This is the first part of this six-part series, where these topics will guide those who have just started to work or have just started their journey to build a strong financial foundation. Before we set out to achieve anything, it always starts with our mindset.
How do you know what your money mindset is? It’s how you feel about and view money. It helps to form your decisions on how you manage money by saving or spending it. How you believe money can work for or with you, will decide how you live your life in the future. Every single day, you’ll make many small decisions that will push you forward financially or set you on a reverse course; it’s entirely up to you!
Some of the great money mindsets are listed below:
- I have the ability to spend but I also empower myself to say “No”
- Everyone has their own path and I have mine
- Achieving financial goals are possible when I work towards them
As Henry Ford said, “Whether you think you can, or think you can’t – you’re right.”
Here are three ways to improve your money mindset:
1. Money is a tool, not a goal
Think of money as the fuel to your car. Is fuel considered the destination or is it one of the raw materials needed by your car to bring you to your destination?
If your answer is the latter, that’s correct! We exchange our time, energy and skills to earn money to buy us the things we need or want. Through your various life experiences, you may think that money is the answer to everything, but this isn’t true if you don’t know how you would like money to help you in life.
When you start seeing money as a tool, it’ll help you think about what your actual goal is. A simple goal could be living a life filled with fun and joy, where you enjoy travelling and eating – this will require money in order for you to fulfil this goal.
As you start setting goals for yourself to aim for, they also provide a purpose for your money to work on and naturally, you will start allocating your money to where it should belong.
2. Money needs to be managed
Did you know that most winners of the lottery actually end up losing all the money they won and go bankrupt in a few years? This is hardly surprising because if a person doesn’t know how to manage RM1,000, then they will definitely not know how to manage RM10,000. The same logic also applies to you. If you work smart and hard to earn the money you have, why not take the initiative to learn how to manage, allocate and save your money?
You can set up a few accounts to save and segregate your money. For starters, these could be a savings account, fixed deposit and money market. Although these accounts may not serve as long-term wealth builders, you can use them to practice saving what you earn. When you continue practicing this, it then develops to become a habit.
Assume your total take home pay for the next five years of working is RM200,000. How much do you think you would like to keep from this amount? Would you like to save RM20,000 or RM40,000 or even more? What you want to save entirely depends on you.
3. Using money is like two sides of the same coin
The “opportunity cost” or “trade-off” is defined as the loss of alternative choices when you make a decision on how to use your money. This is the same thing that happens if you flip a coin – it either lands on heads or the tails, and never on both sides.
For example, let’s say you decide to save RM10,000 every year from your take home income of RM50,000. By saving this RM10,000, you gain additional money in your savings account. However, you may miss out on having more fun by travelling, purchasing new gadgets, or buying new furniture that you might want to have.
Before making any decisions regarding money, learn to think about the potential opportunity cost or trade-off that you have to make. Will it be something you’re willing to miss out on? Would the trade-off matter in the years to come? Would your decision help to build the life that you want in the future?
If the decision isn’t urgent and involves an amount of money that’s a lot to you, and you’re not comfortable making it, then don’t. There is no harm in pausing and thinking through or seeking opinions from the financial planners that you know. For all you know, you may have just saved yourself from future troubles if the initial decision goes against you.
Finally, improving your mindset isn’t a “been there, done that” type of destination. It’s a continuous effort to enhance and practice, just like how we build our body muscle, otherwise our body muscle will slowly turn into…body fat.
Stay tuned for my next topic in this series!
About the author
Fong Woon Bing is a licensed financial planner who has coached, improved and broadened the mindsets of many people whom he works with, bringing them closer towards achieving their life and financial goals. He can be contacted at firstname.lastname@example.org