The Psychology of Money: How Your Mindset Affects Your Wealth
Money isn’t just about numbers—it’s about mindset. The way you think about money influences your financial decisions, wealth-building potential, and overall success. Understanding the psychology of money can help you reshape your habits and develop a healthier financial future. It can also help you to identify areas of your life where you may be sabotaging your efforts subconsciously, negatively impacting your wealth and success.
The Power of Money Mindset
Your beliefs about money are shaped by childhood experiences, cultural influences, and personal habits. These beliefs form your “money mindset,” which dictates how you earn, spend, save, and invest. People with a scarcity mindset often fear losing money and hesitate to take financial risks, while those with an abundance mindset see opportunities for growth and wealth creation.
Common Money Mindsets and Their Impact
Scarcity Mindset
Views money as limited
Fears spending or investing
Focuses on short-term financial survival rather than long-term growth
Abundance Mindset
Believes there is always an opportunity to earn more
Embraces learning and smart investing
Focuses on long-term wealth accumulation
Fear-Based Mindset
Avoids making financial decisions due to fear of loss
Often results in missed investment opportunities
Leads to financial stagnation
Growth Mindset
Seeks financial education and improvement
Understands that financial mistakes are learning experiences
Takes calculated risks to build wealthBeginning with the End in Mind
My mindset came from a place of fear. Although I grew up in a middle class single parent household, there were times when finances were unstable. The cable might’ve been cut off. I knew the exact amount I could spend on my mom’s bank card at the grocery store without it being declined. I still remember the times when the card was declined. My heart would sink with embarrassment to have to remove an item, just to make sure the purchase was approved. There was also one distinct time when I was in a post-baccalaureate program and I ran out of funds to pay for tuition the second semester. No matter matter what I tried (including a letter from my boss at my on-campus job), the school wouldn’t allow me to continue my studies without making the full payment. It was only through a benevolence donation from my church I was able to stay in school.
Looking back on it, these events were traumatic, but they shaped my financial mindset to fear taking any financial risks. It was only after I was introduced to financial possibilities did I start to see a light. It all started with the desire to become more financially educated, and asking more questions of those who were more confident in their financial decisions. It was then I realized that education about money increases your confidence to take calculated risks, knowing that sometimes you hit a home run, and other times you strike out. But if you were confident in that decision even with a strike out, you never have to live with regret.
How to Identify Your Money Mindset
Often we are not aware of the mindset we currently have when it comes to our money mindset and our relationship with money. This varies widely from person to person, even for siblings who grew up in the same household. It’s important to identify your own starting line. Besides, how can you make a change if you don’t know where you’re shifting from?
Below are some questions you can ask yourself to get you started:
What was money like growing up? Was it a source of stress, power, or freedom?
Do I think having a lot of money makes someone good, bad, or neutral?
Do I equate my self-worth with my net worth?
Am I a spender or a saver—and why?
How do I feel about investing money? Does it feel empowering or scary?
Do I avoid looking at my accounts or financial documents?
What do I believe is possible for my financial future?
How to Shift to a Wealth-Building Mindset
Reframe Your Money Beliefs
Start by identifying negative thoughts about money. If you often think, “I’ll never be wealthy,” replace it with, “I can build wealth through smart decisions and persistence.” This perspective shift allows you to be open to the financial abundance that may unexpectedly come your way. That way you don’t subconsciously reject opportunities because they were not in alignment with your previous beliefs. It is important for you to make a concerted effort toward this reframing to improve not only your current situation, but your overall legacy.
For me, self-limiting beliefs convinced me I didn’t need to become a millionaire. I would tell myself that “nobody needs to be a millionaire” and that “I’d be fine without it.” And that’s true. But those statements to myself were coming from a place of fear in case my dreams didn’t pan out and I wouldn’t be disappointed in myself. But the truth is, in my heart I know I desire to become a millionaire. There is so much I want to do and give that would require me to make millions to achieve them. That desire is greater than any fear I may have inside me.
Develop Healthy Financial Habits
Your daily money habits shape your financial future. Budgeting, saving, and investing consistently, even in small amounts, help create long-term wealth. Start with one goal and branch out from there. Do you have a budget? If so, move on to making saving a part of that budgeting process. Once you’ve saved at least an emergency fund, try your hand at investing, knowing you have a cushion just in case anything goes wrong.
Developing a monthly budgeting system was one of the best things I could have done for myself. Not only did I identify where I could cut back on my spending, but also where there were opportunities for me to save. When I first started really budgeting I had just come into a windfall of money and wanted to make sure I was spending the money wisely. At the time I had a car note with 16% interest, no emergency fund, and had no clue where my money was going between paychecks. I just knew I was broke. With my newfound budgeting system I recognized it was best for me to pay off the car, create an emergency fund using a high yield savings account, and start investing. That was 6 years ago and I haven’t looked back since.
Learn from Successful Financial Thinkers
Read books, listen to podcasts, and follow financial experts who promote a positive approach to money. Learning from those who have built wealth can inspire and educate you. There are many opinions regarding personal finance, but the key is to figure out what works for you. Two of my favorite podcasts are Black, Married, and Debt Free, and Bigger Pockets Money. These podcasts provide you with diverse opinions on money to help make you aware of the many options available. It can be overwhelming to discover so many possibilities, so take your time and enjoy the process.
As much as I love to listen to podcasts, I find myself only listening to them if I’m driving. Instead, I gravitate toward YouTube videos, physical books and audiobooks for financial knowledge and inspiration. One of my favorite financial books is the Psychology of Money by Morgan Housel. This book explores the history of money and financial education, while reminding us that we have the mental power to make decisions to change our current financial landscape. The information is plentiful. We just have to be in a mental space to receive it.
Take Smart Financial Risks
Wealth isn’t built by playing it too safe. Investing in stocks, real estate, or businesses can grow your money over time. Educate yourself and take calculated risks. Identify your overall risk tolerance. In what areas can you take financial risks based on your financial situation and the current financial landscape. The stock market is currently extremely volatile. During these times you should still invest, but maybe you will modify your strategy to invest in places that are more “safe”. Please note, every investment has some level of risk. You just have to determine where you are willing to make that risk.
I’m typically an investor who does a significant amount of research before making a purchase. With the current volatility of the stock market, I’m choosing to be even more calculated than usual. The past couple of years the U.S. stock market has gifted us with over 20% returns each year. That left us with more room for error just in case we bought a stock on the fairly high side. Now the margins are much smaller, and deciding when to purchase individual stocks is even more important. Even investing in the S&P 500 is a higher risk than normal. Currently I am choosing to place more of my cash into high yield savings accounts rather than investing more in the markets. Once things are more settled I’ll shift back my investment ratios.
Surround Yourself with Financially Savvy People
Your social circle influences your money mindset. Engage with people who discuss wealth-building strategies rather than those who reinforce negative financial habits. Negative may not look like people who spend a lot of money. Instead, they may choose to not to invest at all due to the risk. As you are growing in your financial journey, it’s important to be around like-minded people. Those who are taking risks themselves can help you to not feel so scared to take that jump. They can also show you how fun it can be to take risks as well.
Surprisingly, I’ve found it very difficult to find people my age who want to take financial risks, let alone even talk about money. Culturally, I’ve experienced uncomfortable conversations that have ended abruptly because someone didn’t want to disclose a part of their finances. They didn’t want to share how much they spent on their house or car. They didn’t want to share how much they made. Please know, I agree that everyone deserve the right to share the information they want. The trouble is that I noticed a tone of shame in the discussion. I would never want someone to be ashamed of the financial decisions they’ve made. Also, it’s when we share we can start to learn from each other.
Final Thoughts
The way you think about money matters just as much as how much you earn. By shifting your mindset from fear and scarcity to growth and abundance, you can make smarter financial decisions, build wealth, and secure your financial future. Your money mindset is your financial foundation—make sure it's working for you, not against you. Remember, mindset shifts take time. It took me years to make the decision to become more financially educated and take action to move in the direction I wanted to go.
How do you view money? Are there any mindset shifts you're working on? Let’s discuss in the comments!
