Maintaining a scarcity mindset affects not just your financial situation, but also your relationships, life, and future. It is rooted in the invisible “default rules” we unconsciously follow.
In contract law and business organizations, I learned that default rules fill in the gaps when people haven’t agreed on their own terms.
For example, if two business partners don’t decide how to split profits, the law assumes a 50/50 split in profits and losses. In life, our upbringing and circumstances (nature and nurture) often create similar default rules. This implies that if we don’t develop and affirm our own thoughts and decide our own belief systems, life will choose them for us.
A person whose guardians consistently exhibited and encouraged good financial habits likely develops an abundance mindset, absent any negative financial life circumstances.
Likewise, growing up in poverty or experiencing financial trauma can hardwire us with default rules of a scarcity mindset.
What is a scarcity mindset?
A scarcity mindset is a pattern of thinking that focuses on what you don’t have, and the belief that you are never going to have what you want.
A person with a scarcity mindset believes that regardless of their current resources, i.e. access to food, water, housing, and other basic necessities, there is and never will be enough for them. They often believe that positive opportunities are limited, and that most people need to compete for survival.
A scarcity mindset is commonly a result of childhood experiences, or something that was passed down through parents or guardians. For this reason, a mental framework of scarcity is very difficult to undo. People with a scarcity mindset who do end up getting the things they want in life, often have a nagging feeling that those things won’t stay in their lives.
You might be wondering how a scarcity mindset appears in real life. A scarcity mindset might manifest as any of the following:
- You tend to be a pessimist and often think negatively, especially about money.
- It is difficult for you to stick to a long-term plan or goal.
- You often feel jealousy instead of happiness for family members or friends when they succeed.
- It is hard for you to trust others.
- You tend to feel like you are behind others in certain life aspects.
A habitual focus on what you lack consumes your energy, increases stress, and leads to poor decision-making. Here are some additional effects a scarcity mindset might have on your finances.
You might have impulsive spending habits.
Turning to retail therapy and finding emotional comfort in shopping sprees is a classic sign of a scarcity mindset. There may be a consistent impulse to purchase items you don’t need, even when you really do wish to control your spending.
You might be wondering where the line can be drawn when it comes to overspending. The occasional spontaneous purchase won’t do much harm. But frequent, unplanned spending affects your budget, normalizes regressive behavior, and impedes reaching your financial goals.
The purchases are usually driven by fear and the desire to get whatever you perceive as scarce. Depressing? Absolutely. But there’s hope yet.
Understanding the scarcity mindset and its effects is the first step in reframing the cognitive pattern. Reframing thought patterns consists of turning recurring negative thoughts into positive ones. Positive thinking then shifts the mindset to abundance.
An abundance mindset is the belief system that you can get whatever you seek in life, and that there is plenty of it available for everyone. This mindset ultimately leads to better decision-making, especially on financial matters.
You struggle to save money.
Running on a fear-based scarcity mindset might overshadow important setting and reaching money goals, such as building an emergency fund or planning for early retirement. It also interferes with your ability to save in general. You might notice one or more of the following:
- you don’t have an emergency fund at all.
- you don’t regularly or automatically transfer money into a dedicated savings account.
- you don’t have a retirement account.
- you don’t budget or track expenses at all.
- you tend to rely on credit for many expenses.
The tricky part is, even if you want to save money and always intend to because you know it’s the right thing to do, it might be difficult to change financial habits because they are primarily psychological.
You don’t explore investment opportunities.
A scarcity mindset can also get in the way of exploring investment opportunities that could yield fruitful returns. Fearing financial loss and believing that opportunities are scarce leads to a reluctance in taking calculated and informed risks. It might prevent you from investing in any kind of project that could financially benefit you.
If you do choose to explore investment opportunities, always consider speaking to a professional advisor to make the most informed decisions.
How to break free from the scarcity mindset cycle
Changing a scarcity mindset is not easy. Here are some habits that might help you with the process. Even so, there is no guarantee these will lead to a permanent change, since this kind of mindset tends to be quite deep-rooted.
Recognize and catch yourself when you’re thinking negatively.
If you catch a negative thought, try to immediately flip the thought and think the opposite. Your brain doesn’t actually know the difference between thoughts and reality, so faking it til you make it actually does work in this case. Over time, “flipping” the thought will become natural and will likely lead to healthier financial decision-making.
Focus on abundance and gratitude.
Develop a routine that forces you to remember that opportunities and resources are ever-present and continually emerging. Whether it’s reading or writing financial affirmations every morning or night time, reaffirming your belief systems is the key to changing your mindset for the long term.
Whenever I am going through a rough patch, I turn to gratitude. Gratitude has never failed me and is the highest vibrational energy in our world.
Feeling gratitude for your current situation helps redirect your thoughts from scarcity and toward abundance. Regularly focusing on the positive aspects of your life, no matter how small, can make all the difference.
Create a financial plan for yourself.
Simply writing down your financial goals on paper can provide a better sense of control over your finances. From there, you can start to carve a path by tracking expenses and automating debt payment and savings. Setting clear goals, learning how to achieve them, can empower you to take small steps and instill confidence in your financial journey.
Even if you slip from your plan or abandon it altogether – there is always room to restart or refocus, to try something new when something is not working for you.
Over time, you will begin to consistently make financial choices that align with your long-term money goals.
Never stop learning.
Learning something new as often as possible, no matter how small, empowers you to make more informed and less impulsive decisions with your money. Read books and blogs, stay curious about your money, Google search any questions, watch informative videos, and listen to podcasts.
There are endless resources out there to help you along your journey to financial freedom. Gaining knowledge about your circumstances and the potential for your future eliminates fear, and gives you the tools and skills you need to succeed.
Wrap-up
In conclusion, I hope that recognizing the effects of a scarcity mindset fuels you to make changes sooner rather than later. Just that first step of recognition can help you shift to an abundance mindset over time.
There is enough for everyone and you have the power to change your financial destiny.
Thank you so much for reading my article! Check out the rest of the blog for more personal finance guides and tips!