When it comes to managing finances, general advice says we should budget out for expenses and save the rest for a rainy day. This money mindset ensures we’ll always have enough cash for the things we need as well as the things that matter to us most.
But does this “playing it safe” approach we’ve been told about for so long really help us reach our financial goals? Sometimes rewiring our financial mindset to be less limiting can help us better achieve success, argues business coach Jason Drees.
“We tend to focus on the past… setbacks, failures and missteps, and budget with the belief that those things will happen again,” Drees says. “When we remove these beliefs from our planning, we open the door to greater financial opportunity.”
With April being Financial Literacy Month, Select spoke to Drees, author of the upcoming book, “Do the Impossible: Unlock Your Full Potential with the Power of Mindset,” about four of his money mindset shifts that pay off in the long run.
1. Stop “saving” your money
When we think of saving money, we’re often operating from a scarcity mindset — you may instinctively say to yourself, “I need to save because I don’t have enough.”
Drees suggests shifting that thinking to operate instead from an abundance mindset, instead saying to yourself, “I have enough money to put it somewhere it can become even more,” and putting those funds away into an account to collect interest. In other words, think of your savings as extra money you have to proactively grow for your future needs.
“The process of saving money for a rainy day is operating from a mindset that something bad is going to happen,” Drees explains. “Instead of the actual tactical piece of ‘what I actually do with my money,’ we want to operate from the point of view that, ‘I have money, I’ll make more money, it’s easy to make money’ and then follow the investment direction that’s most interesting and exciting to you.”
For starters, this may just look like putting your money into a high-yield savings account where you simply earn more interest than with a traditional savings account — and with no additional strings attached. One top high-yield savings account to consider is Marcus by Goldman Sachs High Yield Online Savings, which offers no fees whatsoever and easy mobile access, making it the most straightforward savings account to use when all you want to do is grow your money with zero conditions. Other solid options from big banks include the American Express® High Yield Savings Account and the Barclays Online Savings account.
Keep in mind, however, that there is such a thing as having too much money in your high-yield savings account. With rising inflation, you’re not keeping up with the cost of living so in the long run, your cash loses its value and purchasing power. One solution is to maximize the amount of money you can earn by simultaneously putting some of it into the stock market.
Luckily, these days you don’t need to be a market guru to invest. Consider using robo-advisors, which are low-cost software platforms that use computer algorithms and data to invest on your behalf. You don’t have to raise a finger since robo-advisors automatically rebalance your portfolio from time to time based on factors like your risk tolerance and market conditions, among others. Some of our favorites include Betterment, Wealthfront or monthly membership services such as Ellevest.
2. Break through your financial comfort zone
Many people live in what Drees defines as a financial comfort zone, which is largely based on what their parents earned. But what your parents earned when they were raising you versus what you can potentially earn today are two drastically different things. Drees argues that by imposing these limitations on ourselves, we can end up subconsciously sabotaging opportunities to grow and out-earn our parents.
The first step in breaking through your financial comfort zone is to recognize this very pattern. Drees then suggests shifting your mindset and beliefs around money, thinking instead that money is not the root of all evil but a good thing that brings you more time, resources and choices. This may also entail believing that your family will still love and accept you even if you earn more.
“When you’re growing, there’s going to be a little discomfort,” Drees says. “There’s going to be a feeling of growth and expansion. When you lean into that discomfort as you expand, then you normalize that new level.”
3. Develop a “rich person mindset”
We often look to the wealthiest individuals to see what money habits they have that we could possibly also adopt. More than just their actions, however, consider their financial mindset, or how they think about their money.
According to Drees, having a “rich person mindset” may mean starting with a basic budget but believing that your next source of income could come from anywhere.
“They often bet on themselves, eliminate the ‘rainy day fears’ and hold money in high-yield accounts knowing their money will grow,” Drees explains. This point brings us back to money mindset shift No. 1, where we addressed putting funds in high-yield savings accounts as well as into the market.
4. Determine your “financial freedom” numbers
Once you realize that you no longer need to play it safe with your finances, you may feel empowered to finally start that side business you’ve been thinking about or pursue passive income ventures like real estate investing.
As you shift your mindset, however, Drees recommends figuring out ballpark ranges for what he calls “financial freedom” numbers:
- The essential number, which represents how much you need to live, including high-priority debts like your mortgage or rent, car and insurance payments and utility bills.
- The comfortable number, which represents how much you need to live comfortably, including the essentials, plus other fun things like travel, entertainment and dining out.
Figuring out dollar ranges for these two categories will help you set financial benchmarks for how far you can go when straying from playing it safe with your finances.