In this state, we fear spending it. Every bill burdens us with the obligation of having to let go, and we yearn for a time when it’ll all stop and all our financial obligations will go away.

In this state, life becomes painful. We’re scared of the thing that enables us to live our lives in the first place.

The flipside of this is obsession. This is when we make wealth our one and only pursuit in life. We reduce happiness to money, and believe that with more money, we’ll magically become happier.

This leaves us always wanting more: there’s always more money to acquire, more promotions to gain, and more Joneses to keep up with.

We may forget that how we acquire money is just as important as money itself. Are we really satisfied as we run after money? Is our behaviour having negative effects on ourselves and those around us? Are we neglecting our family and health?

The truth is that money does enable us to meet many of our wants and needs: to have a house, to eat, to drink, to have a social life, to pursue our hobbies, to go places, to have fun, to invest in ourselves, to discover. Being scared of it really means we’re not living fully.

But the other extreme is also damaging: in obsessing about money and chasing for it endlessly, we may make ourselves ill. We may not realise the fallout. And fundamentally we may be overlooking the source of our obsession, which is in many ways psychological.

Money and Mindset Trap 2: Frugal / Indulgent

The next trap is that of frugality vs indulgence.

When we’re frugal with money, we act as though we have no money, even if we do. We actively suppress our desires for consumption so that we can hold on to our money.

We’re not willing to indulge a little, to splurge from time to time. We’re tight fisted. We order the cheapest item on the menu, sleep in the grubbiest hotels and buy the simplest ingredients, all in the hope of minimising our spending.

We think too much about the long term and imagine all kinds of negative eventualities, which necessitates hoarding, scrimping and saving.

Interestingly, frugality doesn’t directly correlate with means. There are poor people who are indulgent, and there are rich people who are frugal. It comes down to a psychological trait, to an unconscious belief that disaster will eventually strike, so we should be prepared for it.

Frugality is different from minimalism, which is a conscious choice undertaken by those who could spend more but choose not to. They’re sick of materialism and want to rediscover the joy of simplicity.

It’s also different from a conscious choice to reduce one’s spending for a while with the goal of saving up for a big spend. You might deliberately live this way for a time, and that’s different from being repeatedly driven to frugality.

Frugality is a compulsion. When we’re frugal, we typically don’t know we’re frugal or why.

Indulgence means spending without paying heed to long-term consequences. It’s when we always have purchases in mind. We scoff at saving. We may even feel bored and restless if we’re not spending, because each new Amazon package gives us a reliable buzz.

In this state, life becomes about consumption, external appearance, short-term hits and showing off.

We either spend beyond our means, consume beyond what our body can handle, or purchase to a level far beyond what is necessary. We’re not really in control. We’re consuming for the sake of it.

This is another form of compulsion or addiction that covers up some psychological issue or wound. In acute cases, it can lead to debt, addiction or even bankruptcy.

Over-indulgence can actually come from a fear of facing up to the harsh reality of our financial situation. We spend without taking into account our means, telling ourselves that one day we’ll take a sober approach or that we’ll pay it all back.

I hope you can see that neither frugality or indulgence constitute a sane approach to life.

Money and Mindset Trap 3: Passive / Hyper

Let’s cover trap 3: passivity vs hyperactivity.

When it comes to money, being passive means we tolerate our financial situation, even if it’s unsatisfactory or even painful, without taking action to change it.

We see ourselves as victims of our circumstances, whether it’s our upbringing, our parents, our past choices, our life experiences, our misfortunes, the hand we’ve been dealt, the economy of our country, or any other factor beyond our direct control.

Perhaps we wish we had more money, but we just sit and sulk, moaning about how we’re restricted, how difficult it is to earn enough, or how life is just unfair. We may even live in a state of inaction for decades, never realising how our victimhood is contributing to our situation.

Unfortunately, this may be the result of learned helplessness: of repeated negative failures when taking action towards improving our financial life.

The other pole is hyperactivity. This means we take a lot of action designed to create wealth quickly. We’re always looking for the perfect get-rich-quick schemes or new side hustle. We know what we want: wealth. And we know when we want it: now.

In this state, we imagine we can just magically create things overnight. When our schemes inevitably fail, we swiftly jump ship and start again. Our life is strewn with lots of half-baked projects that generate a little bit of money, but few or none that generate a life-changing amount.

At work, we seek quick, repeated promotions by brown-nosing rather than by building our skillset and offering real value. We’re impatient and focused on the short term, like a horserace with its blinkers on, only thinking about short-term wins rather than sustained, long-term success.

Both of these attitudes tend to lead to mediocrity and financial dissatisfaction. To generate lots of money in any field, whether in a career or a business, we must be active, eager and action-oriented, yet supremely patient. For any pursuit to yield good fruit, it needs time and steady, continual tending.

4: Inferior / Superior

The final trap we’ll look at is that of inferiority and superiority.

On one hand, we can feel inferior to money and to those who have lots of it. No matter our social position, I’m sure we can relate to this. Even if we’re well-off, our mind has a sneaky way of always looking up to what we could have, rather than appreciating what we already do have.

This feeling of inferiority makes us feel small and weak. This comes from a mindset of scarcity, a lack of gratitude and idealising people who have more money than us.

If we grow up in a relatively poor background, this mindset will tend to infect us. In this case, the adults around us likely spent a lot of time framing rich people as living on another plane, of having reached some improbably high station in life. It’s tricky to shake off these beliefs when you’ve been programmed with them.

This is a disempowering mindset because it has you believe that not only do you need riches to be happy, but that you never will be rich! It creates an insurmountable barrier between current you and the financially abundant you.

On the other hand, we can certainly feel superior to other people. Haven’t we all had the experience of meeting people with money who were incredibly obnoxious? It seemed they wanted to tell the world about their possessions and cool experiences.

Yet I think if we’re self-aware and honest, we’ll all realise we’ve felt financially superior to others at some point.

If we develop a superiority complex, we look around and judge people. “How could they work in that job?” “How could they earn so little?” “Look at the clothes they’re wearing.” And so on, and so on. We believe that having more money than another person makes us inherently superior to them.

Often our superiority complex stems from inferiority. We feel a compulsion to belittle others precisely because we feel small ourselves. It makes us feel good, big, strong and important, because fundamentally we doubt our own importance. And since our life is built on comparison, inevitably we feel inferior to people richer than us.

The problem with both these mindsets is that money alone doesn’t make anyone superior or inferior. Being human requires many qualities, not just money. Sure, many people evaluate others based solely on their financial means, but that doesn’t mean it’s a valid or complete measure.

The Healthy Money Mindset: Balance

I hope that in reading about those four traps you can better see your own inner workings and money mindset. I also hope you realise that neither of the extremes are healthy: the best is to find a balance in each area. Ideally, we’d take the positive parts from each dichotomy and blend them together to reach a healthy balance.

The key with money and mindset is to observe yourself. Pay close attention to your money-related thoughts and behaviour. Are you scared or obsessed, frugal or indulgent, passive or hyper, inferior or superior? Be very self-honest, yet curious too.

Once you have done this for a few months, start observing those who influence you. Ask yourself why you have your money mindset. Investigate the root of all your attitudes and opinions. Start to get a feel for why you are as you are.

Then you can begin reframing your attitudes and work towards the healthiest attitude possible. Look at your thoughts and behaviours and ask if they’re truly helping you. Ask how you might behave or think such that you feel more empowered and whole. Gently push against your habits and ruts by thinking and acting the opposite way.

Slowly, you’ll begin to rewire your psychology and build a healthy money mindset.

In this video, we illuminate the depth of our psychology and its centrality in our lives.