Quick note before we start: This article explores the psychology of money and how our thoughts influence our financial outcomes. It is for educational purposes and is not personal financial advice.
Most people think that being “good with money” is about being good at math.
It’s not.
Personal finance is 20% head knowledge and 80% behavior. As Morgan Housel famously wrote in The Psychology of Money, “Doing well with money has a little to do with how smart you are and a lot to do with how you behave.”
If you want to change your bank account, you first have to change your brain. Here is how to rethink your relationship with money.
1. Scarcity vs. Abundance: Which Side Are You On?
Your “Money Mindset” is the internal filter through which you view every financial decision. Most people fall into one of two camps:
- The Scarcity Mindset: You believe there is a “finite pie.” You focus on what you lack, fear losing what you have, and view every expense as a threat. This often leads to hoarding or, paradoxically, impulse spending because “the money will be gone anyway.”
- The Abundance Mindset: You believe that your earning potential is flexible and that opportunities are everywhere. You focus on growth, learning, and long-term value.
The Shift: Instead of asking “Can I afford this?”, start asking “How can I create the value needed to afford this?” Scarcity is about boundaries; Abundance is about possibilities.
2. Identify Your “Money Scripts”
We all have “Money Scripts”—unconscious beliefs about money inherited from our parents or childhood. Common scripts include:
- “Money is the root of all evil.” (Leads to subconscious self-sabotage).
- “I’m just not good with numbers.” (A self-fulfilling prophecy).
- “Wealthy people are just lucky.” (Dismisses personal agency).
Action Step: Write down the first three things you remember hearing about money as a kid. Do those beliefs serve you today? If not, it’s time to write a new script.
3. Stop “Budgeting” and Start “Conscious Spending”
Budgeting often feels like a restricted diet—it’s about what you can’t have. This triggers a deprivation response in the brain, which usually ends in a spending binge.
Author Ramit Sethi suggests a different approach: Conscious Spending.
- Spend Extravagantly on the things you love.
- Cut Costs Mercilessly on the things you don’t.
When you give yourself permission to spend on what truly brings you joy, you no longer feel the need to “cheat” on your finances.
4. Beware of the “Loss Aversion” Bias
Psychologically, the pain of losing $1,000 is twice as strong as the joy of gaining $1,000. This is called Loss Aversion.
In the investing world, this bias causes people to sell their ETFs when the market drops (to stop the pain) or avoid the market entirely. To think differently, you must accept that volatility is the fee for admission to long-term wealth, not a fine for doing something wrong.
5. Practice “Pay Yourself First” as a Mindset
Most people pay their bills, buy groceries, go to a movie, and then save “whatever is left.” Usually, nothing is left.
Thinking differently means treating your TFSA or RRSP contributions like a non-negotiable bill. By automating your savings, you remove the “decision fatigue.” You don’t have to be disciplined if your system is disciplined for you.
The Reader Takeaway
Your financial success is driven more by your perspective than your paycheck. By shifting from scarcity to abundance, identifying your limiting “money scripts,” and focusing on conscious spending, you take the power back from your emotions and give it to your future self.
Next Step: Ready to put this mindset into action? Start by organizing your accounts correctly. Read our guide: Investing for Beginners in Canada: A Step-by-Step Guide.
Full Disclaimer
This article is for informational and educational purposes only and does not constitute financial, psychological, or tax advice. Personal finance involves risk and individual circumstances vary. Please consult with a qualified professional before making significant financial changes.
