5 Ways Your Money Mindset is Holding You Back

BearMoney Team

BearMoney Team

BearMoney is the balanced finance blog for new and old Canadians alike. We are a team of people living international that research, write, and share

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How to Build a Positive Financial Mindset

Mindset is everything. Without a positive and balanced financial mindset you will struggle to meet you goals. This is often easier said than done though.

Many of us have learned negative behaviors that are holding us back. In this article we will break down 5 common ‘cognitive distortions’ and what they mean for your financial mindset.

Whether you are too negative or too positive, you’re likely doing at least one of the these behaviors right now. Read on to see how you can change this and how we in BMB try to keep on top of unbalanced thinking. Also check out our second part to find 5 more ways your money mindset is holding you back.

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All Or Nothing Thinking is Toxic

1- All or Nothing Thinking

What is it?

All or nothing thinking exists in many areas of our lives. Everything from politics to economics and hobbies fall victim to it. It has been highly prominent in recent years with the increasing influence of ‘American Style’ politics of ‘liberals vs conservatives’. ‘All or Nothing’ thinking is viewing the world entirely in black and white, rejecting any shades of grey.

It is possibly a hangover from strict moralistic systems but also quite often is a straightforward method for making sense of a world that is complex and confusing. If everything is either good or bad, right or wrong, then it is easy to navigate the world by staying on the right/good side.

This form of thinking is very prevalent in social and financial discussions online. It is common for people to paint opinions as ‘if you don’t believe X, then you are Y. For example, if you don’t support government lockdowns, you are evil, or if you wear a mask you’re a sheep. We’ve all seen these nonsenses in some form or another.

How does it affect your mindset?

While this type of thinking can be useful in extreme circumstances, think around criminal acts or things that are objectively bad (animal cruelty for example, is a pretty black and white issue), the more you apply this, this more ridiculous your opinions get and the more poor you decision making becomes. Why is this? Context.

Without proper context about the world you cannot make the best decisions for your finances. If, for example, you think Capitalism is solely exploitative, you will likely not invest in stocks or take advantage of the ingenuity and freedoms offer by Capitalism.

If, however, you think Capitalism is solely beneficial, you are inevitably going to get swindled and lose out on money or more.

This type of thinking makes you see humans and the economy as black and white entities when in fact they are imperfect pieces of big grey puzzles. Yes, the market tends to go up, but you know what else? There are enough powerful or dumb people to illogically crash a market. In the same way this will make every failure seem terminal and every success seem god-ordained.

In effect you become stubborn, fatalistic, and arrogant depending on the weather!

What Can you do about it?

The key to combatting this mindset slant is to embrace as much grey as logically possible. You have to accept that the world will require you to think about most things in a complex manner with multiple sources of information. A single news article, research paper, ‘common sense’ or god forbid, meme, is not sufficient to have a genuine opinion.

When you put aside the small % of human behavior that is clearly black and white you are left with an overwhelming amount of information. This is a key cause of the ‘doomer’ phenomenon of young people becoming depressed and fatalistic about the world. Combatting this is very straightforward but also time consuming.

The best way to train this skill in a balanced manner is to try to play devils advocate on core money issues that you’ve tagged as black and white. If for example you are against tax cuts, try to research what similar tax cuts have achieved.

If you don’t like the idea of Universal Basic Income (UBI) read the studies on it to find good points. When you have good points weigh them against your preexisting opinion. You will likely be quite surprised by what you find.

Most people when they play devils advocate create contextualized opinions. This means that you no are no longer ‘against tax cuts’ you know what kinds of tax cuts work and support/oppose based on context. This allows you to be proactive and positive in your financial decision making.

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Overgeneralization Can Leave You Derpy

2- Overgeneralization

What is it?

Overgeneralization is also another very common negative thinking pattern in today’s world. Just like ‘all-or-nothing’ thinking it has come from viewing everything in terms of black and white. When people take this to heart they are at risk of not only making wrong assumptions about individual things, but also creating a pattern of this thinking.

This means that your mindset will assume that every failure and every success is part of an infinite, fixed pattern. Whenever you overcome a challenge you will become too relaxed and assume all of your hard work is done. Whenever you fall short you will assume that you will always fall short.

In a sentence overgeneralization is not taking each experience on its merits.

How does it affect your mindset?

When you assume something, you make an ass out of u and me. If we take too simplistic a view about our patterns of behavior and our pathways to success we will end up crashing hard. A perfect example of this is investing in the market. We know that over time the market tends to grow, many investment strategies are build around this.

This means that you will have months where you do well and months where you do poorly. If you invested in February 2020 before the Covid-19 pandemic you will have a completely different experience that if your bought in April 2020.

The first case would make you feel like an investment failure if your overgeneralized and assumed it was the norm, the second would make you feel like a Rockstar despite the fact that practically everybody investing regularly in 2020 made a profit. This can be applied to anything in life including good habits, diet, exercise or interpersonal relationships.

Yes humans are naturally inclined to look for patterns, it is how we survived as a species. However, when you overgeneralize your patterns you will see threats where there are none or take stupid risks. Overgeneralization will make you cynical/deluded and decrease your ability to ‘roll with the punches’. Losing perspective is going to hurt you in the long run.

What Can you do about it?

Overcoming this toxic thinking requires understanding the true nature of patterns. We have been raised to look for any sort of pattern that confirms our internal beliefs. This is known as confirmation bias. In addition to this most of the media we consume is very dummed down and focused on immediate results and opinions.

To understand patterns you have to accept the hard truth that all success is long term and that you are not perfect. If it takes 1000 days to get to a good place in your goals and you are 90% successful this means that you are going to fail 100 days.

These days will not be evenly spread and will have different levels of seriousness. You conquer overgeneralization by taking note of this and internalizing ‘acceptable failure’.

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Check Your Mental Filters

3- Mental Filtering

What is it?

Mental Filtering is something that effects a smaller percentage of people than most other mindset distortions. Much like overgeneralization, mental filtering centers on the rejection of relevant information and being blind to reality. Instead of assuming too much positivity or negativity though, mental filtering completely removes one end of the spectrum from the equation.

When we filter mentally we block out either all positivity or all negativity and lean into a skewed vision of our self. If we are bad at saving money we only focus on this fact, we don’t accept that we might be very good at earning money and not getting into debt.

The opposite is true where we only think about the things that we are good at. If we are great at budgeting we would focus on that and not give any thought to the fact that we don’t know how to save or invest our spare money. We attached ourselves to a particular aspect of our skillset and let it define who we are.

How does it affect your mindset?

The effect of this distortion should be obvious, you are literally choosing to ignore most of your reality. If you zero in on a single aspect, good or bad, you will be practically useless in terms of personal and financial growth. It is fine to play to your strengths, that is the best way to get ahead. It is also great to be mindful of your weakness so you can continually improve.

What is absolutely not good is to ignore large parts of your personal situation by tuning out things that don’t fit your narrow focus. This makes you unable to plan or execute anything properly. You will eventually end up in a state where you are consistently underachieving in your finances and personal life.

By filtering out the world you enter a fantasy land and become unable to act decisively in the real word.

What Can you do about it?

This distortion is the most obvious and therefore the easiest to overcome. When you filter mentally there’s very little logic to your negative ‘self-talk’. You either think your are totally worthless or totally perfect. While these can be powerful emotions that influence your entire thinking pattern, they’re also super dumb.

The solution to avoid filtering is to first accept that nobody is perfect. This is an immutable law of the universe. When you accept this you realize that your successes aren’t as great and your failures aren’t as terminal. If you can always ask yourself ‘what would the top 25%’ in this skill look like, you’ll start to realize that you likely exist in this top % of people in most areas.

The second thing to do is to create an idea of what the general skills and behaviors of a ‘financially savvy’ person are. If you come up with a list of 8 things you will be unable to fail or succeed at all 8. This will break your filter.

Defeating mental filtering is as simple as running the numbers and understanding the universe!

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Are You Fake News?

4- FNB- Fake News Brain

What is it?

Fake News is not a new phenomenon by any stretch of the imagination. For thousands of years people have rejected facts that don’t suit their narrative. From doomsday predictors to the bitcoin skeptics, people have consistently rejected outright facts in order to protect their internal belief systems.

Although ‘Fake News Brain’ or FNB is broadly similar to overgeneralization it is different in that it is concerned with measurable truths, i.e. facts. In terms of your financial mindset this is very relevant as money is only a number, and you judge most of your money goals by numbers.

FNB involves finding excuses to reject positive or negative financial information despite the fact that it is accurate. It is not so much about finding context to downplay your financial progress/setbacks, it is more dangerous than that. FNB is rejecting the validity of the data completely.

How does it affect your mindset?

You don’t need us to tell you why rejecting outright facts can be a disaster for your finance mindset. If you can’t work well with money by seeing the reality in front of your face then you are going to lose a lot of it.

It will effect your earning, saving, investing, and spending patterns. Imagine rejecting the fact that your stock in beanie babies dropped 95% in value. Not only will you have lost money, but you will be unable to create an exit strategy. The same is true if you reject the fact that nobody is buying from your small business. You won’t fix the problem if you don’t believe there is one.

If you reject solid evidence that your course of action is right or wrong then all future decision will be at a high risk of failure.

What Can you do about it?

The first thing to do is to turn off any social media or cable new feeds that you subscribe to. You need to remove the Fake News merchants from your eyes and ears. This means podcasts, Instagram accounts, news shows, politicians(all of them).

This wasn’t a huge problem until the last 10 years or so but we have seen societies at each others’ throats due to Fake News and propaganda. That is why it is so important to trust verifiable data.

For your own financial journey this means seeking out as many numbers from objective sources as possible. Your banking app, your google customer analytics or sale figures, whatever. You need to learn to go with the facts first. Good or bad you need to take in the numbers that are available to you in their entirety.

If you take in all the data first, then you can build context and reject incorrect information.

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Don’t Jump To Conclusions

5- Jumping to Conclusions

What is it?

Every single one of us has jumped to conclusions before, whether in our personal or professional lives. Deciding how you think about something before collecting enough information is usually dangerous. Of course there is always the superpower of the ‘gut check’ that gives you a very strong initial feeling about people and situations. This is rare though, and for 90% of your life you’ll have to make a rational, informed decision.

In terms of your financial mindset jumping to conclusions refers to two main things – trying to tell the future, and trying to read minds. The first involves thinking that you can see the future and your current decision are based on this.

An easy example of this is picking a stock and thinking you know it will be up 500% within the next two years. In terms of reading minds you might assume that a potential customer or business partner is acting in bad faith without any evidence to support this.

You already know these feelings, so how do they effect finances?

How does it affect your mindset?

When dealing with finances the absolute worst thing you can do is involve too much of the ‘human factor’. What this means is that the more you rely on feelings instead of facts and prediction instead of patterns, the more you stand to lose.

If you try to tell the future you are likely to be wrong about anything except general trends, but what does this mean practically? If you have a small business you can forecast your general market future using trends but you can’t forecast specifics. People are always going to buy take out, that’s a given. You can’t know though if your particular products will always be popular.

The same is true for investing, you know that certain industries are long term bets, but not which particular companies. Remember General Electric? they have always sold in-demand items, but their style is now trash and they are a shadow of their former glory.

You also can’t read the minds of your clients, business partners, or bosses. Yes you can know a person and have dealt with them previously but you can never tell their full motivation. If you project your thinking patterns on to other people they will surprise you with different behavior, usually not as good as you expect.

Similarly, thinking that everything is going to turn out bad and that everybody has evil intention is going to paralyze your decision making.

What Can you do about it?

Again we come back to a common theme in this article, understanding context and trying to view the big picture. When money is involved though, this is easier said than done. Money is the tool that keeps us fed and with a roof over our head. We need to be aware of any possible events that will change our financial position.

This is fine, but you also have to be realistic and play the sport ‘on the field’. You can only make decisions with the information you have right now about the past and the present. You don’t have access to other peoples minds or a time machine. Focus on yourself.

The best way to avoid jumping to conclusions is to assume a positive today. That means if you have no information/experience to contradict you, you should assume a positive outcome. It also means that you assume it only today, with the information at hand. When circumstances change, your viewpoint can change.

In one sentence, assume people are good and markets are stable until proven otherwise.

Check out our second part in the series where we’ll break down another 5 bad habits that may be holding your thinking patterns back.

Do you have any tips or tricks on how to deal with a money mindset meltdown? Let us know below in the comments!


2 Responses

  1. This is great! As you think about mindsets and money, a lot of these things can affect you negatively. It is all about trying to change your mindset to a positive long term mindset that helps you keep track of where you want to go. Sometimes people go in all or nothing. Sometimes people overgeneralize and believe everything is black and white. These are mindsets that can limit your thoughts on new and interesting ideas like investing. Some say “investing is bad and risky.” If that is your mindset then it may be hard to change it. So you need to look on the brightside of things.

    I love this article. It really talks about the mindsets of others.

    1. Absolutely Steve, that’s the great thing about the FI community: Once you accept investing is less risky than doing nothing, a lot of the other things you ‘believed’ start falling away!

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