The Psychology of Money: Overcoming Financial Mindset Barriers in Your 20s ??
TLDR of Psychology of Money:
Introduction
Your 20s are your golden years that are filled with experiences, opportunities, and challenges that set you up for life!?
And throughout this journey, one of the most crucial aspects is developing a healthy relationship with money, especially from a psychological point of view!?
In this blog, we'll explore:
? Understanding the mental influence of money.
? 4 Factors that explain your relationship with money.
? Common psychological barriers you may face with money.?
Let's dive in! ??
Disclaimer: This isn’t professional psychological or financial advice. This is purely for educational purposes only.
Understanding the Influence of Money on Your Mind
In our consumer-driven society, it's easy to fall into the trap of equating financial success with happiness.?
While money can certainly provide comfort and security, research shows that beyond a certain threshold, the correlation between money and happiness diminishes - and this is where people misunderstand the concept of ‘Financial Freedom’.
If you have enough income to travel, fulfill your basic needs/wants, and your life choices aren’t limited by money, you don’t need more income to live a happy life.
True happiness and fulfillment stem from a balance between financial stability, personal fulfillment, and meaningful relationships. ??
4 Factors That Explain Your Beliefs on Money
There was an interesting study by the Journal of Financial Therapy Association which observed that there are four factors that can explain our relationship with money.
Money Avoidance
These are the people that are anxious when they have more money. They are avid believers that rich people are bad and greedy, and that good people don’t need to be rich.
It was found that people who fit into this category gave their money away and end up with a little amount only because they had anxiety about having too much money.
Money Worship
These people believe that money is your gateway to happiness - but they also believe that more and more money will make you happier.
People who had this belief had a difficult time managing their finances as they took impulsive and irrational decisions like gambling and overspending.
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Money Status
As the name suggests, people here tend to believe that money is a source of status. They understand how social classes work and believe that money comes from hard work.
People who follow the status script showcase their income higher than it actually is, only to talk about their high status.??
Money Vigilance
People who’re vigilant with money are more frugal and conscious about their spending patterns. They believe money is for saving rather than spending and stay secretive about their money overall.
Those who fall into this script may stay safe in emergency situations but might face constant nervousness and anxiety with money on a daily basis.?
Again, you might feel you fall under different factors together. These are only some aspects you can take a look at and know where you can improve!
Common Psychological Barriers in Your 20s
We recently talked about the factors that can explain our beliefs - but what are the exact fears, issues, and problems that are holding you back from improving your financial life?
Let’s find out together. ??
Fear of Financial Instability
A study in 2018 suggested that 81% of Gen Z consider money as a major source of anxiety in their lives - and sadly, you all aren’t to blame.
The uncertainty of finding stable employment, managing student loans, or dealing with unexpected expenses is too common in today’s day and age. This is creating more of a fear-based mindset rather than the opposite.
Understandably, it’s normal to feel anxious when you feel like you don’t have control over the situation you’re in. So try to tackle this barrier by learning a thing or two about financial literacy, building an emergency fund, and developing a long-term financial plan.?
Taking proactive steps toward financial security can help alleviate anxiety and provide a sense of control and give you multiple avenues to achieve your financial goals!
Delaying Short-term Gratification
In today's fast-paced and digital world, avoiding instant gratification is as difficult as it gets.?
It's easy to succumb to impulsive spending habits and prioritize short-term pleasures over long-term financial goals. You might feel an overwhelming urge to enjoy life, spend your money on leisure, and so much more - but it’s not favorable in the long run.
To overcome this barrier, it's crucial to develop self-discipline and practice delayed gratification. Try setting clear financial goals, creating a budget, and establishing a system of rewards that align with your future goals. By keeping your long-term vision in mind, you'll find the motivation to make responsible financial choices.
Ignore The Race
It's common to compare ourselves to others nowadays, especially when it comes to lifestyle and material possessions.?
This constant comparison can lead to unnecessary spending and an unhealthy relationship with money. You’ll always end up wasting your hard-earned income into things that won’t matter anyway. ???
To combat this, focus on your own financial journey and define success on your terms. Remember that financial well-being is a personal journey, and comparing yourself to others only hinders your progress - surround yourself with like-minded individuals who prioritize financial responsibility and support your goals.
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