Financial Planning

In times of stress, we sometimes fall back into patterns that worked for us in the past, but maybe don’t work so well for us in the current times. 

Often, we may self sabotage by creating financial situations for ourselves that replicate patterns we experienced in childhood.

Do any of these scenarios look familiar to you?

• Jennifer can’t stop overspending on credit cards, creating a sense of financial instability in adulthood through a cycle of spending, paying off, spending
• Susan buys all the latest toys for her child so her child doesn’t experience the feeling of “not having” what the cool kids have, which Susan herself experienced in childhood
• Amy refuses to spend any money, even at the detriment of her own health, under the assumption that she has to save every penny in fear that she will run out like her family did years ago when her father lost his job

Stressful times can bring out more old, unhelpful behaviors related to money.  A scarcity mindset can be the deeper issue underlying these behaviors.

Scarcity vs Abundance Mindset

Most people are deeply scripted in what I call the Scarcity Mentality. They see life as having only so much, as though there were only one pie out there. And if someone were to get a big piece of the pie, it would mean less for everybody else.

The Scarcity Mentality is the zero-sum paradigm of life. People with a Scarcity Mentality have a very difficult time sharing recognition and credit, power or profit – even with those who help in the production. They also have a very hard time being genuinely happy for the success of other people.”

Stephen Covey, The 7 Habits of Highly Effective People

The underlying idea behind the Scarcity Mindset is that there isn’t enough to go around, and there will never be enough.  There’s only one raise at work and it one person gets it, no one else can get it.  My income will go away if I don’t spend it now. Go on the vacation now, because I’ll never have another chance to do it later.

The Scarcity Mindset can create sadness and jealousy. If someone else a raise, I didn’t get it. Someone else found a person to marry, and I didn’t.  A feeling of jealousy and sadness can arise as a result of someone else getting that which you should have gotten.

The Scarcity Mindset focuses on the extreme short term of every decision. What is the most fun option right now? How can I use up all the resources right now so they aren’t taken away from me later?

With a Scarcity Mindset, you can feel an urgency to spend your income as soon as you get it, before someone or something takes it away from you – such as taxes, “the man”, or even losing it in an investment.

Contrast this with the Abundance Mindset

“The Abundance Mentality, on the other hand, flows out of a deep inner sense of personal worth and security. It is the paradigm that there is plenty out there and enough to spare for everybody. It results in sharing of prestige, of recognition, of profits, of decision making. It opens possibilities, options, alternatives, and creativity.”

Stephen Covey, The 7 Habits of Highly Effective People

The Abundance Mindset essentially believes that there is enough for everyone, and there will always be enough.

A characteristic of the Abundance Mindset is its focus on the long term. Just because you don’t get to have something right now, doesn’t mean you will never have it later. Skipping the awesome vacation right now doesn’t mean you will never get a chance to go on vacation again.  Someone else getting a bonus or raise doesn’t mean you won’t ever receive one.

The Abundance Mindset can create positive feelings towards others. You can feel happy and pleased for another person’s successes, because what they received is not taking away from what you have.  Another person having a good relationship doesn’t cause pain for yourself – instead you feel genuine happiness for that person.

It makes sense that an Abundance Mindset can make personal finance much easier.  When you’re focused on the long term and feeling that there is enough to go around, you don’t feel the need to spend money as soon as you get it.  There will always be more of it, and there will always be enough.  You become less paranoid and afraid of investing or paying taxes.

Here are some tips on creating an Abundance Mindset

1. Create a gratitude practice at beginning and end of each day. Use an app (such as 5 minute journal) or a physical journal.  Even send a daily text message to a friend.
2. Organize your home and life. Clean out your closet, garage, kids room, storage locker. When you Marie Kondo your space, you can feel appreciative of all the things you have that you love, and feel a sense of gratitude that you have so much that you can give some of it away. When you create a new organization system for your papers, business receipts, or other important papers, you are reminding yourself what’s important and can feel accomplished as a result of getting organized.
3. Call a friend or loved one to tell them you appreciate them. Taking action on your feelings of gratitude can make all the difference.

“During the loneliest week of my life, I made a list of the people who mattered most to me. Then I wrote them each a note about what I appreciated most about them. Feeling grateful is good, but showing gratitude is better. Voicing the unspoken can remind us we’re not alone – and strengthen our connections.”

Adam Grant, organization psychologist at Wharton School of University of Pennsylvania

4. Reduce your media consumption and get outside. Feeling anxious and worried is understandable because we don’t know what horrible news we will hear about next.  Backing away from media consumption and getting outside can help you to feel appreciative of your health, the loved ones around you, sunshine and the birds chirping.

5. Share what you have with others. Feel good about what you shared/how you brightened someone else’s day.  Most of the time, you don’t even miss what you shared/gave away. Besides things, you can also share knowledge and time.

We are living in times like we have never before experienced.  It might be time to step away from some of those behaviors, financial and lifestyle, which are no longer serving us – and move towards new patterns that cultivate what’s important in our lives.

In this article, we consider how psychology and softer sciences play a role in financial planning

Financial planning as a liberal arts based profession

Here’s a quote that for me, sums up so much of what I love about the art of financial planning. It’s from Dick Wagner’s book, “Financial Planning 3.0”.

“If we consider financial planning to be a liberal arts based profession, we need to know a lot about a lot, and then we need to know how it all fits together. Our client relationships and professional undertakings require us to engage in work and conversation encompassing geopolitical realities, the ever-unfolding miracles of the physical sciences, the anticipated tragedies of global warming, potential pandemics and peak oil as well as the mysteries of the spirit and multiculturalism. They take us all the way into the most intimate details of an individual’s personal aspirations. To work effectively with their money, we must grasp their most cherished family relationships and personal relationship with the divine. Our work requires us to see into the future even as we understand and appreciate the past. It forces to us to understand how intangible forces influence the survival of six and a half billion souls on a vulnerable planet. Face it, this work calls for wisdom and understanding on a par with any other profession or sensitive undertaking. No other profession needs more depth and breadth as essential aspects of its training and daily work.”

I recently heard an interview with a person who teaches financial planning classes at the university level, who recommends all her students take psychology classes. You may have the best financial analytical skills around, but you will have a hard time helping others with financial planning if you can’t communicate and understand why they make the decisions they do around money.

I feel strongly that my liberal arts degree has been a benefit in this profession. My degree taught me how to see the big picture; evaluate research and solve problems; how to communicate with others orally and in writing; what motivates people to make decisions, and more.

So much of our behavior around money seems to come from a place of emotion or deep-seated fears/anxieties around money. Here are some things I’ve heard clients tell me about money:

We never had enough growing up so I think I won’t ever have enough.

My parents always fought about money so I do everything I can to avoid money conversations with my spouse.

Money affairs should be kept private and not shared with anyone, even my spouse.

My mom lived check-to-check, racking up credit card debt while I was growing up so I don’t see any other way to be.

My dad was money-obsessed, so I’ve taken a different path. Maybe I should have learned a little more from him about money.

As an integral part of my practice, I strive to understand my clients’ emotions around money. I try to ask open-ended questions in my client interviews to help get at these underlying feelings around money. Questions like, How do you feel about the amount of money you have? How does your perspective on money differ from your spouse’s? What would you like your children to learn about money? What was your earliest memory of money?

I also try to let there be space in the conversation to allow my clients to feel comfortable to talk about what’s important to them and why. I find that when a safe space is created, people are willing to share these deeply personal feelings about money.

Ultimately, money is usually a means to an end. I think the way we use our money should be aligned with our life’s goals. I love learning what my clients imagine their life could be in the future. And I am so grateful that I have a chance to play a small part in helping them get there.