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Have you ever felt guilty when spending money, even if it’s for something you really need or despite having enough savings?
Thinking twice before spending money can be a good thing when it allows you to practice discipline, like sticking to your budget.
However, when the guilt and fear around spending become paralyzing, this might be a sign that a scarcity mindset is influencing your decisions.
Here’s how this mindset may be affecting your relationship with money.
Scarcity mindset and money
A scarcity mindset is a belief that there is never enough of a limited resource, like time, energy, and money.
People with this mindset tend to look at resources through a lens of fear and insecurity rather than opportunity.
When it comes to money, this could mean feeling anxious about seeing your savings in a bank account go down, even if you’re spending on essential things.
Another example is the fear of taking any risk with money to possibly grow it, like investing or starting a business. You might become overly protective of your money because you worry there won’t be enough for the future.
This mentality doesn’t just affect those who are struggling financially. Some people who are earning and saving enough money may still feel like they're 1 bad day away from losing everything.
While the mindset may be shaped by real experiences with money, it can turn irrational and persist regardless of how financially healthy you actually are.
How a scarcity mindset can affect your financial decisions
The way you think about money shapes the decisions you make with it. A scarcity mindset might steer you in the wrong direction if it clouds your judgment. Consider these examples:
- Being too focused on the short term
When you’re hyper-focused on what you lack, you may end up living in "survival mode." Worrying about your short-term situation may keep you from thinking about long-term needs and goals.
You might be unable to properly plan for important milestones like retirement or buying a home.
Counterintuitively, scarcity thinking may also trigger impulsive "treat yourself" splurges as a quick way to relieve financial stress or as an attempt to reclaim a sense of control.
- Fear of taking risks
This mindset can also keep you from taking financial risks. Fear of loss and a deep desire for certainty can prompt you to be extremely frugal or protective of what you have.
While choosing to keep your money safe gives you liquidity, putting a lot of cash in savings accounts instead of investments may also limit your money’s potential to grow.
When relying on savings alone, you might have to wait longer and accept a comparatively lower potential to reach goals.
- Avoiding financial responsibility
Sometimes, financial worries aren’t entirely unfounded. An emergency or unexpected event may have taken a toll on your finances or even led to debt, which may fuel fears about your future.
You might put off money-related tasks to avoid facing unwanted realities such as checking bills and dealing with growing debt.
Avoidance might make it harder to address your problems and break free of scarcity thinking.
Going from scarcity to acceptance and action
Changing how you think about money won’t happen overnight, especially if your beliefs are deeply rooted and stem from life-altering events.
However, making small changes may help gradually improve your mindset. You can start by acknowledging your current situation after taking an honest look at your actual financial standing.
Instead of assuming the worst or avoiding reality altogether, you can get the facts straight by tracking your income, expenses, savings, and debts.
When you see the real picture clearly, it might be less scary than the version in your mind. If your financial health needs work, you can at least spot problem areas and form a plan to help you gain a sense of control.
You may also find the tools you need to cope with a scarcity mindset by growing your money knowledge and getting help from experts.
