Home Mental Health & Well-Being The Psychology of Financial Well-Being: From Poverty Mindset to Wealth Mastery

The Psychology of Financial Well-Being: From Poverty Mindset to Wealth Mastery

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Why are some people financially healthy, and others experience a lifetime of financial ill-health? What makes the financial difference between two people with exactly the same earnings and life situations? How can it be possible that one is ‘money ill’ and the other has reached ‘money mastery’? What is the psychology of financial well-being? If you want to be money healthy, this article is for you.

As the Charles Dickens character, Mr Micawber famously noted in David Copperfield, “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

That sounds like a simple formula for financial well-being. Can there be much more to say? Yes, much, much more.

Let’s start with the wealth mindset and where it comes from. It is a harsh reality of life that those people born into wealth are much more likely to do well financially. Why? Because they are exposed to and learn about the wealth mindset all their lives. They acquire mental mastery of wealth. They learn how to protect money, how to make it, and how to minimise costs. They learn what most people do not. For instance, someone with a wealth mindset who has a chunk of money in their possession will invest it so that it produces more money. They will invest in appreciating assets. Most people, by contrast, will indulge themselves in buying depreciating assets.

People who have a wealth mindset see long-term earnings as being much more important than short-term indulgence. They have mastered the art of delayed gratification. For example, imagine that two people have enough money to go on an exotic holiday. One chooses that holiday. The other researches ways that money could produce income for life. Which one has the wealth creation mindset? Which one is on route to developing mental mastery of wealth?

That is not to say that wealthy people do not indulge themselves; they do. But only after they have invested for longer-term returns, for passive income.

People who become wealthy buy value. For example, they know that buying a brand-new car is a waste of money. They will let someone else take the hit of buying a new car. They will buy second-hand when the worst of the depreciation has taken place, and yet the greatest value still remains.

Time, too, plays a role. Someone who is money healthy will get the best possible return from their time. While the money ill are watching TV or online videos, which is costing them money, those with mental mastery of wealth are generating cash.

Among money masters, there is an often-used saying: “A job is selling your dreams for cash.” What does that mean? That most people’s J.O.B (just over broke) allows them to sell their labour once to their employer. That sale of their time, in most cases, keeps them J.O.B.

Why would any person or organisation employ anyone? Because that employee is earning more for the person or organisation than the organisation pays them. Of course, from the employer’s point of view, that makes sense. Pay someone X to make 2X. From the employee’s point of view, it means that they could almost certainly be earning more if they could cut out the middle-man and go directly to market with their skills, or sell their skills to more than one person at a time.

Few people become wealthy by selling their labour; or by being employees. Yes, some professions are very highly paid. Alas, almost all of those professions have higher alcohol and drug addiction, higher suicide rates, and higher divorce rates.

People who become wealthy sell their labour or provide value not once but too many people at the same time, or, over and over again with no additional time input. For example, some sports people have a very short career (16 years or less usually), and make vast amounts of money in that time, by displaying their skills for the world to see, and pay to see. Millions of people enjoy the value that the sports star has provided in one chunk of time.

Earl Nightingale famously said: “We become what we think about.” People who think of developing wealth develop wealth. People who have a poverty mindset, think of all the reasons they can’t develop wealth, develop and maintain their poverty.

That is not to say that for some people in some circumstances, it is very difficult to escape poverty. It is to say, that when a person’s mind is focused on adding value, they can start the journey to wealth. There is no end of rags-to-riches stories that give an account of how someone born into the most extreme poverty became spectacularly wealthy. Of course, those stories would not be so inspirational if anyone and everyone could make such a transition.

What is the main difference between the super-wealthy and the poor?

In one word: mindset.

In two words: mental mastery.

While the person with a poverty mindset is lamenting their lot in life, the person in the same poverty, but with a future wealth mindset will be learning skills to add value in the marketplace, looking for needs that people have, scanning their environment for opportunities, and making contacts with people they can serve.

For people with a poverty mindset, because they have no hope, they see no opportunities. For those with a wealth mindset, because they have strong hope, they see opportunities all around. If someone has no expectation of success, they don’t even take the first step. If someone has strong expectations of success, they take step after step after step, all the way to wealth.

Across time and continents, there have been all sorts of schemes to help the poor. Almost all have focussed on giving the poor resources, or access to resources. Few to none of the vast numbers of programmes have made much difference. Why?

In my view, for two reasons.

1. The programmes were not run by people who had a wealth mindset, and as such they could not be role models of wealth creation.
2. The most valuable resource anyone can have to create wealth is an understanding of the mental game of wealth, and to develop that understanding into the necessary mindset.

One system that has worked is known as micro-finance. That is where a small loan is given to people to get them started in their own business, to equip them to take self-responsibility. Look it up online; it has been massively successful, and transformed huge numbers of lives, where almost all other approaches have failed. 

Here are examples of the contrast between those with and without the wealth mindset.

Some claim to have no time to develop new and more valuable skills, yet have lots of time to spend in their local bar. Others say they have no money to invest to create future passive income but they have plenty of money for cigarettes or other consumptive habits.

Some people think that money, lots of it, is real wealth. Others think that time freedom is the ultimate wealth. Over the years I have found that the people who are happiest are those who have reached the point of time, thought, and emotional freedom, and choose to use their freedoms to add value to others.

Time freedom is the ability to choose how to use time. When people have obtained financial freedom, time freedom becomes possible. Emotional and thought freedom comes when a person can choose how they spend their time, which allows them to choose what they think about and how they feel.

Drawing on the wisdom of Mr Micawber, perhaps we can update Dickens’ insights: “Value, which is in scarce supply, provided to many people, result, wealth. The value which is in abundant supply provided to one person or organisation, results, in making a living. No value provided to anyone, result, poverty.”

For most people, unless they are high-level professional sports players, or best-selling authors or musicians, the challenge is, how to provide much value to many people. Becoming a billionaire can come from providing value to one billion people who will, in return, provide you with only one GBP, USD, or Euro of profit.

Wealth creation is about adding value to others. In over 35 years of leadership coaching, never once have I worked with an organisation that could not, easily, with just a few minor tweaks to their way of providing value, make hugely more money. Many clients made those tweaks and paid me for the value I added. Here is a challenge. If you run a business, I will find ways to increase the value you add in just one day, or you can have your entire board trained in how to find opportunities to add value, for free.

Assuming a person or organisation has access to basic resources when the mindset is right, wealth creation is not just possible, it is inevitable. The level of wealth a person creates may be limited by what the person wishes to do with their life. For instance, if the person just wants financial and time freedom, they may maintain their level of wealth but not strive to obtain more.

As a general rule, a little wealth makes people happier. However, when a person reaches the level of wealth where they have to hire one set of vultures to protect themselves from another set of vultures, happiness diminishes, for obvious reasons.

For most people, this is a choice they would love to have: getting to the point where they could decide to continue the wealth creation journey or, live within their more than comfortable means.

For those who develop the right mindset and they are in a position to add value, that choice will quickly become accessible.

Having coached many elite leaders, athletes and creatives, this observation may be useful. High achievement in any field where the person has the basic raw ingredients is more down to a mindset than any other factor.

We have all known people who were brilliantly talented at something, and they simply didn’t have the right mindset to pursue it, and as a result, never achieved what they could have.

That is the case for many people when it comes to wealth creation, with one difference: most people can improve their wealth very quickly and work towards mindset mastery.

If we ran a course on this topic in conjunction with Psychreg, would you want to know more?

Professor Nigel MacLennan runs the performance coaching practice PsyPerform.


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