Keys to building Sustainable Wealth - Key 3 Building a Healthy Money Mindset

Relapse! is a painful word for those working in the mental health circles. It is even more painful to those fighting addiction and it is very painful to the alcoholic falling of the wagon after years of sobriety.

But why mention this in a post on a money mindset?

The answer is simple. Human beings easily relapse into old ingrained habits, beliefs and attitudes. Freud told us that people often revert back to previous ego states (modes of being), he called this regression. Regression often occurs when we are faced by a situation that is difficult to deal with. Regression happens when we struggle to deal with new challenges and fall back to old behaviors.    

We could speculate much about how regression works, but often old ways doing, old habits and old beliefs are comfortable and safe, and they very often prevent us from changing. For most of us our current behaviour, beliefs, and attitudes, have gathered enough momentum to keep going, the way they are going.  

Habits of thought, habits of action, habits of beliefs ...

The shocker is that our current behaviour, attitudes, beliefs and habits are producing the exact results they are designed to produce.  The results we find in our lives are the very outcomes of ingrained beliefs, attitudes, actions, and habits (credit goes to Steven Covey and David P. Hanna for this concept). 

It is logical that to be whole financially, we need a combination of the correct money mindset and money habits. I covered some ideas about basic money habits we have to implement in my previous post. Let's now consider some ideas on how to develop a healthy money mindset.  

Steps to Building a Healthy Money Mindset  

Keys to Building Sustainable Wealth - Key 2 A System For Wealth

A system for wealth ... sounds a bit like a grandiose claim, I have to admit.  Is it really possible to follow a system that will make you wealthy? If so, why do so few mention it? What does such a system look like in operation, and how do we implement it? Can it work when I am in debt?  

Firstly, I think that there are many ways to achieve one's goals.  In this posting (disclaimer time!) I am sharing information I found helpful to me, please speak to qualified financial experts before you bet the farm on my advice

(Actually, please don't bet the farm on my advice, the world's financial experts are well adept to lose our money if the 08 crash is anything to go by, you don't need my help to do that).

Before outlining the system, I want to look at some hindrances to wealth building. I will propose that a system for the accumulation wealth will run into much of the same problems a system used for losing weight does. 

We all know the story ... You start a new diet and exercise system (often involving awful green smoothies and modified medieval torture machines you buy online). It goes well for the first week, maybe the first month. And then something happens, our latest diet system crashes, we revert back to old habits, marry the coach and attack the refrigerator, gaining back all the weight we lost. 

I am no expert on health and fitness, but personal experience tells me that going to the gym and busting my chops for 5 hours is not sustainable. Overtraining leads to pain, demotivation and injury, which is a dead end for your exercise program.    

Healthy nutrition and exercising has to be sustainable,  day after day, week after week, month after month, and so forth... Consistent long term efforts produce much better results than crash dieting or  working yourself to death every now and then in the gym. 

Same goes for a system of wealth accumulation, consistent small steps should always outperform inconsistent big steps.      

A Sustainable System for Wealth Accumulation     

To be effective, such a system cannot ignore human psychology. An effective system has to motivate us to keep building wealth. Such a system has to balance our current needs and desires with providing for our future. Such a system has to allow us to enjoy the benefits of money we make now, while not slicing into our future provisions.  

As a starting point, let's consider three legs of our system for building wealth, we will only do the first, Growing in Discipline, in this post: 

1) Growing in Discipline, 

2) Developing a Positive Money Mindset, 

3) Growing in Our Money and Entrepreneurial  Skills 

1. Growing in discipline

Ouch! sounds painful. But the reality is that those of us fortunate enough having to build wealth from scratch, will 1) have to control our spending, 2) accumulate a surplus of funds, and 3) wisely invest those funds for growth (so we are told in Investing 101).  Controlling our spending  is the first step and that requires discipline.  

It is at this point where I often sabotaged my personal efforts at building wealth, I did this by:  

Overspending - overspending leads to debt, just as overeating leads to fat!  Debt decreases our ability to accumulate a surplus of money to invest.  If you're in debt, don't feel bad. Many of us are.  This system also has a solution for that. 

Misunderstanding why I had to save.  When you save money and that money has no purpose, you will surely use it for the first good enough reason you can think of. If you save for a rainy day, "it's going to be raining pretty soon". 

Trying to pay off debt before beginning to save for a surplus to invest. I think we have to start accumulating a surplus to invest at the same time we are working to pay off debts.  

Many investment pro's will lynch me for saying this. They will tell you that the returns you make on your investment will be reduced by the interest you have to pay on your debt. 

For example if you owe an amount on your credit card, at a 17% interest rate, and you invest a similar amount at 20%, you will only earn 3% interest on your portfolio (combined debt and investment). 3% will not even beat inflation, they will tell you.   

Investment pro's will often tell you to pay your debt of first, then to invest.  I don't really care. While their view makes perfect sense from a portfolio perspective, I have only been able to pay off one loan that way.  To me it was mainly a psychological thing.  Paying everything you can into debt is soul deadening to me. I felt like I was making no progress financially and ended up deeper in debt.            

Now, onto the system we can use to accumulate a surplus and pay off debt. 

This system is based on the The Richest Man in Babylon: The Success Secrets of the Ancients which I found incredibly motivating and helpful.    

Principle 1: Pay Yourself 10% of Everything You Earn

Make a commitment to keep 10% of everything you make "as yours to keep". This means that you actually pay 10% of all your earnings to yourself first.

See this 10% as the "seeds to your money tree". This is your surplus that must start to earn more money for you. Like a "golden slave" this stream of money that has to earn money for you.  Stated simply, this money has to earn more money for you. It is not money for a rainy day, it's money that has to slave for you.

Principle 2: Learn to Control Your Expenses

This requires discipline to live on 90% of your earnings (or 70%, if like me you want to get out of debt). Remember, we have to grow in wealthy disciplines, part of that is learning to live on 90% of what you earn.

To start with this, make a list of your necessities and your desires. At this point we have to give up some of our desires in order to make our greater desire, such a financial freedom, come true.

This is also where a budget is needed.  A budget is tool that helps us to delay a multitude of desires for the attainment of a bigger one.

Then, after you have done that, enjoy the 90% (or 70%) of your money as far is it permits.
  
Principle 3: Make Your Surplus Capital Multiply

After having saved a surplus, we have to put our surplus to work for us. To do this, we have to invest. There are many options wherein to invest money, but I think one rule is crucial.

Never ever invest into something you do not understand. Make sure you can identify the risks and workings of an investment before investing. Or else, your money will surely be lost. Also, be very careful of whom you take financial advice.  Don't listen to the broker who is broker than you are. Listen to those skilled in the workings of making money.    

I have once heard of an old farmer who made a fortune investing in peaches. When asked why he invested only in peaches he stated that it was the one thing, the one market, he knew very well.  Let's learn from him.  

So, at this stage the 10% portion you saved should start to earn money.  We then have to reinvest those earnings to earn even more. "This is where money earns for you, and his children earn for you, and his children's children earn for you" (Clason, 2008)    

A Word on Debt ... 

I like the system suggested in The Richest Man in Babylon. For those of us seeking to get out of debt the book recommends that we save at least 10% of our income and use an additional 20% to pay of debt.  The 20% is evenly applied to all debt one seeks to pay off, until it is paid off.  

This allows the simultaneous growth of a money surplus and the paying off of debt. The growing money is good for your soul, it motivates us when we see our bank balance increasing and it feels good to receive money from investments. For that reason. I find the system to be sustainable and not burdensome. Read the book if you need more information on this part of the system.  

Thank you for bearing with me through this lengthy post.  I would really like to hear any comments, insight or advice on this topic.  

   

   

Keys to Building Sustainable Wealth - Key 1 Building Wealth Slowly

I like talking about money, it is a fascinating subject, but in reality I am not what one may consider to be wealthy or rich; yet. Like many of us I am also busy with a process of building wealth.

I have to emphasize the word process.  Process implies a plan and consistency. It also implies a long-term perspective. 

It is obvious that to build wealth, we have to position ourselves in the best possible spot that makes our potential for success most likely. 

Think about sports; football, ice hockey, rugby (etc). 

In such sports you firstly have to arrive on the field to be able to score.  You also have to assume the correct positions on the field, or else you'll miss the ball/puck/goatskin (or whatever). You also have to condition your body and mind to win, or you won't have the stamina to succeed. You probably also need a 'play', a team tactic, to use during the game. Those are variables, I am told, which underly success in sports. 

It is noted that such factors don't guarantee a win; but they enhance the possibility of winning. In the same way we have to assume the correct position, mindset, and behaviors that enhance our chances of building wealth successfully. That requires us to get the basics of wealth accumulation right.    

Why wealth is often built slowly

In order to accumulate wealth, we have to master a number skills and behaviors. Building sustainable wealth requires a combination of mindset, knowledge, skills and discipline. 

Yet, I think that our culture of instant gratification has led many of us to expect wealth to come quickly. The media often reinforces that perspective through the telling of the stories of the next successful billionaire.   

Indeed, great wealth has come quickly, for some individuals, in isolated cases. Think about Mark Zuckerburg  of Facebook, and Bill Gates of Microsoft. We may also mention many lottery winners here. 

But, the truth is that most people won't be able or in the position to start the next billion dollar company. So if it is unlikely for most of us to do that, what then? Should we just hope for success? Should we just  give up? Or do we have to follow a different road.  

The answer is that in most situations, for most wealthy people, wealth is built slowly and through a CORRECT DISCIPLINED MINDSET AND CORRECT ACTIONS. See The Millionaire Next Door: Surprising Secrets of America's Wealthy.  Sorry, but this is not a get rich quick thing.   

Maybe, wealth builds slowly ... just like debt. At least in my opinion. 

Over the last couple of years, I have accumulated a lot of credit card debt. And I have to say, not through big ticket spending, but through an accumulation of small purchases: a coffee here, a purchase there, you know the story. Stupid, I know. 

I now realize my mistake and I am busy fixing it. But the amount staggers me, how did I accumulate so much debt, I often wonder.

Fortunately, wealth may also be accumulated in a similar way; through the accumulation of one small disciplined saving at a time.  Such savings need consistency, and consistency requires a system.   

I recently realized that building wealth requires a sustainable system, a system that balances your current needs with future needs. A system where you can enjoy your money now, without impoverishing  your future. A system that keeps you motivated in the present, as you're busy to provide for your future.   

We'll look at such a system in my next posting.     

Thank you for reading.  If you have any suggestions to share on how to accumulate wealth sustainably, or any other comment, I would like to hear from you.  Please leave your comments below. 

Some recommended reading, for those interested in this topic:

On the psychology of money: A Look at Psychological Realities of Money (published on articlebase.com)

On money negative money scripts and beliefs: 10 Poor Money Beliefs You Have to Conquer

On the development of a wealth mindset: Think And Grow Rich: The Secret To Wealth Updated For The 21St Century

On timeless money wisdom: The Richest Man in Babylon: The Success Secrets of the Ancients

10 Poor Money Beliefs You Have Conquer - Part 2

Welcome back to the second part of this discussion on poor money beliefs we have to overcome in our journey to financial wholeness.  If you missed the first part, you may read it here.  

I have recently realized money, in itself, to be neutral thing. However, we attach much of our personal ideas, beliefs, emotions, attitudes and ideologies onto money. This made me think of a common opinion in linguistics which states that meaning resides in people, not in the objects of the outside world (real philosophical quicksand, I know) 

I am simply suggesting that as people, we attach our unique meanings to the objects of the external world. We don't see the world as it is, "we see the world as we are".  Same goes for money.  We will never see money as an objective thing, we'll always see it through our personal 'money lenses'.  

If your lenses are broken, you won't be able to see the correct picture (and you may visit the optometrist to get new ones, making him very happy)  To see an accurate picture we have to fix our lenses. Same applies to our money lenses.  

Wrong beliefs produce, wrong behaviors and consequently wrong results. Let's assume there are different perspectives and beliefs about money. Let's also assume that some of the beliefs are more beneficial to our financial wholeness than others. 

That implies that we have the power to choose one belief over another.  And we have to do that constantly on the journey to personal success and meaning.  

Let's move onto the next five wrong beliefs about money we have to change.  Credit goes to Brad Klontz and Ted Klontz who did much work on this topic, this discussion mainly follows their ideas.  

WRONG BELIEFS ABOUT MONEY I HAVE TO CHANGE (the next five)

10 Poor Money Beliefs You Have Conquer - Part 1

Welcome back to this discussion on the psychology of money.  This forms part of a series looking at financial wholeness.  Getting the money issue under control is an important part of the journey to wholeness and a balanced life. 

From childhood onward we all develop ideas and beliefs about money.  Like any idea or belief, money beliefs may bring you closer to your goals, or take you further away from them. Consider the right perspective on money, as part of the tools needed to prosper and accumulate wealth.

Correct beliefs underlie correct behaviors;  erroneous beliefs underlie wrong behaviors (logical I  know). Erroneous beliefs may, and often do, cause us pain.  Just ask the kid with the Superman outfit standing on the roof of the family home, really believing he is able to fly like Superman. Ouch! 

In life, we often have to change wrong beliefs in order to grow.  This applies to beliefs about money too.  The authors Brad Klontz and Ted Klontz did much work in this area.  They identified 10 wrong money beliefs they claim can lead to financial mIsfortune.  Lets consider the first five: 

WRONG BELIEFS ABOUT MONEY I HAVE TO CHANGE:  

1. Having more money will make everything better

While it is true that 'enough' money makes a huge difference to people in poverty, research seems to show that, above a certain threshold, changes to income levels make little difference to our life satisfaction. This is the classic case of more stuff not necessarily making you happier. 

My responsibility: There are things money can buy, and things it can't. It is my responsibility to determine  what money can and cannot do for me.   

2. Money is evil or bad

This belief often emerges from religious views about money or wealth.  It may flow from an idea that rich people are greedy or that wealth is gained only through exploitation.  

My responsibility: I have to realize that money in itself is neutral, but it often acts as a magnifying glass exposing the wishes, desires, and beliefs of my heart. If you are a greedy person, money will magnify your greed. What is money teaching me about myself? What is it exposing? Do I have the courage to change that?     

3. I am not worthy to have money

Klontz and Klontz tell us that this belief is often found among people who received unexpected windfalls of money, and often among those in the helping professions. They also identify this belief as dangerous, one that keeps us poor financially and emotionally.  

My responsibility: again the issue is not really money, but self-esteem and beliefs about personal worth. I have to determine why I am expecting such little reward from life and I have to change the beliefs that underlie that. 

4. I deserve to reward myself by spending money   

This belief often leads us to overspend on credit cards, to save little money for future needs, and to spend over our budgets. The issue is not the spending of money, but the reckless overspending of it.  

My responsibility: while I firmly believe that we may enjoy our money, we have to guard against attempts to validate our self-worth through spending and buying stuff.  Money cannot validate us, validation is an issue pertaining to our spirit and the latest gadget cannot reach that side of us. We need a higher transcendent reality for that. 

Also keep in mind that the pleasure you gain from a big ticket item, may only be marginally more than the pleasure gained from a smaller purchase.     

5. I will never have enough money

This belief is played out by those who hoard money in fear that they will never have enough of it. They may overwork and sacrifice health and relationships for more money.  While they may have much money, such individuals are often living as if they are in poverty.

My responsibility:  I am responsible to rid myself of the fear of poverty, and to focus on the cultivation of a healthy wealth mentality.

Fear nullifies faith, and it is impossible to attain our goals without faith. Napoleon Hill tells us that the fear of poverty programs the unconscious to produce poverty (see Pink Elephants, Garbage and the Unconscious Mind for on this).

We have to replace a poverty mentality with a wealth mentality.

That's it for today, we'll delve into the next five wrong money beliefs in the next post. Please feel free to tell us about your own experiences in the comment field below.

Some further reading on this topic:

Mind over Money: Overcoming the Money Disorders That Threaten Our Financial Health by Brad Klontz and Ted Klontz

The Financial Wisdom of Ebenezer Scrooge: 5 Principles to Transform Your Relationship with Money by Brad Klontz and Ted Klontz

Think And Grow Rich: The Secret To Wealth Updated For The 21St Century by Napoleon Hill

   

  

A Look at Psychological Realities of Money

Money is a complicated psychological concept. One that greatly affects our lives. A friend of mine once commented that if it weren't for money, we'd all be rich. The truth is that money is a reality most of us cannot escape, we need it to survive and we have to deal with the reality of money on a daily basis.

Apart from the material nature of money, money also affects the soul of man, money is not just something physical, it powerfully links to the soul and the spirit of man. If you have ever wondered why money is such a problematic and complicated human issue, you may want to read the following article that list some of the psychological realities of money that affects our lives: A Look at Psychological Realities of Money (published on articlebase.com)  

Our relationship with money Part 2 Connecting money with the soul

In my previous post I spoke about our complex relationship with money. This series of articles looks at some of the psychological issues surrounding money.   

In their article on emotional aspects of financial decisions, the authors Young and O'neil tell us that emotional reactions to money affect the way people plan and manage their finances.

This is strange considering that many people assume, or try to reduce, money to a rational, meticulous, and highly calculable concept - referring to the "bottom-line". I can just imagine the guys with calculators working the numbers in this scenario.   

Yet emotions surrounding money is often not rational nor open to evident accounting and calculation.  James Hillman, a psychologist, tells us that money is a unique psychological reality that does not allow itself to be de-valued to something solely material, without causing psychological symptoms in the person. Meaning that money has to occupy a correct position in the psyche. 

Money essentially lives within a social agreement. Without an agreement between people, money will have no value whatsoever.  You cannot eat money, drink money, or use it for shelter, although you can burn paper bills for heat.

People rarely seem to do that! Except in Germany in 1923 when the German currency lost so much value people burned it for heat or used it as wall paper.  What Hillman is trying to tell us is that the reality of money occupies a psychological and illusively complex position in the mind (as I concluded researching this article).      

Our relationship with money - Part 1 Money and the Mind (new series)

My colleague Hennie and I started this blog looking to help ourselves and others build more balanced and successful lives.  

Hennie did a stellar job so far looking at ILP as an integrative model we may use to integrate our career selves with the other parts of our multifaceted lives. I considered Napoleon Hill's foundational self help book Think and Grow Rich seeking to discuss and develop a wealth mentality. 

As Hennie's work shows, times have changed and the many demands on people have only increased, this is sure to keep increasing.  One thing that has not changed is the reality of money. 

In my new series, I am going to investigate various issues surrounding the psychology of money.  Why the psychology of money? Because I think that money is something that obviously affects all of us. Love it, hate it, shun it or desire it; but money affects us in some way or another.

I recently came to realize that much of the complexities and problems we have surrounding money are emotional and psychological in nature. 

In Think and Grow Rich Napoleon Hill tells a story of an unemployed man walking through town.  The man has no money and no job. He is looking for work.  His shoulders are hunched, his eyes are downcast, and clearly, he is not happy nor confident.  He is an intelligent man, but the lack of money got to him.  His confidence is shaken.  He longingly looks through windows at those people with money enjoying food and drink in the restaurants. All would change, his spirit would lift, if the man "had but a little money"   

To say that money is not important for such a man is ridiculous.   

  

Economists tell us that money is a 'store of value', 'a medium of exchange' and a 'unit of account'. In reality money appears to be metal discs, plastic cards, or pieces of paper. Yet, psychologically money takes on a very powerful symbolic and emotional meaning, as we all know. It is so much more than copper, paper or plastic.   

Research shows that money issues are often, if not most often, found at the root of all marital conflict, 

Have you ever seen money making people behave strangely and even illogically? Have you ever questioned your own actions regarding money? (why exactly did I buy that thing I did not need so impulsively?).  

Most of us know of situations where money ruined good friendships, perhaps you even experienced that  yourself.    

People have done many atrocities for money, including thefts, robberies and murder.  And yet we can also use money to be charitable.     

Passages of scripture tell us that 'the love of money is the root of all [kinds of] evil' (1 Tim 6 verse 10). Yet, we cannot survive without money in the modern world. We have to live with it, and preferably we should rule over it.    

Part of the journey to financial wholeness,  I believe, involves us developing a healthy 'relationship' with money. This is what my new series of posts are going to look into.  

Problematic to the issue of money is that the topic of money is actually embedded with deep emotional issues.  In a thought provoking blog article Ron Haynes claims that Money is 100 Percent Emotional (follow the link to his article). 

An impending job loss tends to be incredibly terrifying.  Being deeply in debt tends to leave one feeling suffocated, hopeless and depressed. A failed business affects more than just your pocket, it reaches into issues of competence and self-worth. When a spouse overspends people often feel very angry. Money evokes a lot of emotion.  

In a 2009 research article, the authors Zhou, Vohs, and Baumeister argue that having money, as a social resource, increases one's general sense of confidence, efficacy and (psychological) strength.  

I agree that money is embedded with profound emotional issues.  Our 'money self' also seems to lie on the unconscious levels of the mind. Outside the area of reason. Our values, attitudes and beliefs regarding money develops from early developmental experiences. It seems that all of us develop different symbolic values we attach to money.   

Robert M Young, a psychologists, says it best: 

"My first point ... about the social construction of money is that our identities are inescapably forged in relation to whether or not our families have it and how they deal with it if they don't".   

This suggests that money plays a major role in the psychological construction of our identities.  In my next postings, I am going to expand on some more psychological issues regarding our relationship with money, we will be looking at topics such as

• The psychological concepts of retention, security and power/prestige, related to money;
• Different money personalities;
• Money as a substitute - Midas and Tolkien's dragon;
• Psychodynamic perspectives on money;
• Money and happiness;
• etc. 

Thank you for reading. Please feel free to add your comments and experiences on this complicated topic.