Our Mindset and the Effect It Has On Our Finances

The older I get, the more I realize the impact our mindset has on every aspect of our life, including our finances. You know, what you think about, what you believe, and the way you go about making decisions and living life is a direct result of how we think. This is a very powerful thing to understand about yourself, and I hope you allow me the opportunity to explain why this has everything to do with your money and your future. We all know that there's no shortage of information and opinions on the topic of money. Turn on the TV and you're inundated with commercials, products, services, books, and seminars that are just screaming for your attention. And meanwhile, we're reading blogs, listening to podcasts, and hear friends and family discuss things you should and shouldn't be doing with money. It's really an overwhelming amount of content that seems impossible to sort through and understand. In fact, it said that the brain actually processes 400 billion bits of information per second. And it's estimated that we consume 34 gigabits of information per day. I mean, our brains are set to overdrive trying to sort through and make sense of what we are consuming. It seeks shortcuts as it associates information with something we're already familiar with. It's like an assembly line, grabbing things and throwing them into predefined categories you have already established for yourself. This process reduces the amount of thought that goes into figuring out what something means. It is only when something new comes along that we cannot categorize that we pause and seek just enough additional information so that our brains can get it categorized as quickly as possible. The challenge is that once you have created this association or pathway in your mind about something, it's difficult to redefine it unless you stop to consider what's happening. This is why, when it comes to money, people tend to lump much of what they think they know about money together into this mental dollar sign file. And anything that has a dollar sign associated with it, it gets thrown into it. In reality, this is more like a mental junk drawer full of mismatched information. The takeaway from all this is that a lot of what you hear about money may seem like it's all similar since it has a dollar sign, but the fact is that it's not. And unless you take the time to really understand what you're consuming, you run the risk of making mistakes and, of course, missing opportunities. And when you stop and think, to consider our mind's process and categorize information and is really quite fascinating. Can you imagine if everything we encountered we had to think about. I mean, we'd be paralyzed with data overload every second of every day. It's a good thing, but you have to be conscious of what is happening to avoid becoming complacent. And in order for us to learn new information, we must not be so quick to judge and assume we already know everything. Relying too much of what you already know or think you know, and not taking enough time to challenge your way of thinking, it's just simply a bad idea. For example, when you hear the term financial planning, retirement planning, or an investment portfolio, don't be so quick to assume all of these are the same thing. Because after you take some time to understand these different terms, you quickly understand that they're all very different. It's an approach to learning that takes you from immediately thinking, I already know that. To stopping and asking a few questions to see if maybe there's new information to be learned. For instance, if you do hear the term retirement planning before you assume it's the same as having an investment portfolio, why not ask the question, what makes this different from just having an investment portfolio? Why does it have a different name? This happens with financial planning topics all the time. People will hear the term financial planning and they assume they have it all figured out because they have a 401, they have a Roth IRA or some other investment. They confuse an investment with having a plan. Simply not the same thing. But a lot of people won't stop long enough to consider what they're missing. And quite frankly, we cannot blame this entirely on our brain's process for storing information. We have to consider the fact that investment people, the media and financial entertainers, they don't separate or properly define these things either. For them, it's all about making calculated investment decisions and accumulating money. And that's great, but that's not a financial or retirement plan. What they're describing is simply an investment plan. I've recorded entire podcasts on this, so I digress. The point I'm driving at is that you want to avoid being trapped in a bubble of your current thoughts and beliefs. You need to raise the curiosity flag and begin asking questions. There are three important points to think about here. You'll never know everything, so don't assume you do. You want to avoid sacred cows in your mindset. Things change and so should you. There shouldn't be things you consider non negotiable topics. Remove limiting beliefs that prevent you from believing things that really are possible, and then remain curious and challenge why you believe what you believe. To avoid hanging on to things you may believe are true but are actually false. And I can't tell you how many times throughout my life that I have had these aha moments. These thoughts of why didn't I see that before? How come I have never heard about this before or I never noticed that before? The older I get, the more I seem to have these thoughts and experiences I contributed to me becoming more aware of how much I don't know. And at times I can be like a three year old child just continuously asking why Now? A sure sign that you're closing yourself off to new information is if you aren't regularly challenged with these thoughts. If you coast along in life and don't seem to have many new learning experiences and you may want to begin cleaning out the mental junk drawer and sorting through what you think you know. When you begin to open up yourself to learning more, being curious and challenging what you believe, you develop a mindset that's rooted in facts that guide your financial progress. So how do you challenge a mindset and a belief that you have created for yourself and begin to challenge what you know? The first thing is to stop and think. This may sound like a really dumb idea until you stop and think about what I'm suggesting. We think all the time, right? But what are we thinking about? The average thought is rooted in fear, insecurities, worrying about something if we allow it. Our thoughts simply wander endlessly with no destination. The other thoughts we have are usually small, reactive decisions to get us through a day. What to wear, what to eat, what's next, what to watch, where to go, what to say. The problem is that if this is the majority of your thinking, there's no progress being made. You're no better off the next day than you were the day before. It's so robotic that most people don't remember what they wore, what they ate, who they talked to, or what they even said a week later. The kind of thinking I'm talking about is creative thinking. What do I mean by creative thinking? This is thinking about your thinking, thinking about what you believe and asking why you believe it. Thinking about your goals and strategically moving closer to them. Thinking about your thoughts and moving away from random daydreaming and more towards meaningful thoughts. You can think of this process as cleaning out the junk drawer. It's funny, when you clean out a junk drawer, you throw more than half the stuff away and wonder why you hung onto certain things in the first place. And the other thing about cleaning out a junk drawer is that you get this sense of satisfaction. It's a sense of organization. So the best way to begin cleaning up the information you have stored in your mind is to begin asking questions the next time someone makes a comment about someone or something. Instead of simply smiling and agreeing, ask questions. Smiling and agreeing is a passive response to avoid further depth of the subject. Instead, ask why do you feel that way? How did you come to that conclusion? What makes you think blank is right? Be curious, don't judge and don't assume. Let me challenge and ask you to write down all the beliefs you have about money. Everything that you have read, been told, have heard about other people saying, and things that you've hold on to as truth. Things you say to yourself, things you think about when you're making a financial decision. Include things you may suggest to other people or shake your head at when you hear someone say it. Just compile a list of these things right now if you can. Now, of course, if you're driving or doing something, just think about these things. But be sure to come back to this when you have a moment to write your thoughts down. This is the time to empty out that mental junk drawer to build an organized and meaningful mindset about money. This may take some time, so if you need to stop and create the list, then come back to pick up where you left off, that's fine too. You're probably going to find that your list is made up of things you have read or heard about. There will be some things that you have done or experienced. Whatever these things are, we will go through a process for testing its claim and have it earn its place in your mind. The biggest factor to all this is realizing how important this process is to your life. These things you are hanging onto in your mind are driving your behavior. They may even be things you are telling other people to do. I mean, there's a lot resting on this list, so we want to make sure it's right. Okay, so now that you have this list of beliefs and things you are hanging on to, let's begin to ask questions and challenge why you believe what you believe. You could begin by simply asking the question why do I believe? This is important. Just ask why to each of the ideas you have written down. Sometimes we hear things that sound good and hang on to the idea but have never acknowledged its meaning. Why does it matter? The next question to ask is what is it doing for you? What is the result of applying this to your life or situation? How is this useful for you? How will this make your life better? Remember in school when we were taught the scientific method to construct a hypothesis about an idea. If I do this, then this will happen. That is all we're doing here. You are formulating your reasoning and hypothesis for why you feel this idea is valid and the next step is to begin testing the idea. Looking at the list of ideas, ask yourself first of all if it has been tested or if it's just a concept. Is it something that sounds right or is it something where the math has been shown to support the claim? Have you or someone else been shown the math or support of the idea? Because showing the supporting math, logic and back tested claims for each idea on your list makes it true or false. The media columnists, financial entertainers. They're constantly spreading concepts and ideas about things and many of these things get floated around as truth but have never been tested. You will hear things like you should always do a 15 year mortgage to get it paid off as quickly as possible to save all the interest on a 30 year mortgage. You probably have heard that before. Well, even though this sounds reasonable and is often discussed as fact, the math doesn't support the idea. In fact, it's slightly the opposite. Now I've covered this in other podcasts and blogs, so I won't get into all the numbers and the details of it here. When things like this are shared, it is often assumed that someone somewhere did this testing to come to this conclusion, and because someone said it, it must be true. However, just because something sounds good or seems right doesn't mean it is. This is a serious problem with our society. Much of what we believe is true is actually false. People will say things to sound smart or say things that seem reasonable, but they really don't know if it's a mathematically sound idea or not. The obvious problem with this is that the person listening then holds it as truth. We are all collectors of ideas, experiences and emotions. You have heard me use the term financial entertainers in the past. There are many of them out there and all of them have a different angle they use in their messaging. What's fascinating to me is that they exist. At what point in our society did finance become entertainment? We see this with video games. There's something called esports where people will sit and watch someone play video games. It really blows my mind. I have a good client of mine who owns a softball field and he said to me recently that less and less people are playing softball. And what he's seen is that people will come to watch, but they don't play. They're fans of the sport, but they don't want to get involved with actually playing. Now really, we see this in sports, religion, school, cooking, and pretty much anything that we could be doing ourself but prefer to watch somebody else do it as we wait or we watch. Society has become a population of fans, spectators and consumers. Are you a spectator or are you willing to take time to test the financial ideas you have that are formulating your mindset around money? If you don't know where to start and don't understand the math yourself, we can certainly help. All you have to do is just let us know. That concludes today's podcast. Thanks for listening to the Common Sense Financial Podcast.