Are you trying to understand the psychology of money? Have you been searching for the meaning of the psychology of money and how it applies to you?
You’re in good hands because in this article, I will explain to you what the psychology of money is and how you can use this knowledge to your advantage and even grow wealthier. Below is an outline of what will be covered.
-Overview of Psychology of Money (POM)
-How to use POM to Grow Your Wealth
-Data Insights
Overview of Psychology of Money
Psychology of money is how people behave with money. A person with all the advantages in life and rich background can still underperform a person with all the disadvantages in life from poor backgrounds.
Why is this? It is based on how we view money and behave that determines our success and how far we make it. Sad but there are high income earners that have made a lot in their working career but end up broke because they spend every penny they have.
You also have low or moderate income earners that exceed high income earners in net worth because they view and behave differently with money. Often they save and invest large portions of their income or for low income earners they save whatever they can and overtime build large fortunes.
An example of this, there was a man who was a parking lot worker, Earl Crawley, who never made over $12 a hour that amassed a fortune of $500,000. He was frugal and saved and invested.
It took him decades but he was able to establish and grow his wealth. It took him about 44 years to build this but his investments were in stocks and other related paper assets.
Yes, it took a long time but that beats being broke at the average age of retirement which often most people are.
To speed things up if you’re not willing to wait that long is focus on earning more money and saving more money as the same time.
The psychology of money here shows that Earl took the time to get help from financial advisors and made a financial plan and stuck with it until he reached his goal.
If you’re not sure how to allocate your money for assets read this and develop a plan for yourself.
For the complete guide to wealth creation read this article.
For the basic rules of building wealth check out this resource.
How to use POM to Grow Your Wealth
As stated before, the psychology of money is how people behave with money. In other words, it is how a person thinks and acts with their money.
Poor peoples’ way of thinking is centered around instant gratification with little or no thought for the future of their financial lives.
Poor people think of money as hard to come by or not that important and it shows in their behavior because they buy things they cant afford and over spend.
Also, these people do not know the difference between a asset and a liability.
They buy liabilities which takes them further in debt or drains more money from them. These people are not disciplined in healthy personal finance habits.
Poor people don’t position themselves to succeed and often don’t care where they end up and use their own flawed thinking to justify their behaviors.
There are universal laws that govern ways to build wealth, it starts in the mind then moves to action and is focused on tactics for growing wealthy.
If a person doesn’t become wealthy then it is because they didn’t learn how to and never sought out ways to be wealthy or they know how but do not act on their knowledge.
In total, poor people have a bad belief system when it comes to the psychology of money which leads them to do things to sabotage their chances of building wealth.
Here is an example, a poor person or poor minded can be given a million dollars and then they go buy cars, jewelry and houses with a whole bunch of things that don’t help them grow richer.
On the other hand, a rich or rich minded person is given a million dollars they save a percentage of it and use the money wisely in a way that helps them earn more money. The million dollars would be used to purchase or create assets.
Assets include businesses, cash flow real estate, paper assets and commodities. This fundamental difference is what separates the rich from the poor.
Because the rich have a good belief system in the psychology of money they have good habits which include saving money from their income consistently, acquiring assets, minimizing taxes and focusing on earning more money.
You can use the good habits of the rich and your understanding of the psychology of money on a positive note to develop the same thoughts of wealthy people even before you become wealthy.
Once you think like them it needs to reflect in your actions with your money.
This is the magic formula for using the psychology of money to your advantage and to grow your wealth and personal power.
Other resources and articles include:
How & where to start budgeting? How to find financial advisor?
Best books to read for personal finance
Data
Money should not effect your thinking and happiness but there are studies to show how money affects the mind.
From the TED Blog social psychologist Paul Piff provides case studies on money impacting the mind. There were six findings.
(1) We rationalize advantage by convincing ourselves we deserve it (2) People who make less are more generous on a small scale(3) People who make less are more generous on a large scale (4) Rich people are more likely to ignore citizens (5) Poverty impedes cognitive function (6) those with less are better at facial expressions.
I’ve seen studies that counter these studies but in the end its how you view it in your own way.
Data from the Brookings Institute, a non-profit organization, shows data on how a person’s happiness increases as their income rises.
Below is a chart from Brookings organization but shows the level of satisfaction among nations as the GDP rises.
It shows the nations but it also is true for the people that make up the country so the people as they earn more they are happier.
Source: Brookings Institute.
The most satisfied people are those earning the highest incomes. Of course, there are case were this is not 100% true but most people who earn more are often happier.
Next Steps:
(1) Define what the psychology of money means to you
(2) Train your mind to think of money as neutral and a tool to allow you more freedom
(3) Focus on earning more
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