The older I get the more I realize the impact our mindset has on every aspect of our life including our finances. What you think about, what you believe and the way you go about making decisions and living life is a direct result of how we think.
We all know that there is no shortage of information and opinions on the topic of money. Turn on the TV and you are inundated with commercials for products, services, books and seminars that are screaming for your attention.
How do we process so much information?
There is an overwhelming amount of content that seems impossible to sort through and understand. In fact, it is said that the brain processes 400 billion bits of information per second[1] and it is estimated that we consume 34 gigabits of information per day[2].
Our brains are set to overdrive trying to sort through and make sense of what we are consuming. It seeks short cuts as it associates information with something we are already familiar with. It is like an assembly line grabbing things and throwing them into predefined categories you have already established for yourself. This process reduces the amount of thought that goes into figuring out what something means.
The challenge is that once you have created this association or pathway in your mind about something, it is difficult to redefine it unless you stop to consider what is happening.
Don’t let your money mindset end up in the junk drawer
This is why when it comes to money, people tend to lump much of what they think they know about money together into a mental “dollar sign” file and anything that has a dollar sign associated with it gets thrown into it as well. In reality this is more like a mental junk drawer full of mismatched information.
The takeaway from all of this is that a lot of what you hear about money may seem like it is all similar since it has a dollar sign, but it is not. Unless you take the time to really understand what you are consuming, you run the risk of making mistakes and missing opportunities. Sorting through your money mindset requires three main steps:
- Stop and think
- Make a list of all your beliefs about money
- Challenge those beliefs by asking questions
Sorting Out Financial Topics
For us to learn new information we must not be so quick to judge and assume we already know everything. Relying too much on what you already know (or think you know) and not taking enough time to challenge your way of thinking is simply a bad idea.
For example, when you hear the terms financial planning, retirement planning or investment portfolio, don’t be so quick to assume all of these are the same thing. Once you take time to understand these different terms, you will quickly understand that they are all very different.
This approach to learning takes you from immediately thinking “I already know that” to stopping and asking a few questions to see if maybe there is new information to be learned.
For instance, if you hear the term “retirement planning”, before you assume it is the same as an investment portfolio, why not ask the question, what make this different from just having an investment portfolio? Why does it have a different name?
Reevaluate your money mindset
This happens with financial planning topics all the time. People will hear the term “financial planning” and they assume they have it all figured out because they have a 401k, or ROTH IRA or some other investment. They confuse an investment with having a plan. It is simply not the same thing, but a lot of people won’t stop long enough to consider what they are missing.
And quite frankly, we cannot blame this entirely on our brain’s process for storing information. We have to consider the fact that investment people, the media and financial entertainers don’t separate or properly define these things either. For them it is all about making calculated investment decisions and accumulating money. That’s great, but that’s not a financial or retirement plan, what they are describing is simply an investment plan.
I have recorded entire podcasts on this topic, so I digress…
The point I am driving at is that you want to avoid being trapped in a bubble of your current thoughts and beliefs. You need to raise the curiosity flag and begin asking questions. There are three important points to think about here:
- You will never know everything so don’t assume you do.
- You want to avoid sacred cows in your mindset. Things change and so should you. There shouldn’t be things you consider nonnegotiable.
- Remove limiting beliefs that prevent you from believing things are possible.
Remain curious and challenge why you believe what you believe to avoid hanging on to things you may believe are true but are actually false.
Be open to “aha” moments
I can’t tell you how many times throughout my life I have had these aha moments. Why didn’t I see that before? How come I have never heard about this before?
The older I get the more I seem to have these thoughts and experiences. I contribute it to me becoming more aware of how much I don’t know. At times I can be like a three-year-old child asking “why”.
Now, a sure sign that you are closing yourself off to new information is if you aren’t regularly challenged with these thoughts. If you coast along in life and don’t seem to have many new learning experiences, you may want to begin cleaning out the mental junk drawer and sorting through what you think you know.
When you begin to open yourself up to learning more, being curious and challenging what you believe, you develop a mindset that is rooted in facts that guide your financial progress.
THE APPROACH
So, how do you challenge a money mindset and a belief system that you have created for yourself and begin to challenge what you know?
The very first thing is to stop and think. This may sound like a simple idea until you stop and think about what I am suggesting.
We think all the time, right? But what are you thinking about? The average thought is rooted in fear, insecurities or worrying about something. If we allow it, our thoughts simply wander endlessly with no destination.
The other thoughts we have are usually small reactive decisions to get us through a day such as what to wear, what to eat, what’s next, what to watch, where to go, or what to say.
The problem is that if this is most of your thinking, there is no progress being made. You’re no better off the next day than you were the day before. It is so robotic that most people don’t remember what they wore, what they ate, who they talked to or what they said a week later.
The kind of thinking I am talking about is creative thinking. What do I mean by creative thinking? This is thinking about your thinking. Thinking about what you believe and asking why you believe it. Focusing on your goals and strategically moving closer to them. Thinking about your thoughts and moving away from random daydreaming and toward a more meaningful money mindset.
Cleaning out the junk drawer
You can think of this process as cleaning out a junk drawer in your office. It’s funny when you clean out a junk drawer, you throw more than half the stuff away and wonder why you hung on to certain things. The other thing about cleaning out a junk drawer is that you get this sense of satisfaction – a sense of organization.
The best way to begin cleaning up the information you have stored in your mind is to begin asking questions. The next time someone makes a comment about someone or something, instead of simply smiling and agreeing, ask questions. Smiling and agreeing is a passive response to avoid further depth of the subject. Instead ask, “Why do you feel that way? How did you come to that conclusion? What makes you think <blank> is right?” Be curious, don’t judge, and don’t assume.
Let me challenge and ask you to write down all of the beliefs you have about money. Everything that you have read, been told and have heard others talk about that you have hung onto as truth. Things you say to yourself, things you think about when you are making a financial decision. Include things you may suggest to other people or shake your head at when you hear someone say it.
Compile a list of these things right now if you can. If you’re driving or doing something just think about these things but be sure to come back to this when you have a moment to write your thoughts down.
This is the time to empty out the mental junk drawer to build an organized and meaningful mindset about money!
This may take some time so if you need to stop and create the list then come back to pick up where you left off that is fine too.
Challenging your money mindset
You’re probably going to find that your list is made up of things you have read or heard about. There will be some things that you have done or experienced. Whatever these things are, we will go through a process for testing its claim and have it earn its place in your mind.
The biggest factor to all of this is realizing how important this process is to your life. These things you are hanging onto in your mind are driving your behavior. They may even be things you are telling other people to do. There is a lot resting on this list, so we want to make sure it’s right.
Ok…So now that you have this list of beliefs and things you are hanging onto, let’s begin to ask questions and challenge why you believe what you believe.
You can begin by simply asking the question, why do I believe this is important? Just ask why to each of the ideas you have written down. Sometimes we hear things that sound good and hang onto the idea but have never acknowledged its meaning. Why does this matter?
The next question would be to ask, what does it do for you? What is the result of applying this to your life or situation? How is this useful for you? How will this make your life better?
Remember in school we were taught the scientific method to construct a hypothesis about an idea…. “If I do this, then this will happen.” That is what we are doing here. You are formulating your reasoning and hypothesis for why you feel the idea is valid, and the next step is to begin testing the idea.
Looking at the list of ideas, ask yourself first if it has been tested or if it is just a concept. Is it something that sounds right or is it something where the math has been shown to support its claim? Have you or has someone shown you the math supporting the idea? Showing the supporting math, logic and back tested claims for each idea on your list makes it true or false.
Sifting through popular financial advice
The media, columnists and financial entertainers are continuously spreading concepts and ideas about things. Many of these ideas get floated around as truth but have never been tested. You will hear things like, you should always do a 15-year mortgage to get it paid off as quickly as possible to save all the interest of a 30-year mortgage.
You have probably heard that before. Well, even though this sounds reasonable and is often discussed as fact, the math doesn’t support this idea. In fact, it is slightly the opposite. (I have covered this in other podcasts and blogs, so I won’t get into all the details of it here.)
When things such as this are shared, it is often assumed that someone somewhere did this testing to come to this conclusion and because someone said it, it must be true. However, just because something sounds good or seems right doesn’t mean it is.
This is a serious problem with our society. How much of what we believe to be true is in fact false? People will say things to sound smart or say things that seem reasonable, but they really don’t know if it is mathematically sound.
The obvious problem with this is that the person listening then holds it as truth. We are all a collector of ideas, experiences and emotions.
Become active in your financial education
You have heard me use the term “financial entertainers.” There are many of them out there and all of them have a different angle they use in their messaging. What’s fascinating to me is that they exist. At what point in our society did finance become entertainment?
We see this with video games. There is now something called eSports where people will sit and watch someone play video games. It blows my mind.
I have a good client of mine who owns softball fields and he said to me recently that less and less people are playing softball. What he is seeing is that people will come to watch but they don’t play. They are fans of the sport but don’t want to get involved with actually playing.
We see this is in sports, religion, school, cooking and pretty much anything that we could being doing ourselves but prefer to have someone else do it for us as we watch. Society has become a population of fans, spectators and consumers.
Are you a spectator or are you willing to take time to test the financial ideas you have that are formulating your money mindset? If you don’t know where to start or don’t understand the math yourself, we can walk you through it.
All you have to do is let us know.
[1] https://www.basicknowledge101.com/subjects/brain.html
[2] https://www.tech21century.com/the-human-brain-is-loaded-daily-with-34-gb-of-information/
