Naturally, I shouted, A HUNDRED BUCKS?!
She immediately put her hand over my mouth, whispering, You want the whole world to hear?
They might rob us and well have nothing!
I cant blame her.
The personal finance world often refers to this as a scarcity mindset.
Its when you make financial decisions based on your fear of not having enough.
For a while, that fear actually worked well for us.
It motivated my parents to scrimp and save thousands of dollars on minimum wage salaries.
It motivated me to develop a strong work ethic.
Ironically, living in constant fear of falling back into poverty can keep you from moving past it.
Over time, Ive found that its gotten in my way more than once.
Dont Be Afraid to Strive for Your Earning Potential
Ive talked aboutmy money fears before.
You might be focused on just getting by and avoiding imminent disaster.
For a while, I didnt quite understand this fear.
Because I was afraid it wouldnt work out, and then Id have nothing.
Dont Just Buy the Cheapest Item
People with this scarcity mindset focus on defense, not offense.
Instead of considering the future and how youll grow, youre focused on not losing what you havenow.
When it comes to spending, this actually seems smart.
You want to keep your money, so youll probably spend less of it.
However, spending less isnt always a smart financial move.
Weve talked about this before, but sometimes it pays tospend more on quality items.
When youre in a mindset of scarcity, thats lost on you.
Growing up, we resented quality, name-brand stuff.
My mom scoffed that people only bought expensive things for the label.
And for years, I didnt even bother looking at name brands for this very reason.
She was right to some extent, but it was a defensive mindset.
We thought we were being frugal.
To us, the cheapest option was always the smartest; only a fool would spend more.
As a result, we bought cheap clothes that didnt last.
As an adult with a scarcity mindset, I often bought cheap, replaceable household goods.
Its taken a while to get over my defensiveness toward expensive things and realize whatfrugality is truly about.
Dont Blow Off Investing
When you dont know anything about investing, its intimidating.
We always hear bad news about the stock market, so it seems like a big gamble.
For someone with a scarcity mindset, this makes investing downright scary.
Scary enough that, if youre like me, youll refuse to learn more about it.
For years, I never thought I would invest.
As a result, I missed out ontime.
Of course, I was focused on protecting what I had, so that concept was lost on me.
For example, in one study, they conducted basic IQ tests on subjects in a New Jersey mall.
Your auto insurance will cover half the cost.
How would you go about making such a decision?
Financially, would it be an easy or difficult decision for you to make?
The answer wasnt really important; the IQ test results were.
However, when low-income subjects were presented with the problem, their IQ results actually dropped.
Were not thinking at full capacity, which makes us vulnerable to bad decisions.
Financially, this takes the form ofdebt trapslike payday loans, debt settlement, or layaway.
When youre in a mindset of scarcity, though, its harder to think objectively about the long-term.
Youre distracted and focused on surviving in the short-term.
We call this bandwidth.
We often neglect the importance of bandwidth in our decision-making.
It sounds hokey, but practically, it makes sense.
When you’ve got the option to let go of fear, youre more open to taking risks.
We can apply this principle to our own lives.
You could hone this concept in on your finances.
It doesnt necessarily have to be three areas, it just has to be enough that you feel safe.
For me, this meanthaving an emergency fund.
GOBankingRates recommendsexpressing some gratitudewhile youre at it.
Weve written a bit to embrace gratitude here.
Lastly, Debt Roundupsuggests starting with small steps:
Make small steps toward growing your wealth.
Open a savings account.
Invest a small amount of money in the stock market.
Increase your 401(k) contributions.
These steps assume you have money to start investing, of course.
It also helped me feel in control.
That made a big difference in shifting my mindset.
Illustration by Tara Jacoby.
