Welcome to the 145th episode of the Alternative Investing Podcast!
In today's episode, I will discuss how to break free from a scarcity mindset holding you back so you can move confidently onto a path towards financial abundance.
If you want to improve your wealth psychology and have a healthy relationship with money, then make sure to listen to this episode!
In today’s episode, let’s discuss something I often encounter when talking to clients or potential clients: money mindset and scarcity.
When it comes to investing, I believe that your thoughts are even more crucial than your actions.
This idea is similar to losing weight, where some say that what you eat is more important than exercise, and the same goes for our thoughts as investors.
Many people, including myself, have experienced not feeling any richer despite having more money.
Even though your balance sheet is growing, you may still feel anxious about losing money or guilty about spending it on yourself.
The good news is if you change your thinking, you can identify your beliefs around scarcity and replace them with more positive ones.
As investors, we know that losses are a natural part of investing, and we can reframe our relationship with money to see it differently.
Ultimately, my goal is to help people develop a healthy relationship with money and pass that mindset on to their loved ones so that everyone can succeed as both human beings and investors.
The Story of Jack Welch
Many stories illustrate the concept of a scarcity mentality, but one of the best ones is about the former CEO of General Electric, Jack Welch.
Years ago, Welch had a heart attack and almost died.
When asked about the experience, he said that as he was being rushed to the hospital, he realised that he hadn't spent enough on the things that mattered in his life, despite having a lot of money and success.
After the incident, Welch decided to spend more on things that were important to him, like buying expensive wine, so he made a commitment to spend at least $100 on every bottle of wine he drank from then on.
Our relationship with money is complicated and can be influenced by our childhood and teenage experiences.
Whether you grew up in a wealthy or poor household doesn't matter. You can still have an unhealthy relationship with money.
The desire to have a healthy relationship with money is important, but it can be difficult to achieve because human behaviour can be illogical and emotional.
We may notice other people's blind spots when it comes to money, but they may not see it themselves, and the same can be true for us.
Our relationship with money is personal, messy, and emotional, and it's not always easy to understand.
When it comes to building wealth, a lot of focus is on the technical side of investing.
But there isn't enough quality information on identifying and overcoming our biases and limitations.
In Jack Welch's story, we can see that even someone with a lot of funds still had a complicated relationship with it.
How we spend our money actually reveals a lot about what we value in life, like who we want to spend time with and what kind of attention we want from others.
My Journey Mirroring Jack Welch's Story
In my family, getting an education was important to move out of poverty and was also seen as a way to show status.
Some people in my community showed off by buying fancy cars or homes. But I realised early on that I didn't want to do that.
I don't care about wearing fancy clothes or driving fancy cars.
Instead, I value having experiences that create memories and help me grow, and I don't think I'll get those things by just holding onto expensive possessions.
Before, my family didn't understand why I would go on a holiday instead of spending money on other things.
But I learned that I needed to ignore their opinions and instead focus on building a network of people who share my values and enjoy spending money in similar ways.
The 4 Keys to Leveling up as an Investor
In my podcasts, I talk about four important things to focus on to become a better investor.
The first is stewardship, which means taking care of your money and how you spend it.
The second is investment effectiveness, which means making smart investment choices.
The third is knowledge, including traditional education and wisdom from other investors.
And finally, there is the mindset, which is about how you think about money and investing.
These four things are all connected, and if you focus on improving in areas where you're weak, you'll become a better investor and have a healthier relationship with money.
In this episode, let's talk about the two parts of stewardship.
The first part is the science of spending, which includes finding good deals and budgeting.
The second one is an artistic side that can't be measured, varies from person to person, and is related to our values.
Being Conscious of "Why" You Admire Someone Rich
People's investment strategies are often not obvious, but how they spend their money is visible to others and can reveal much about their values and priorities.
While it's easy to admire wealthy people and want to emulate them, it's crucial to be conscious of why and identify the specific characteristics that you admire in them.
Let me explain with an example.
You might see someone who is very rich but is stingy with their money and has a mentality of scarcity.
Instead of wanting to be like them entirely, you can take away certain aspects you admire, such as their business acumen or how they invest their money. On the other hand, there might be someone who isn't ultra-rich but has a healthy and peaceful relationship with money.
So it's important to be conscious of why you admire someone in terms of their relationship with money and not just focus on their wealth alone.
My Client's Scarcity Mindset Story
A few years ago, I worked with a client who had multiple millions of dollars sitting in the bank but was very stingy and had trouble making good investment decisions.
They were very worried about money and felt unsafe without a certain amount of passive income.
Even though they seemed to have a good relationship with money on the outside, there was a lot of frustration and pain internally.
Everyone is different, and I want to tell you these stories to show that there are no strict rules about handling money.
Market cycles and other factors can affect our feelings about money.
After COVID lockdowns, some people started spending like crazy on things they had been deprived of, like hobbies or used cars. This is sometimes called "revenge spending."
But what I've noticed is that people who feel the need to show off their wealth through their spending (like fancy holidays or expensive cars) often have a sense of scarcity or a desire to prove they've made it.
I'm not saying this is you, but I want you to think about your own relationship with money.
If someone looked at how you spend, what would they say? And how much do you care about their opinion?
The reason I'm bringing this up as a topic is that I think scarcity and the scarcity mindset are something that holds people back from success.Yes, you can still be rich or financially independent, but having this thinking is like having sand in your shoe.
It won't stop you from walking but it will eventually hurt and limit your ability.
So if we can recognise and address the things that limit our performance, we can accelerate our journey towards creating the wealth we want.