Having a scarcity mindset is a big disadvantage when it comes to managing your finances. But the thing is, most of us are actually programmed to think negatively about money throughout our lives. 

The good news is, you can retrain your thinking, which can lead to improvements in your financial situation. Let’s have a look at what makes up a scarcity mindset around money. We’ll also explore ways to change this mindset, starting right now!

What is A Scarcity Mindset?

The belief that you don’t have enough money is a sign of a scarcity mindset. Anyone with negative financial thinking feels as though they are never enough, regardless of how much they have in the bank. 

This kind of thinking is often entangled with the idea that wealth equates to happiness.  Furthermore, you can feel as though you’ll never have enough money to be truly satisfied if you don’t have a set amount on hand. 

Generally speaking, feeling perpetually broke fosters unfavourable attitudes towards money.  Your financial picture is frequently negatively impacted when you make financial decisions based on negative emotions.

How to Spot a Scarcity Mindset

Money worries can often be obvious. However, if you’re not attuned to the warning signs, you might be overlooking a scarcity mindset. Now, It’s time to take a closer look at your financial outlook to see if you’re making sound decisions. Here are some financial behaviours that might indicate you have the wrong approach to money:

Obsessive Money Focus: Effective money management is important for a stable life. But life is about more than just the bottom line. As Coco Chanel famously said, “The best things in life are free. The second-best things are very expensive.”

Focus on Expensive Things: If your attention is drawn solely to the most expensive aspects of life, you might be thinking negatively about money.  However, if you find joy in the free things – strong relationships, good health, and personal happiness – you’re likely on the right track financially.

Credit Card Dependence: Many people use credit cards for purchases, and a report by Finder found the average monthly spend per UK credit card was £348 in January 2024. While using your card might seem convenient at the moment, relying on it for non-essential purchases is a classic sign of a scarcity mindset.

Wants vs Needs

Everyone has different essentials for their household. Food, shelter, and transport are some key necessities. However, a bad mood can lead to impulse purchases that take priority over essential bills.

Take a moment to ask yourself: “What do I truly need?” If you find yourself consistently neglecting essential outgoings to fund non-essentials, it’s a sign your priorities need adjusting.

For example, if you’re constantly putting off essential doctor’s appointments to buy new clothes, it suggests your priorities are out of whack.

Saving for a Secure Future

Building up savings is crucial for financial security. Unexpected costs can arise, and without a buffer, you might be forced to rely on loans. However, someone with a scarcity mindset might prioritise instant gratification over saving. 

While occasional treats are perfectly fine, constantly succumbing to the urge to spend, rather than setting money aside for the future, is a detrimental habit.

The Scarcity Trap

A scarcity mindset keeps you hyper-focused on what you lack. You might constantly compare yourself to others, especially when bombarded with their seemingly perfect lives on social media. 

Remember, there will always be someone with more. However, you might already have enough to fulfil your needs and even some desires. If you struggle to appreciate what you have, a scarcity mindset might be keeping you stuck in a perpetual state of feeling broke.

How to Ditch the Scarcity Mindset

A scarcity mindset can hold you back from achieving your financial goals. That’s why it’s crucial to reframe your thinking and build a positive relationship with money. Here are some steps to break free:

Boost Your Financial Literacy: The first step to overcoming a scarcity mindset is to improve your financial knowledge. The more you understand about managing your money, the more empowered you’ll feel. 

Gaining knowledge about financial products and strategies can motivate you to take action and improve your financial situation. Understanding money is key to shifting your mindset. Reading personal finance books or articles is a great way to get started.

Empower Yourself: Feeling empowered by your newfound financial knowledge can be a real motivator. By combining your financial literacy with a sense of empowerment, you can shift your perspective. Strong, financially confident individuals make informed financial decisions.  Instead of letting a scarcity mindset hold you back, you can take action to build a brighter financial future.

Building a Savings Habit: Regular saving is like building a habit – it might not be easy at first, but over time, putting money aside can become second nature. Here are some tips to get you started:

• Start Small: Begin with a manageable amount you can comfortably set aside each week or month. Consistency is key!
• Realistic Goals: Set realistic savings targets. Reaching small milestones will keep you motivated.
• Reward Yourself: Celebrate your achievements! Treat yourself to a small indulgence when you reach your savings goals.

Taking on a Savings Challenge: Savings challenges are a great way to boost your savings and add some fun to the process. There are many options available online – find one that suits your interests and budget.

How to Break Free from the Scarcity Mindset

The good news is, you can change your negative money mindset! Here are some ways to shift your perspective:

It’s Possible

Absolutely believe that you can develop a healthy relationship with money. A positive attitude towards your finances can be truly transformative. When you have an optimistic outlook, saving for a brighter future often feels achievable. 

However, a pessimistic mindset can make it easier to focus on what you lack. It’s true, maintaining optimism in a sometimes cynical world can be challenging. But making a conscious effort to think positively can change both your financial situation and your outlook on life.

Finding Your Why

Discovering your driving force can be a powerful tool in breaking free from a scarcity mindset and building a better financial future. Having a clear reason for making tough decisions – like saving instead of splurging – can be a real motivator.

Many things can motivate you to make positive financial changes. Here are a few common ones:

Leaving a Legacy: Generations can be a powerful motivator. Imagine giving your children financial security or funding a family dream.

Financial Independence: Perhaps your ultimate goal is financial independence – the freedom to live life on your own terms without relying on a job.

Living Within Your Means: Living within your means is all about spending less than you earn. If your outgoings consistently exceed your income, you’ll likely end up in debt. Learning to budget effectively can help you achieve your financial goals.

Building a Budget That Works for You: Creating a budget you can stick to is key. If you’re new to budgeting, start by totalling your current income and expenses. Ideally, your income will be higher than your outgoings.

Track Your Spending and Make Adjustments

No matter what your goals are, it’s important to take stock of your outgoings. Carry out a spending audit – identify areas where you can cut back on non-essential expenses and free up more cash for the things that matter. For example, you might decide to put a hold on buying new clothes for a while to build up your emergency savings pot.

Boost Your Financial Knowledge

Managing your money effectively can be tricky without a good understanding of financial concepts. The key is to educate yourself about money. The more you learn, the more confident you’ll feel making informed financial decisions.

Setting SMART Financial Goals

Goal setting can be a powerful tool in any area of life, and your finances are no exception. Having clear goals can keep you motivated and focused on achieving financial security. Here’s where SMART goals come in:

• Specific: Clearly define what you want to achieve. Instead of a vague goal of “saving more money,” aim for something specific like “save £1,000 for an emergency fund within a year.”
• Measurable: Track your progress. Being able to measure your progress will help you stay motivated and adjust your plan as needed.
• Attainable: Be realistic about what you can achieve. While it’s great to be ambitious, setting unrealistic goals can lead to discouragement.
• Relevant: Make sure your goals align with your overall financial situation and priorities.
• Time-bound: Set a deadline for achieving your goal. Having a specific timeframe will create a sense of urgency and keep you on track.

Get Creative

It’s easy to feel powerless when it comes to money, especially if your income seems fixed. However, you have more control than you might realise. Here are some ways to get creative and take charge of your finances:

• Boost your income: Explore options for increasing your earning potential, like taking on a side hustle or negotiating a raise.
• Reduce expenses: Review your spending and identify areas where you can cut back. Every penny saved adds up!
• Explore different savings options: Look into different savings accounts and investment options to grow your money.

Many people find themselves living on the same salary from the same job for years. But fear not! With a bit of ingenuity, you can transform your financial situation.

The first step is to identify areas where you can cut back on your outgoings. Every penny saved adds up!

However, the real deal happens when you start generating new income streams. There are plenty of opportunities out there for a profitable side hustle. Get creative and think of a side business that complements your lifestyle and boosts your bank balance.

Ditch the Scarcity Mindset and Build Your Financial Future

Feeling stuck in a scarcity mindset can hold you back from achieving your financial goals. However, the good news is you can absolutely develop a more positive and empowered relationship with money!

Transitioning to a new way of thinking takes time and patience. Be kind to yourself as you break free from old habits and cultivate a growth mindset around your finances. Remember, even small shifts can lead to big changes in the long run!