Change Your Financial Mindset

Do you approach the world with an attitude of scarcity or abundance? Changing your mindset could change your life--and especially your finances--forever.

There’s being broke, and then there’s feeling broke. When you don’t have enough money to cover your bills or put food on the table, even if that period of your life only lasts a short time, it can cause lasting damage to your financial mindset.

Living paycheck-to-paycheck is so normalized in our society that many of us don’t ever question whether we’re actually broke or simply caught up in a dysfunctional cycle. Here’s how to tell the difference–and what to do about it.

A Paycheck-to-Paycheck Life

payroll check

According to You Need a Budget, about 80% of people live paycheck to paycheck. That means they spend their entire take-home pay by the time the next check comes in. Sometimes, way before. They don’t have savings for a rainy day; in fact, to them, it’s always raining. It’s been raining so long that they can’t even remember what a sunny day feels like.

When you have no financial safety net, it’s understandable that life feels precarious and stressful. The threat of not having enough money for groceries, utilities, or housing is always looming in the background. Even worse, people stuck in this cycle tend to defer maintenance and healthcare until an emergency strikes, wiping out any savings they might have been able to scrape together–or sinking them deep into debt.

Breaking this cycle is not easy, but it’s possible. The first step is figuring out why you’re stuck living paycheck to paycheck. Are you truly not making enough money to meet your basic needs–or are you living above your means?

If you aren’t making enough to survive, then that’s an urgent problem with several potential solutions, including changing jobs, starting a side-hustle, selling things you no longer need, or seeking help from agencies so that you can stabilize your finances.

However, most of the people reading this post are probably in the second group of people. You could comfortably make ends meet, yet you’re constantly feeling frustrated, resentful, or worried about money. Let’s find out why.

Living Above Your Means

a concerned woman looks at credit cards she has accumulated a lot of debt on

In a perfect world where you had enough money for anything your heart desired, how would you live? Would it be all fast cars and mansions and gold hot tubs, like MC Hammer? Even the wealthiest people in the world can lose everything when they live above their means. In a culture where self-worth is tied so closely to net worth, where we are encouraged to measure our success by conspicuous consumption, lifestyle creep is a real problem for many of us.

Lifestyle creep describes the gradual way spending habits outstrip income over time. The idea is that the more money you earn, the more you’ll spend. Whether you’re trying to “keep up” with friends and family or just treating yourself a little too often, it’s easy to find yourself still feeling broke even when you’re earning what is objectively a good salary.

According to NerdWallet, one of the biggest risks of lifestyle creep is eroding your savings long before retirement. While you’re working, your goal should be to live sustainably and well below your means. Sink all the money you’re saving into long-term investments that will grow your wealth over time–and resist the temptation to put anything on credit if you can’t afford to pay it off in full that billing cycle.

The temptation to live above your means is hard to avoid. The pressure to buy a bigger house or a newer car is ever-present, from pop culture to coworkers to your own family. “Keeping up with the Joneses” has become even more of an epidemic thanks to social media, where success looks a lot like tropical vacations, Louis Vuitton accessories, and massive luxury homes.

Even when it’s all fake.

If Warren Buffet can happily live in the same modest Omaha home for the last 62 years (true story), then you, too, can learn to live within your means.

The Scarcity Mindset

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If you complain about being broke even though you earn enough to cover your bills, then you don’t actually have a money problem. You have a mindset problem.

Stephen Covey introduced the idea of scarcity and abundance mindsets in The 7 Habits of Highly Effective People, his classic self-help bestseller. People with a scarcity mindset are convinced that there isn’t enough to go around. Not only that, but they think other, less deserving people are actually getting more than them. The world becomes a zero-sum game where everyone needs to compete for the biggest slice of the pie they can get their hands on.

A mindset of scarcity can become a self-fulfilling prophecy. You become convinced that not only do you need more (always more!), but that other people are taking what should be rightfully yours. Of course, you probably aren’t thinking of it in those terms. Instead, you’ll spend a lot of time being angry that other people seem to get all the breaks.

That promotion you want? Somebody else will probably get it. And even if you do get it, the raise wasn’t as much as you deserved. You’ll always think of yourself as being broke, no matter how much money you make. And with that mindset, you’ll spend the cash you should have been saving on things that will keep you living paycheck to paycheck.

Whether you’re running up credit cards for big-ticket purchases to prove to the world that you’re not broke or wasting cash on little luxuries to make yourself feel better for being broke, the result is the same. Your scarcity mindset locks you in a prison of anxious, jealous thoughts about money. You could win the lottery tomorrow and still complain that it wasn’t enough.

When you’re stuck in this mindset, you’ll never be truly satisfied because someone else will always have more than you. Because you’ve already decided that you’re broke, you won’t ever feel rich.

The Abundance Mindset

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You might think that minimalists–people who choose to live simple, pared-down lifestyles–might possess a scarcity mindset. After all, they have like, two pairs of shoes and live in a converted shipping container! At least you have a real house.

But for many minimalists, the opposite is actually true. They experience a deep sense of contentment and approach life from an abundance mindset. Because they believe there will always be enough, they (ironically) don’t need as much stuff to feel safe.

When you have an abundance mindset, you can finally stop wasting your energy on pointless worrying about money. While actual poverty can have a measurable impact on people’s brains (equivalent to losing 13 IQ points, according to a study cited by The Harvard Crimson), a poverty mindset can have a similar effect.

You start planning ahead instead of desperately paddling to keep your head above water. You prioritize maintenance and prevention over waiting for catastrophe to strike. And you become more satisfied with what you have right now instead of constantly wanting more.

Sounds great, right? So how do you make the shift from being a broke-minded person to one who embraces abundance?

Break the ‘Broke’ Cycle Once and for All

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Becoming a rich-minded person won’t happen overnight, especially if you’ve been dealing with a scarcity mindset for years or even decades. Like all meaningful change, it takes time. You don’t have to do everything on this list perfectly all the time, but the more you can replace your negative habits with these positive ones, the faster you’ll change your financial mindset for good.

Spend Mindfully

Do you know where your money goes? Broke-minded people complain about how their paycheck seems to evaporate into thin air, but the truth is that they’re just spending it a little bit at a time without being fully aware of what they’re doing.

Mindful spending is rooted in the idea that you should be aware of not only what you are buying but also why you are buying it. When you spend mindfully, you plan your purchases in advance and don’t fall for the instant gratification trap. You have a budget that covers basics, savings, and a modest amount for non-necessary spending.

As you grow into an abundance mindset, you’ll have an easier time holding onto that “fun money” instead of rushing out to spend it immediately. You’ll also short-circuit the cycle of spending too much right after you get paid and then panicking as the money starts to run out. If you dine on steak for the first three days after you get paid but live on boxed mac ‘n’ cheese for the last three days before your next check, then you need to embrace mindful spending.

Practice Gratitude

Why do we buy things we don’t need? That’s the question that keeps many broke-minded people awake at night, awash in a sea of guilt and shame. First, to move forward you need to forgive yourself. As you’ve seen in this post, there are a lot of reasons why we get stuck in the paycheck-to-paycheck cycle. Some of those factors, such as social media lifestyle inflation and 24/7 advertising, are out of our control.

Thankfully, you do have control over at least one thing in your life. You can choose to practice gratitude. Be thankful for what you have–and not just material possessions. Gratitude that arises from other sources, such as your loved ones or the beauty of nature, is longer-lasting and less likely to trigger another bout of scarcity thinking.

Don’t Compare

One way that the scarcity mindset sabotages us is by convincing us that we “deserve” nice things. No, not nice things–the best things! After all, doesn’t basically all advertising tell us that we’re worth it? Aren’t we as good as those people who treat themselves to designer clothes and buy their kids the best toys?

That attitude arises from comparison. Whether you’re comparing yourself to someone you actually know–a neighbor, a friend, a coworker–or some idealized version of yourself where you have everything you deserve and more, this way of thinking is toxic. Stay off social media, or at least limit your exposure to it. If glossy lifestyle magazines or TV shows are triggering for you, then avoid them. If you always feel worse after having lunch with your wealthier friend, remind yourself that true wealth comes from an abundance mindset.

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