I am a big believer that your thoughts, or money mindset, plays a role in your financial success. This starts way back when you first form your money beliefs at a young age.
I read an article that said the Pew Research Center conducted a global study that found 70% of Australians believe their kids will be worse off than they are.
Similarly, the 2017 Deloitte Millennial Survey found that only a mere 8% of millennials believe they will be better off than their parents. And even worse only 4% think they will be happier.
This contrasts with Europe and the US where 36% of Millennials think they will be better off than their parents.
As Aussies, we now rank as some of the most pessimistic people in the world. Despite having the longest period of uninterrupted growth in the developed world.
Is the glass really half empty?
The happy go lucky personality that we used to be famous for, has been replaced with a country concerned. Skyrocketing house prices, low wage growth and underemployment as well as increasing political tension have culminated to create our pessimistic outlook.
These are all valid concerns, but they got me thinking. In terms of financial success, who has the better approach, the optimist or the pessimist?
The optimist versus the pessimist
The optimist is likely to be someone who focuses on growth and advancement. They see the positive in each situation and think everything will work out. Which at times can lead to them overlooking risks.
The pessimist on the other hand look at situations in terms of security and safety. Their thinking tends to go towards imagining the worst possible scenario. Which can hold them back in terms of taking action.
Different mindsets when buying a house
Let’s take the example of buying a house. The optimist is excited about the possibility of pursuing the great Australian dream and owning their own piece of paradise.
They keep their eye on the goal and this focus can be beneficial, as it can often take a long time to save up a deposit. So keeping motivated and optimistic can help to reach the goal. They are excited and determined to have the security of their own home.
The pessimist on the other hand might ask questions and have a list of worries. Do they have enough money to afford a large mortgage? Is it worth the sacrifice to save a deposit for so many years instead of spending money to travel? What happens if they lose their job? What if property prices take a downturn? What if they cannot pay for the cost of maintenance?
Whilst these questions have a negative focus, they can still be worthwhile thinking about. As they ensure you manage risk and are realistic about what home ownership actually entails.
When buying a home, neither the pessimist or optimist is right or wrong. Perhaps the best approach is to have a healthy mix of both.
Be excited about the prospect of having your own place. But also make sure you are realistic and assess the risks so that you can have a contingency plan in place.
Your thoughts impacts how you choose to invest
Similarly to the house buying example, your thoughts can also influence the way that you invest.
Take the optimist. They are steadfast in their thinking that their nest egg will continue to go up so are not afraid to take on risk.
Whereas the pessimist shy away from risk and as a result can keep their money in low return options. They are always thinking that a crash is coming having seen downturns before, including the GFC.
This can lead the pessimist to miss out on a lot of opportunities. All of a sudden they have been waiting ten years for a crash to occur and in the meantime have missed out on a lot of growth opportunities.
The best approach to investing is to be realistic. Be optimistic about your earning potential but perhaps stick to options that involve less risky speculation, unless it is an asset class that you understand very well.
The happy medium
Neither the optimist or the pessimist comes out ahead as a clear winner.
As with a lot of things, what seems to be the best approach is finding the right balance.
If you are too far in either camp your decision making could not be ideal. Irrational actions are likely to be made.
The best results are often seen by people who are a realist but with an optimistic outlook.
So they are aware of the risks involved to ensure they do their due diligence. And they don’t buy into silly get rich quick schemes.
They maintain a positive and upbeat outlook about the future as they are in control of their finances. They also are happy to see others succeed around them.
How can we turn our frown upside down?
Since we Aussies are such a pessimistic bunch, are there a way we can teach ourselves to be more optimistic?
For fellow millennials (yes I just scrape in), the one thing we do have going for us is very valuable – time. The power of compound interest can work its magic.
For example, if you are 20 years old and start to save just $50 a week by the time you are 60 you will have saved around $573,000. Based on an average return of 7.00 % p.a (which is about the 5 year return on a conservative index fund in Australia).
Plus, if we look at the global rich list, a single wage of $50,000 puts you in the top 1% richest people in the world. Suddenly you don’t seem to be doing quite so bad now hey?
Since I have had children, I also now know that even a few years ago I had a lot more spare time than I thought (Netflix binge anyone?). During this time I could have been working on side hustles.
Increasing the money coming in and diversifying so your income doesn’t come from one source is common among the wealthy.
I have noticed as I started this blog, that it has expanded my thinking and made me also back myself to do my marketing consulting and I have another idea on the horizon.
That’s the great thing about your mindset. When you come from a place of growth you will often think about ways to improve your situation that you had not considered before.
A matter of mindset
From the money books that made me a millionaire, you will see the common theme is they have a focus on how you think about money.
The psychology behind your money beliefs and how it impacts your financial future is something that has always interested me.
What I am seeing a lot of right now in Australia is pessimism taken to the next level. Where people are saying I will never own a home, I will never be able to retire or I will never earn enough. This type of thinking is what is sometimes called a poverty mindset.
People who are pessimistic a lot of the time have a poverty or scarcity mindset. They worry about how they will ever get out of debt, stress about the day to day bills and blame others for their current position.
They look at someone who is doing better and think it’s easy for them, they never have to worry about money.
I am not perfect. I sometimes find my thoughts heading into jealousy territory. Particularly as I start my blog and marketing freelance business. I see people making big money and wish that was me.
But when I catch myself thinking this way I go back to rational thought and remember they are ten steps ahead of me in terms of their business. And I instead use their stories as inspiration for my growth.
One of the main differences between some who has a poverty mindset and someone who has a prosperity or growth mindset, is that the latter group take responsibility for their thoughts and their mistakes.
They use them to grow and move forward, which allows them to quickly move out of a rut.
You will often hear the richest and successful people talk about keeping a positive mindset and focusing on it regularly. They have developed mind tricks to keep them on a growth trajectory.
I am not a big fan of the really fluffy stuff of asking the universe for it and it will come true kind of things. Because that missing the most important part of the equation – taking action.
But having some go to mind tricks to keep you in the right head space is a good idea. Bobby over at Millennial Money Man has a good mind trick where he replaced if with ‘when’. Which is a great way to wire your brain into a thought pattern of growth.
Or in the Rich Dad Poor Dad book where the phrase I can’t afford that is flipped on its head and changed to how can I afford that? Small changes to your thinking like that can have a large impact.
Watch your thoughts
Always being pessimistic or leading with a victim mentality can lead to limiting beliefs.
If you wait for your job, partner, the Government, the economy or any other external factor to improve before you start building wealth, you may always live in the week to week paycheck cycle.
If you want to create wealth, change your thoughts, don’t put if off and just start now. My Kick Start your Wealth free course is a great place to start.