What is a 'scarcity mindset' and how does it affect your finances?
“I hope money will just fall into my lap."
"I'll deal with this later."
"If I just had $10,000 in savings, all my problems would be solved."
If you've ever thought, "Why can't this happen to me?" or "When will it be my turn?" or "If I just had … X," then, chances are, you've experienced a scarcity mindset.
Related: 5 emotional archetypes that cause us to spend — which one are you?
What does ‘scarcity mindset’ mean?
A scarcity mindset is when you feel there are insufficient resources or opportunities to go around. It’s being so obsessed with having a lack of something you wish was in abundance — usually time or money — that you find it difficult to focus on anything else. A scarcity mindset affects every decision you make because your brain operates on a set of beliefs that shape your reality. Believing you don’t have enough or are not enough affects how your brain functions, lowering your cognitive ability and intelligence while increasing impulsivity.
This type of mindset impedes logic and reason. Even if you meticulously monitor your budget or debt repayment plan, if you regularly think, "I just need to pay this off, then I can do the next thing," you’re unlikely to stick with it long term. Your budget becomes a reinforcement that you’re not “there.” By associating your money with an opportunity to “do the next thing,” you’re perpetuating the belief that your reality isn't good enough and that you need to pay off the debt as quickly as possible to be in a better place.
How do I know if this describes me?
As a budget coach, when I start working with clients, we don't touch their money until we work together to analyze their beliefs. A crucial part of my philosophy involves having my clients express gratitude for their current situation instead of running away from their discomfort. Too often, clients resent their finances and resent their debt and how they earn money. Resentment is one of the biggest obstacles to building wealth. In other words, we must learn to love and appreciate our money for it to work for us instead of against us.
Related: I was $70k in debt, and now I’m a money mindset coach. Here is my story.
A key indication that someone has a scarcity mindset is if they have an all-or-nothing approach to their finances. Clients sometimes tell me, "I have to get out of debt tomorrow," or "I can’t save while paying off debt. Some say they’re afraid to leave their job before they get out of debt.
What’s wrong with thinking this way? Isn’t it a good thing to want to get out of debt? Sure, but it shouldn’t come at the expense of making other kinds of smart decisions — like saving or getting out of a toxic work environment. Believing that you can't do something can send your body into a panic. We are programmed to react when we sense something is threatening our basic needs. But our bodies don’t distinguish between basic human needs (like water, food and shelter) and emotions, such as loneliness, or business presenting as genuine threats to our survival. We don’t like being told what to do, and when we believe we can’t do something, it signals that we are not free, which makes us feel powerless. Mindfulness around your decision-making is key to changing your mindset and improving your financial situation.
How you treat money is a direct reflection of how you handle life. Do you strive for balance? Do you navigate between effort and ease? Or do you react in the moment to emotional threats and allow your internal narrative to dictate your life? The answer for most people is that their beliefs are wreaking havoc over their decision-making. And it shows. Many Americans start accumulating credit card debt as early as college. In 2022, the average amount of credit card debt for Americans under 35 was $3,660.
Who (or what) is to blame for my scarcity mindset?
Another key indicator of someone with a scarcity mindset is how often they blame external factors for their financial reality. I’ve heard clients say, "You know, that recession in 2008 made it impossible for me to find a job in my field," or, "My parents never taught me how to handle money." Yes, those might be true, but there are plenty of other reasons you’re bad with money. These puzzle pieces make up your belief system for why you could, should and would be good with money. A person with a scarcity mindset cannot see the role those beliefs play in their spending, saving and debt repayment. An attractor, someone who takes their adversity and turns it into opportunities, sees those experiences as stepping stones to their desired life.
Related: How I’m unlearning my scarcity money mindset
When you blame external factors for your financial problems, you surrender your power to change your circumstances. You’re explaining how the world works according to your beliefs and accepting that you have no control or power to change it. By living in a scarcity mindset where you place blame, you can comfort yourself with false assurances that you are never fully responsible for the outcome. On the other hand, without claiming responsibility, you don't get to reap the rewards of an independent, financially secure life. If you're always waiting for something else to come along and decide your fate, you lose your right to define your future.
Adopting a scarcity mindset is easy. Depending on factors you truly have no control over — like how or where you were raised — you can mirror behavior that doesn't reflect your current reality. It is not uncommon for children or grandchildren to inherit a fear-based belief system around money because of generational trauma. And the presence of social media makes it easier still to fuel a scarcity mindset. It takes almost no effort to open up Facebook while you’re procrastinating work, see an acquaintance from college jumping off a waterfall on vacation to some beautiful remote island and measure your success using someone else's perceived image or inherited privilege.
Changing your circumstances is rarely easy. And even if you start today, your reality won’t change overnight. Accepting and trusting that things will improve over time can be a big hurdle to overcome on your financial journey. But by working on changing your mindset around money, time, things and people, you can improve your overall well-being. By taking ownership of your perspective, you can calm your nervous system, create strategic financial plans and begin to design the life you want.
Disclaimer: AJ Schneider is NOT a financial planner, attorney, accountant, therapist, counselor or psychologist. The information in this article and in the resources provided is for educational and informational purposes only. Before making any financial or investment decisions, we recommend you consult a financial planner. Beyond The Green Coaching and AJ Schnieder is not liable for any errors or omissions of information supplied in these materials.
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